State-owned enterprises (SOEs) have a key role to play in creating public value. And while government ownership can bring advantages, it can also destroy value if best practices in ownership and management are not applied.
These are some of the conclusions of a new report – State-Owned Enterprises: Catalysts For Public Value Creation? – which draws on the findings from a Pulse survey of 153 CEOs in January 2015, as well as PwC’s 18th Annual Global CEO Survey.
Jan Sturesson, PwC’s global leader for government and public services, said:
“SOEs are an influential and growing force globally. The proportion of SOEs among the Fortune Global 500 has grown from nine per cent in 2005 to 23 per cent in 2014. And while SOEs face many of the same opportunities and threats as private companies, they have a different purpose, mission and objectives, which relate to some aspect of public service and social outcomes.
“The future SOE will need to be much more actively owned and managed if it is to deliver real public value, and avoid competing unfairly in markets where private and third sector enterprises can deliver more efficiently and effectively the goods and services that citizens need and want.
SOEs should not be purely evaluated on financial reports, but on how they contribute to societal value creation
“In addition, SOEs should not be purely evaluated on financial reports, but on how they contribute to societal value creation – taking an integrated and holistic view to include a wider range of impacts including human, social, environmental, intellectual and infrastructural as well as financial dimensions.”
Other findings include:
• State-backed enterprises have many similar concerns as their private sector counterparts. According to PwC’s 18th Annual Global CEO Survey, common top five concerns include overregulation, the availability of key skills, government responses to fiscal deficit and debt burden and geopolitical uncertainty. But state-backed enterprise CEOs are more concerned about cyber threats (68 per cent) than their private sector peers (60 per cent).
• While state-backed CEOs are more confident about short-term growth than their private sector peers, they continue to be less confident about growth over the next three years. This difference may hint at the tension that state-backed CEOs face in aiming to be commercially viable and competitive while also trying to fulfil non-commercial objectives, the latter often demanding trade-offs in terms of financial performance between the short and longer term.
• Digital technology has the potential to be a key enabler, offering the scope to deliver higher productivity and better outcomes while also reducing costs. Just under two-thirds of state-backed CEOs surveyed said they were concerned about the speed of technological change (compared to 57 per cent of non-state backed CEOs). At the same time, state backed CEOs see digital technology as creating most value in terms of operational efficiencies, data analytics and the customer experience.
The survey revealed that compared to 2010, a larger proportion of CEOs today believe that government ownership distorts competition in an industry and leads to political interference in the marketplace.
To become catalysts for sustainable public value creation, the report sets out four tests which the leaders of the SOE of the future – particularly the board of directors and the executive team – will need to meet. These centre around clarity, capacity, capability and commitment to integrity.
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