Public policy objectives of state‑owned enterprises

3. Designing and monitoring public policy objectives and public service obligations

How governments design, communicate, and monitor public policy objectives (PPOs) and public service obligations (PSOs) is central to ensuring that SOEs pursue objectives in a transparent, accountable and commercially sustainable manner. Effective frameworks help ensure that PPOs remain clearly linked to SOEs’ ownership rationales and main line of business, while providing boards and management with predictable expectations regarding financial, operational and non-financial performance. The SOE Guidelines recommend that PPOs and PSOs be clearly defined, communicated and regularly monitored by the state owner, including through broad mandates and performance expectations related to sustainability or other policy objectives (Guideline II.F.3). At the same time, states should avoid frequent or ad hoc changes to these mandates, particularly (Guideline II.B) where SOEs are entrusted with important PPOs or PSOs, in order to preserve accountability, strategic coherence and commercial discipline (Guideline II.A).

3.1. Classification of SOEs and public mandates

A first step in operationalising PPOs is determining how SOEs are classified according to their mandates, commercial orientation and public policy functions. Some jurisdictions have adopted formal classifications of SOEs based on their commercial orientation and/or corporate form, helping governments manage their ownership interests more effectively. These are typically clarified in founding legislation, sectoral laws, or articles of association, and aligned with ownership policies and national development plans. Examples include:

• Colombia distinguishes between state-owned industrial and commercial enterprises, mixed-economy companies, state social enterprises, and official public service companies.

• Costa Rica classifies SOEs as autonomous or semi-autonomous institutions, or as state or non-state public entities depending on their activities.

• Czechia distinguishes commercial and non-commercial SOEs based on whether they operate in competitive markets and are profit making, versus those tasked with delivering public services funded by the state.

• Iceland’s ownership policy provides for a disaggregated classification of individual SOEs according to their ownership rationales and objectives.

• Norway’s ownership policy classifies SOEs into two categories: Category 1 comprises SOEs operating in competitive markets with the objective of achieving the highest possible return over time in a sustainable manner; and Category 2 comprises SOEs that (mostly) do not compete in the market and primarily serve public policy goals. Some of the Category 2 companies may also engage in some activities in which they operate in competition with others. In such cases, the state’s goal, as an owner, is normally the highest possible return over time in a sustainable manner for this limited part of the company’s activities.

• Slovenia details its classification in its Asset Management Strategy (Box 3.1).

Box 3.1. Classification of PSOs in Slovenia

The Slovenian Asset Management Strategy, which is confirmed by the National Assembly on the proposal of the Government, classifies strategic SOEs with respect to PSO fulfilment. Strategic SOEs are those that are at least 50% and one share state-owned. They are the assets by means of which Slovenia pursues strategic objectives in addition to economic ones. Strategic objectives are related to:

• National infrastructure (13 SOEs in total), where Slovenian Railways is tasked with the PSO of railway maintenance.

• Public services (11 SOEs in total), where INFRA (water management company) pursues the PSO of water management on the Sava River, RZV (uranium mine) is tasked with the PSO of closing an uranium mine, ULRS is fulfilling the PSO of providing the Official Gazette of the Republic of Slovenia, DUJPP (public passenger transport) provides the PSO of public passenger transport management services, STA (Slovenian Press Agency) provides the Slovenian Press Agency as a PSO, and Kobilarna Lipica fulfils a PSO surrounding maintenance of cultural heritage and tourism services

• Other social interests (10 SOEs in total), where the PSO of providing a universal postal service is fulfilled by Pošta Slovenije based on regulatory permission based on a market test and public tender.

Source: OECD Survey on PPOs in SOEs.

Other countries may not have a classification framework but implement limits in mandates based on the legal form of the enterprise. In Korea, while there is no formal classification of SOEs based on their engagement in commercial versus non-commercial activities, central SOEs are classified into public enterprises and quasi-governmental institutions, and their operational nature are reflected in their performance management framework, with greater emphasis placed on financial performance indicators for public enterprises. Likewise, in Switzerland, monopoly-type service providers as well as entities responsible for economic and safety supervision take the organisational form of an independent public institution (i.e. établissement de droit public), while entities providing market services operate as private-law or public-law joint stock companies. In Finland, there is special legislation for some SOEs which may set limits for their commercial operations (e.g. Kehittämiskeskus Oy).

Across surveyed jurisdictions, the approval process of PPO for SOEs is multifaceted. Several countries involve a combination of parliamentary approval, sectoral legislation, and national development plans to determine and establish relevant PPOs. For example, the Norwegian government formulates a State Ownership Policy white paper once every parliamentary term, which sets out: (1) why the state owns companies, (2) the rationale and PPOs for ownership per company category, and (3) expectations related to value creation, sustainability, and sectoral roles. The document is submitted to Parliament (Storting), debated, and formally recorded, ensuring that any major change in SOE mandates, ownership rationale, or PPO requires disclosure to and scrutiny by Parliament.

While classification and approval frameworks help clarify the mandates assigned to SOEs, effective implementation also depends on mechanisms to translate these objectives into measurable expectations and performance indicators.

3.2. KPI establishment and monitoring of PPOs and PSOs

Once PPOs and PSOs are established, ownership entities must determine how their implementation will be monitored and evaluated. The SOE Guidelines recommend that ownership entities communicate specific financial, operational and non-financial performance expectations to SOEs and to regularly assess their implementation. In practice, these expectations are often translated into key performance indicators (KPIs), reporting obligations and performance frameworks linked to PPO and PSO delivery. Such mechanisms ensure that SOEs are not given excessive autonomy in setting their own objectives or in defining the nature and extent of their PPOs, including any PSOs (annotations to II.F.3). The state should set up reporting systems to monitor SOEs’ performance against these objectives, including fiscal risks particularly where state support is large and may result in an unsustainable fiscal burden (Guideline II.F.4).

In practice, KPIs are typically mandated via legislation, performance/PSO contracts, shareholder expectations letters, or sectoral regulation, coupled with formal reporting. Ownership entities play a key role in setting financial and non-financial KPIs related to the achievement of PPOs. KPIs are typically introduced through documents that assign and communicate the PPO. For example:

• In Australia, financial and non-financial KPIs are agreed with shareholders through the corporate planning process. They are measured using key metrics (including those related to PPOs) based on those required by the Resource Management Guide (Australian Ministry of Finance, 2023[9]).

• In Costa Rica, “expectation notes” set financial and non-financial goals for SOEs’ PPOs.

• In Croatia, Lithuania, and Ukraine, KPIs are established in annual letters of expectations.

Some jurisdictions, such as Australia, Croatia, Ireland, Korea, Lithuania, Norway, and Slovenia, differentiate their approaches to defining and monitoring KPIs between PPOs and PSOs. PSOs are more commonly managed through procurement contracts, which usually include concrete KPIs and detailed agreements that SOEs are required to follow and achieve. PPOs, by contrast, are sometimes defined in broader terms, which can make KPI establishment and systematic monitoring more difficult.

Beyond KPI design, several jurisdictions have developed institutional oversight frameworks to support consistent monitoring, review and performance evaluation across SOE portfolios. In Lithuania, some ownership entities require quarterly reporting on PPO achievement from their SOEs, with reports assessed and reviewed by the Governance Coordination Center, a specialised coordination agency that covers the entire SOE portfolio. In Korea, a systematic and standardised framework exists in which the Minister of Economy and Finance (MOEF) and the supervising ministry jointly oversee KPI setting and evaluation, ensuring a whole‑of‑government approach. The MOEF issues guidelines that form the basis for deriving financial and non‑financial KPIs, while the supervising ministry verifies their adequacy under relevant laws and adjusts KPIs as needed. The MOEF finalises performance evaluation criteria and methods through deliberation and resolution by a steering committee, and a performance evaluation team provides technical advice on KPI setting through specialised research and consultation, including reviews of alignment between PPO expectations and the actual KPI framework.

The development of goals, indicators, and targets reflecting the state’s broad expectations on PPOs often remains within the purview of the SOE board. In Norway, SOE boards are encouraged to develop their own KPIs, although the state owner may challenge both the indicators and their achievement during regular meetings with the SOE. In Czechia, Italy, Peru, and Spain, corporate-level KPIs are approved by the general shareholders’ meeting.

Performance monitoring and evaluation are further supported by internal control systems and external audits. Some jurisdictions, such as Germany and Norway, have established systematic performance evaluation procedures to assess the achievement of objectives and address poor performance where relevant. Norway’s ownership policy provides that both the SOE board and the state as owner should annually assess goal attainment. Where poor performance persists over time, the state follows up through dialogue with the board. This follow‑up process includes: (1) discussion of causes and opportunities between the state owner and the SOE; (2) agreement with the SOE board on corrective measures; (3) monitoring and follow‑up of those measures; and (4) reflection of results in the state’s shareholding votes and decisions at the general meeting (Norwegian Ministry of Trade, Industry and Fisheries, 2023[10]). Germany’s step-by-step evaluation procedure is outlined in Box 3.2. Across surveyed jurisdictions, these practices highlight the importance of combining clear mandate-setting with structured monitoring, periodic review and ongoing dialogue between ownership entities and SOE boards.

Box 3.2. Performance evaluation procedure in Germany

SOE performance evaluations in Germany follows five steps. They include:

• Step 1: Integrating the federal interests into SOE internal regulations. Companies that are directly held by the Federal government have to fulfill an important interest on the part of the federal government that cannot be achieved better and more economically in any other way (sec. 65 of the Federal Budget Code). The important federal interest shapes the objective of the company and determines its purpose. It shall be incorporated as clearly as possible into the SOE’s internal regulations, such as the articles of association.

• Step 2: Defining the objectives and desired impact. The ownership entity must specify the identified objectives, framing them as medium-term impact objectives that can be operationalised (ownership strategy)

• Step 3: Quantifying objectives with KPIs. Metrics such as financial KPIs (e.g. cash flow, sales growth, return on sales, own sales ratio, complaint rate or qualitative growth of the product range, etc.) or non-financial KPIs (e.g. employee satisfaction, the increase in the proportion of women in management positions, the recruitment of young talent and the company's commitment to sustainability) are also included.

• Step 4: Implementation in the SOE’s corporate strategy. The SOE management has to develop the corporate strategy from the defined impact objectives, coordinate the corporate strategy with the supervisory board and implement it.

• Step 5: Evaluation by ownership entity. The actual performance evaluation is then carried out by the ownership entity. It reviews the implementation of the corporate strategy and the objective achievement by evaluating the target state and the actual state. The evaluation also includes economic aspects and causality checks.

Source: OECD Survey on PPOs in SOEs.

Key findings – Designing, monitoring and evaluation of PPOs

An effective state ownership framework should ensure that PPOs are clearly defined and subject to systematic monitoring, review and evaluation. Common features include:

• Establish a formal PPO approval and review process. The practices surveyed suggest that PPOs be discussed and approved at an appropriate level ideally coordinated on a whole-of-government basis. In Norway, for example, PPOs are subject to parliamentary review and debate. Clear approval and systematic review of SOE mandates and processes can limit ad hoc mandate expansion.

• Establish oversight and monitoring systems of PPOs to enable performance evaluation. Effective monitoring systems are commonly centralised to ensure consistency, while also adapted to sector‑specific tailoring. Korea and Lithuania, for example, have centralised bodies tasked with the monitoring of PPOs in SOEs. Survey practices suggest that regular reporting cycles, standard KPI templates, and central technical capacity significantly strengthen the state’s ability to evaluate PPO achievement and fiscal or other types of risks.

• Facilitate structured dialogue and clear expectations-setting between ownership entities and SOE boards on KPIs. Combining board‑level responsibility for KPI design with active owner engagement and KPI-approval mechanisms can achieve a balance between SOE autonomy and accountability, while ensuring owners’ expectations are met. Countries like Norway specifically give SOE boards the autonomy to decide KPIs. Some countries have KPIs approved by the general shareholders’ meeting. Trade-offs, where PPOs may require significant investments or lower returns to shareholders, should be discussed as appropriate, such as through shareholder dialogue.