/ Home / Posters / Posters: Agency and Corporate Strategies / 7. Semi-Private: State-Controlled Enterprises
[7] Market-State
At the market-state interface, we find public organizations that are (partly or wholly) government-owned or sponsored, with a for-profit orientation and aimed at producing private goods. Most partly state-owned companies that are also quoted on the stock exchange (and attract private capital) fall into this category.
Agency Challenges
- Exit options enjoyed by citizens (as the Ultimate Beneficiary Owners behind the state) are far weaker than those available to shareholders (in non-democratic societies, the voice option is virtually non-existent);
- The lack of a clear consensus on which objectives the government should pursue (and on the means to accomplish these objectives) hinders the development of effective mechanisms of accountability;
- The absence of a ‘market check’ on managerial agency costs;
- Implicit state guarantees undermine the threat of bankruptcy as a source of managerial discipline;
- The pursuit of social welfare objectives favours citizens, but not shareholders;
- The appropriation of disproportionate financial benefits by the state (which favours citizens, but not shareholders);
- The award of subsidies to SOEs, which favours shareholders, but not necessarily citizens;
- Allocation of responsibilities and oversight/enforcement of duties may not be adequately separated, which may not be in the public interest (enforceability of the rule of law by the public).
Typical Strengths
- Deep pockets of state (financial access and continuity);
- Insider in local networks;
- Easier to make longer-term planning and thus increase strategic position within a sector;
- Too big to fail;
- Big influence on national policies, regulatory capture;
- Stable /secure job environment for employees.
Typical Weaknesses
- Bureaucracy / loss in efficiency;
- Suspicion of political agenda (industrial politics), especially in case of developing foreign activities;
- Single shareholder influence (risk of bias in decision-making due to lack of sufficient checks and balances);
- Lack of flexibility;
- Risk aversion;
- Target of political and ideological battles;
- Pressure for corruption (if foreign influence is a focal point), rent-seeking behaviour by politicians, other non-pecuniary private benefits.