Control mechanisms in the corporate governance of state-owned enterprises (SOEs): a comparison between Brazil and Portugal

Abstract

This study aims to identify how external and internal control mechanisms of corporate governance, typically used in the private business sector, are applied or transformed for the public sector in state-owned enterprises (SOEs). Based on a review of the agency problem and the mechanisms proposed for its mitigation in the business context, the study analyzes the governance situation of SOEs in Brazil and Portugal, with a view to comparing the solutions adopted in the two countries and the needs for development. In addition to sharing common history and cultural foundations, these countries are characterized by a low investor security environment and fragility of dispute settlement mechanisms; by concentrated ownership structures; and by capital markets still insufficient to pressure corporate behavior, conditions which weaken the market mechanisms of external control and amplify the influence of the peculiarities of SOEs’ internal governance issues. The analyses point to significant recent advances in SOEs’ governance practices, but identify challenges yet to be addressed.