Name of the step: Entry into force of the legislation on corporate governance of state-owned enterprises

Related Reform/Investment: Reform 2. Improved governance and management of SOEs

Financed from: Non-repayable support

Context

The requirement for step 2.7 described in the step description of the CID annex is:

Entry into force of the new law on corporate governance of SOEs taking into account OECD guidelines on corporate governance. The law focuses on these main areas:

Step 6.2 is the first step out of four under this reform in chapter 6 (Management of Public Assets). It is followed by step 6.3 due in Q2-2026 that aims to appoint supervisory boards with a majority of independent members in at least 15 top key state-owned enterprises (SOEs) corporatising at least 15 top key SOEs as either joint-stock companies or limited liability companies (step) and by step 6.4 due in Q3-2026 that aims to implement corporate governance principles across the consolidated SOE management entities.

Evidence provided

Analysis

The justification and substantive evidence provided by the Ukrainian authorities cover all constitutive elements of the step description.

The law No 3587-IX ‘On making changes to some legislative acts of Ukraine regarding the improvement of corporate governance’ (the Law) entered into force on 8 March 2024.

The law takes into account relevant OECD guidelines on corporate governance, as stated in the G20/OECD Principles of Corporate Governance 2023. In particular, it is aligned with principles V.D.1. and V.D.4. which state the key functions of the boards: i) reviewing and guiding strategy, major plans of action, annual budgets and business plans, setting performance objectives, monitoring implementation and corporate performance, and overseeing major capital expenditures, acquisitions and divestitures (V.D.1); and ii) selecting, overseeing and monitoring the performance of key executives, and, when necessary, replacing them and overseeing succession planning (V.D.4.). It is also aligned with principle V.E.4. which states that the boards should regularly carry out evaluations to appraise their performance and assess whether they possess the right mix of background and competences, including with respect to gender and other forms of diversity.

The law defines the powers of SOEs’ supervisory boards to appoint and dismiss CEOs. Article 11-4 Paragraph 7 of the previous version of the Law No 185-V on ‘On Management of State Property Objects’ determined the appointment to the position and termination of powers of the CEO as exclusive competence of the supervisory board of a state unitary enterprise. The Law No 3587-IX (‘The Law’) amended Article 11-4 to ensure it applies both to state unitary enterprises and to other business associations with 50 % or more shares belonging to the state. Furthermore, the Law clarified the role of supervisory boards in appointing CEOs in SOEs where the Cabinet of Ministers acts as an ownership entity. Prior to the amendment of the Law, the State Property Management Law prescribed that the Cabinet of Ministers was entitled to appoint the CEO in such SOEs, while the Law of Ukraine No 2465-IX on ‘On Joint stock companies’ provided for the general rule that appointment and dismissal of the CEO is reserved for the supervisory board. This overlap caused confusion and discussions on which law prevails in such SOEs. The new Law removed the confusing provision from the State Property Management Law and the general rule now applies to all SOES organised as joint stock companies.

The law defines the powers of SOEs’ supervisory boards to approve the strategic, investment and financial plans documents of SOEs. The Law introduced amendments to other relevant laws to ensure the SOE supervisory boards approve the strategic, investment and financial plans documents of SOEs. In particular, according to the amendments to the Article 11-4 of the Law ‘On Management of State-Owned Objects’, the exclusive competence of the Supervisory board (in case it is formed) of a state unitary enterprise or business associations shall include, inter alia, approval of the strategic plan for the development of the state unitary enterprise, approval of the annual financial plan and the report on its implementation, the annual investment plan, and the investment plan for the medium term (three to five years). Furthermore, according to the amendments to the Article 7-1, 1-1 in Law of Ukraine ‘On Joint stock companies’, one of the exclusive competences of the supervisory boards of a Joint Stock Company is approval of the strategic development plan and performance indicators of the joint-stock company, the annual financial plan and the report on its implementation, and annual and medium-term investment plans. Similar amendments were introduced in other relevant laws, such as the Commercial Code of Ukraine, No 436-IV, which states that the formation of financial, investment plans and strategic development plan are mandatory for SOEs, and these documents are approved by the supervisory board (in case it is formed).

Finally, the Law establishes an annual evaluation procedure for the supervisory boards of SOEs. According to the amendments to the Article 11-7 in the Law ‘On Management of State Property Objects’, the activities of the supervisory board of a state unitary enterprise or a business association in which the formation of the supervisory board is mandatory shall be evaluated at least once every three years. The results of the assessment will be published on the SOE’s website within two working days from the date of their approval.

Commission Assessment: Satisfactorily fulfilled