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Draft for Review and Translation

Assessment of the Corporate Governance of

State – Owned Enterprises in Senegal

September 15, 2006

Corporate Governance Policy Practice

Financial and Private Sector Development Vice Presidency

World Bank

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ACRONYMS & ABBREVIATIONS

AUSCGIE: Acte Uniforme de OHADA relatif au droit des sociétés commerciales et du Groupement

d’intérêt économique, or Uniform OHADA Act on the company law.

BCEAO: Banque Centrale des Etats de l'Afrique de l'Ouest, or the West African Central Bank

BRVM: La Bourse Régionale des Valeurs Mobilières, the regional stock exchange based in Abidjan.

CF : Contrôle Financier

CVCCEP : Commission de Vérification des Comptes et de Contrôle des Entreprises Publiques

CREPMF: Conseil Régional de l’Epargne Publique et des Marchés Financiers, the regional securities

regulator based in Abidjan.

GIE: Groupements d’Intérêt Économique, or Economic Interest Groups

IGE : Inspection Générale d’Etat

IFRS / IAS: International Financial Reporting Standards (before: International Accounting Standards)

ISA: International Standards on Auditing

OHADA: Organisation d’Harmonisation de Droit Africain

ROSC: Report on Observance of Standards and Codes

SA: Société Anonyme, or public limited company

SARL: Société à Responsabilité Limitée, or Limited Liability Company

SOE: State-owned enterprise

SYSCOA: Système Comptable Ouest Africain, or the West African Accounting Standards.

UEMOA: Etats Membres de l’Union Economique et Monétaire de l’Afrique de l’Ouest, or West African

Monetary and Economic Union.

Table of Contents

BACKGROUND AND INTRODUCTION ............................................................................................................... 1

OVERVIEW OF THE SOE GOVERNANCE FRAMEWORK IN SENEGAL .................................................... 2

THE PORTFOLIO OF STATE-OWNED ENTERPRISES ...................................................................................................... 2 Majority-Owned Companies ................................................................................................................................. 2 Minority-Owned Companies ................................................................................................................................. 2 Privatized Banks ................................................................................................................................................... 3

LEGAL FRAMEWORK .................................................................................................................................................. 3 Law 90-07 ............................................................................................................................................................. 3 Act on Commercial Companies............................................................................................................................. 3

INSTITUTIONAL FRAMEWORK FOR OWNERSHIP AND CONTROL ................................................................................. 6 Ownership Entities ................................................................................................................................................ 6 Control bodies....................................................................................................................................................... 6 Ownership Functions ............................................................................................................................................ 7

KEY ISSUES AND POLICY RECOMMENDATIONS .......................................................................................... 9

LACK OF A STRONG OWNERSHIP ENTITY .................................................................................................................... 9 LACK OF ANY CLEAR OWNERSHIP POLICY ................................................................................................................ 10 INSUFFICIENT SOE BOARDS OF DIRECTORS .............................................................................................................. 11 LOW LEVELS OF TRANSPARENCY ............................................................................................................................. 12

A COUNTRY ACTION PLAN ................................................................................................................................ 13

GUIDELINE - BY - GUIDELINE REVIEW OF CORPORATE GOVERNANCE OF STATE-OWNED

ENTERPRISES ......................................................................................................................................................... 14

SECTION I: ENSURING AN EFFECTIVE LEGAL AND REGULATORY FRAMEWORK FOR SOES ...................................... 14 SECTION II: THE STATE ACTING AS OWNER ............................................................................................................ 16 SECTION III: EQUITABLE TREATMENT OF SHAREHOLDERS ....................................................................................... 18 SECTION IV: RELATIONS WITH STAKEHOLDERS....................................................................................................... 19 SECTION V: TRANSPARENCY AND DISCLOSURE ....................................................................................................... 20 SECTION VI: THE RESPONSIBILITIES OF THE BOARDS OF STATE-OWNED ENTERPRISES ............................................ 21

Corporate Governance of State-Owned Enterprises Senegal

June 2006

Page 1

Background and Introduction Corporate governance refers to the structures and processes for the direction and control of companies.

Corporate governance concerns the relationships among the management, Board of Directors, controlling

shareholders, minority shareholders and other stakeholders. Good corporate governance contributes to

sustainable economic development by enhancing the company performance and increasing access to

outside capital.

For many countries and governments, corporate governance has not been seen as a high priority reform

issue, because of the relatively few local companies held by many shareholders, or listed on a stock

exchange. However, there is considerable interest in the corporate governance of state owned enterprises

(SOEs). In SOEs, state ownership and government control present inherent governance challenges that

contribute to poor performance, and efforts to improve their governance have lagged that of the private

sector. The focus of SOE reform has been on privatization, which remains the most direct solution to the

problems of state ownership. However it has become clear that for both political and economic reasons

the state will remain a major owner of productive assets in a number of economies for years to come.

Extensive experience with privatization has also confirmed the important role that corporate governance

can play before, during and after the state divests its assets.

The OECD Guidelines on the Corporate Governance of State Owned-Enterprises outlines this framework

and what SOEs and governments need to do to ensure good corporate governance. Current thinking on

SOE corporate governance reform incorporates lessons on how to improve corporate governance in the

private sector, and the international consensus that has developed regarding corporate governance reform.

It also builds on reforms to SOE administration and management in the 1970s and 1980s, and later efforts

to prepare SOEs for privatization. Better corporate governance should result in companies operating on a

more commercial basis, with improved profitability, increased transparency, more accountable boards and

management, improved internal controls, and sustainable employment. Overall, corporate governance

provides a coherent and tested framework for addressing key weaknesses of SOEs.

This assessment follows the OECD Guidelines and defines an SOE as any enterprises with state

ownership, a distinct legal form (separate from the public administration) and having commercial sales

and revenues. This definition includes banks and financial institutions, as well as industrial companies

and utilities. It also includes privatized companies with minority state ownership.

This assessment was carried out at the invitation of the Ministry of Economy and Finance, at the same

time as the Corporate Governance ROSC. The report was drafted by Alex Berg of the World Bank’s

Corporate Governance Policy Practice, and is based on a questionnaire completed by Africa Investment

and Business Advisers (AfIBA). The due diligence mission was carried out in May 2006. The project

received significant support from the IFC representative office in Dakar (Ms. Aida der Hovanessian), and

the Global Corporate Governance Forum. Peer reviewers included Mr. Mazen Bouri (AFTPS, World

Bank), Ghita Alderman (Global Corporate Governance Forum, IFC), and Fily Sissoko (AFTFM, World

Bank).

The assessment contains the following sections:

An overview of the SOE governance framework in Senegal, including the legal framework, a

description of the current SOE portfolio, and the institutional framework for ownership and

control;

A detailed review of the key SOE governance issues, including detailed policy recommendations;

A detailed review of SOE governance in Senegal relative to the OECD Guidelines on SOE

Governance.

This report should be read in concert with two highly related studies: the Accounting and Auditing ROSC

for Senegal (published May 2005) and the Corporate Governance ROSC (forthcoming). These reports

review many of the basic corporate governance issues in Senegal, many of which are not repeated here.


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Overview of the SOE Governance Framework in Senegal

The Portfolio of State-Owned Enterprises

Senegal has a long tradition of state ownership. At beginning of the privatization program (in 1987) the

State portfolio consisted of 87 enterprises. However, over the past 20 years Senegal has privatized a large

proportion of the assets in the SOE portfolio. By the end of 2004, 32 companies (or parts of companies)

had been privatized, and 21 had been liquidated (including 8 where liquidation is still on-going).

The current portfolio of public sector companies is presented in Tables 1-3. It includes many important

large economic entities in Senegal, including all of the major infrastructure assets. The following

discussion reviews both majority owned and minority-owned positions.

Majority-Owned Companies

The portfolio includes 24 commercial companies with majority state ownership. These companies are

governed by Law 90-07 on public enterprises, which defines three types of public enterprises1:

National Companies (Sociétés Nationales). Sociétés Nationales are standard public limited companies

(sociétés anonymes), where the State (or other state bodies) holds 100 percent of capital. Statutes are fixed

by decree.

There are currently 10 companies with the status of société nationale, representing many of the major

infrastructure companies in Senegal. The three largest companies (by capital) in this group are SENELEC

(the electricity utility), SONES (the water distribution company, whose assets are managed by a separate

company, SDE), and SNCS, the national railway.

Majority state-owned public companies (Sociétés anonymes à participation publique majoritaire).

Majority state-owned companies are also public limited companies in which one or several state bodies

own directly or indirectly more than 50 percent of capital. There are 14 companies remaining in the State

portfolio (see Table 1), although all are relatively small.

As general rule, the corporate governance for sociétés nationales and sociétés anonymes à participation

publique majoritaire both follow standard company law.2 Important exceptions will be highlighted below.

Public Establishments (Établissements Publics à Caractère Industriel et Commercial, EPICs). EPICs

are “specialized legal entities, with financial autonomy”, with no private founding capital. There are 35

EPICs, including 20 hospitals. They do not fall under the standard governance regime, and their statutes

are set by decree. Because they include a variety of non-commercial entities, they are not included in the

analysis in this report.3

Minority-Owned Companies

The State also owns minority ownership positions in as many as 35 companies (Sociétés a Participation

Publique Minoritaire). Data for 12 companies (for which data was available) are presented in Table 2. In

general these companies are the results of privatization transactions, where the State has opted to keep a

minority ownership stake in the company. The minority stake is frequently quite large – in five companies

it is larger than 40 percent, and in nine companies it is larger than 20 percent.

1 Article 2, Loi 90-07 du 26 juin 1990 relative à l'organisation et au contrôle des entreprises du secteur parapublic et au contrôle des personnes

morales de droit privé bénéficiant du concours financier de la puissance publique 2 Acte Uniforme en date du 17 avril 1997 relatif au droit des sociétés commerciales et du groupement d’intérêt économique applicable depuis le

1er janvier 1998.

Loi n° 90-07 du 26 juin 1990 sur les sociétés d’économie mixte. 3 Examples include APIX (the investment promotion agency), APS (Agence de Presse Sénégalaise), the Institute of Food Technology, etc.


June 2006

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This group includes many of the largest enterprises in Senegal, including ICS (Industries Chimiques Du

Sénégal, phosphate mining and processing), SONATEL the fixed-line and mobile telephone operator),

and SONACOS (agroindustry). These companies are not governed by the public enterprises law (Law 90-

07) and are treated as completely private companies.

Privatized Banks

Banks are an important subset of companies in which the State owns a minority stake (see Table 3). All of

the former majority-owned state banks have been privatized over the past several years, through sales to

large international banks. No commercial bank is now majority state-owned. However, seven of the banks

have at least some State ownership, and two have additional regional government ownership.

Legal Framework

The legal framework for SOEs consists of two major laws: Law 90-07 of 26 June 1990, which is the basic

law for enterprises from the public sector, and Acte Uniforme de OHADA Relatif au Droit des Sociétés

Commerciales et du Groupement d’intérêt économique, or AUSCGIE, which governs all private sector

enterprises. AUSGIE applies in the absence of any specific provisions in Law 90-07.

Law 90-07

Law 90-07 of 1990 is the fundamental law governing public enterprises. The law reformed the existing

governing structure of public enterprises, and was designed to simplify the ownership framework and

increase the autonomy of public enterprises. The law was intended to “allow the creation of a team that

could provide a new dynamism in public enterprises and to improve their productive potential.” The law:

Defined the three distinct types of SOEs

Restructured the ownership framework for public companies and gave them more “autonomy” by

eliminating the former ownership entity, the Center of Public Establishments (Centre des

Établissements Publics), and its executing agencies, the Central Accounting Agency (l'Agence

Comptable Centrale des Établissements Publics) and Control of Financial Operations (le

Contrôle des Opérations Financières).

Changed the board structure of SOEs, by adding two members “chosen for their professional

experience, limiting the number of “consulting state representatives”.

Applied private sector company law to majority-owned companies.

Streamlined the control structures. All a priori controls on SOEs were removed, and a new focus

was placed on simpler ex-post controls.

Act on Commercial Companies

Senegal’s legal system is based on French civil law. The UEMOA zone has adopted the legal framework

OHADA (Organization for Harmonization of Business Laws in Africa). OHADA countries share

common commercial laws. As a result, company law is set at the community level, and not at the national

level.

In Senegal the main statute that governs companies is the Uniform OHADA Act on company law (Acte

Uniforme de OHADA Relatif au Droit des Sociétés Commerciales et du Groupement d’Intérêt

Économique, or AUSCGIE), adopted in 1997. There is no regulatory body responsible for enforcement of

the company law per se.


June 2006

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Table 1: State-Owned Enterprises in Senegal (excluding banks)

Majority-Owned State Enterprises

Share

capital

State

Share Revenues Employees

Data

Availability

Sociétés à Participation Publique Majoritaire

SICAP – SA MIXTE Sicap – SA Mixte 2,743 90 4,029.0 33 2002

DDD – SA Dakar Dem Dikk 1,500 77 3, 863.5 1,170 2002

SIRN – SA Ste Des Infrastructures De Réparations Navale de Dakar 1,328 100 154.1 7 2002

SAPCO Société d'Aménagement De La Petite Côte 1,200 99 1,023.3 57 2002

PETROSEN – SA Petrosen – SA 1,200 99 200.0 40 2002

SODEFITEX - SA-PP Ste De Développement Des Fibres Textiles 750 78 15,187.0 1,066 2002

SEPROT – SA Ste Seneg. d'Equipements Pour La Promotion des Trans. 300 100 N/A 3 2002

SSPP LE SOLEIL – SA Société Sénégalaise de Publications et de Presse 277 55 1, 880.1 154 2002

SODAGRI – SA Ste De Développement Agricole Et Industriel Du Sénégal 120 54 11.6 75 2002

ANCAR Agence National de Conseil Agricole et Rural (ANCAR) n/a n/a n/a n/a

CICES Centre Internationale de Commerce Extérieur du Sénégal n/a n/a n/a n/a

SODIZI Société de Domaine Industriel de Ziguinchor n/a n/a n/a n/a

SODISA Société de Domaine Industriel de Saint-Louis n/a n/a n/a n/a

FGA Fonds de Garantie Automobile n/a n/a n/a n/a

TOTAL 9,558 70% 20,605.0 2,605

Sociétés Nationales

SENELEC – SNC Société Nationale d’Electricité 119,434 100 112,843.8 3,261 2002

SONES – SA Sones – SA 75,764 100 12,688.7 78 2002

SNCS – SA Ste Nationale Des Chemins De Fers Du Sénégal 10,193 100 9,529.8 1,382 2002

RTS Radio Télévision Senegalaise 7,000 100 2,483.1 612 2002

SNHLM – SA Ste Nationale des Habitations A Loyer Modères 6,000 100 1,095.6 206 2002

PAD – SA Port Autonome De Dakar 5,000 100 16,186.4 406 2002

LA POSTE Ex – OPCE 2,900 100 8,233.5 0 2002

SAED Ste d'Aménagement et d'Exploitation Des Terres du Delta 2,500 100 200.0 282 2002

LONASE Loterie Nationale Sénégalaise 110 100 31,000.0 n/a 2004

SNR Société National de Recouvrement 25 100 N/A N/A 2004

TOTAL 253,791 163,260.9 6,227


June 2006

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Table 2: State-Owned Enterprises in Senegal (excluding banks), cont.

Minority-Owned State Enterprises

Share

capital

State

Share Revenues Employees

Data

Availability

Sociétés à Participation Publique Minoritaire

ICS Industries Chimiques Du Sénégal 115,000 47 168,366.1 2,248 2002

SONATEL – SA Ste Nationale Des Télécommunications 50,000 28 174, 010.7 1,411 2004

SONACOS – SA Ste Nationale De Commercialisation Des Oléagineux 10,000 40 68,420.0 6,209 2004

ASI – SA Air Sénégal International) 7,291 49 59, 994.5 n/a 2004

SDE – SA Senegalaise Des Eaux (Ex – SONES) 3,000 5 44, 259.0 1,161 2004

SODEFITEX - SA-PP Ste De Développement Des Fibres Textiles 3,000 48 18, 702.6 739 2003

SMS Ste Minière De Sabodala 1,875 49 n/a 2 2002

SERAS – SA Ste D'exploitation Des Ressources Animales Du Sénégal) 619 29 N/A n/a 2002

SENEGAL MINES – SA Sénégal Mines – SA 400 15 685.1 37 2004

AVENTIS PHARMA- SA Aventis Pharma 330 14 5, 249.0 109 2002

MIFERSO – SA Ste Des Mines De Fer Du Sénégal Oriental) 281 29 N/A n/a 2002

NEAS – SA Nouvelles Editions Africaine Au Sénégal 30 20 505.6 24 2002

TOTAL 191,827 529, 351.1 7,934

ALL SOEs 493,146 828,034.0 18,758

Table 3: Commercial Bank Ownership in Senegal (December 2003)

Controlling Foreign

Shareholder

Other foreign

shareholders State BCEAO

Other

Senegalese

SGBS SG-France 57.7 7.1 - - 35.2

BICIS BNP-Paribas 22.3 31.8 24.9 - 21.0

CBAO - 47.1 8.8 - 44.1

CLS CL France 95.0 - 5.0 - -

CITIBANK (branch) 100.0 - - - -

BHS - 8.6 9.1 9.1 73.2

CNCAS - 20.0 25.6 15.00 39.4

BST - 7.3 5.0 - 87.7

BIS BID 33.3 44.5 22.2 - 0.0

ECOBANK Ecobank Int. 41.5 38.5 - - 20.0

BOA - 90.0 - - 10.0

Source: FSAP Update (BCEAO).


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Institutional Framework for Ownership and Control

The institutional framework for the ownership and control of SOEs is presented in the diagram on the

following page. The key institutions are the ownership entities (who exercise the ownership rights) and

the control bodies (state audit agencies and inspector generals).

Ownership Entities

Senegal has a “dual” ownership structure, in which Line Ministries shares the responsibility exercising

ownership rights with a central administrative entity (housed in the Ministry of Economy and Finance).

Ministry of Economy and Finance. The Ministry of Economy and Finance is the most important player

in among the ownership entities. As a general rule, it nominates 50 percent of State board seats in

majority-owned companies, and in banks with state ownership and some other minority-owned

companies. The Cellule de Gestion et de Contrôle de Portefeuille de l’Etat (CGCPE), a directorate of the

Ministry, is charged by law with supervising the State-owned portfolio. It receives reports from the SOEs,

drafts an annual report to the government on the SOE portfolio, and votes the State’s shares at annual

meetings of shareholders. It also plays the important role of acting as the government’s secretariat for the

privatization process, and overseeing liquidations.

The CGCPE’s activities are hampered by its relative lack of authority, but especially its lack of resources

and small staff size (four professionals).

Line Ministries (Ministères de la Tutelle). The Line Ministry for each SOE plays a role in oversight and

ownership. Its main role is to develop sectoral policy, and to appoint board members. There is a wide

variation in the resources and institutional capacity available to support the oversight role.

Presidential Administration (Cabinet du Président). The Presidential Administration is not directly

involved in the execution of ownership rights, but plays a key role that good practice reserves for the

board of directors – the appointment of the director general (CEO). In Sociétés Nationales and EPICs, the

director general is appointed by presidential decree, on the advice of the Line Minister, for three years, by

a motion of the board. Although the board formally ratifies the appointment of the director, in practice it

has no role in nomination, and does not reject the selection of the government. This dilutes the power of

the board, and leaves the government open to the charge that directors are appointed on the basis of

political loyalty, and not on the basis of their qualifications.

The Presidential Administration also directly receives reports from two of the control bodies. The

Contrôle Financier (CF) issues reports to the Presidential Administration, including special reports on

particularly important topics. The Presidential administration can then issue corrective decrees, to be

executed by either the Line Ministry or the Ministry of Economy and Finance. The Inspection Générale

d’Etat (IGE) also reports to the Presidential Administration and issues an annual report to the President

(which is not made publicly available). The Presidential Administration can then take action (although

how much and how formally this is done in practice is unclear).

As a result of carrying out this monitoring function and assuming responsibility for taking action, the

Presidential Administration is carrying out many of the responsibilities that would normally be the role of

an owner.

Control bodies

Three bodies have somewhat overlapping missions to audit and control companies owned by the State:

the Contrôle Financier, the Inspection Générale d’Etat (IGE), and the Commission de Vérification des

Comptes et de Contrôle des Entreprises Publiques. In addition, each company must be audited by an

external auditor (commissaire aux comptes).

Contrôle Financier (CF). The Contrôle Financier plays an important role in the system through direct

participation on the board of directors. One contrôleur provides direct oversight by sitting as a non-voting


June 2006

Page 7

member on the board of each SOE. This control is exercised in practice through two channels:

Each contrôleur acts as an advisor to the board, notes problems in board procedure, and makes

recommendations where necessary.

The CF issues periodic and special reports to the Presidential Administration (see above).

Inspection Générale d’Etat (IGE). The IGE carries out inspections according to an annual program, or

at the request of the President. The IGE reports to the Presidential administration and issues an annual

report to the President (which is not made publicly available). Inspectors general have full investigating

powers (including unlimited access to secret or confidential information. They cannot sanction, unless

delegated by the President.

Commission de Vérification des Comptes et de Contrôle des Entreprises Publiques (CVCCEP). The

CVCCEP was created by Law 90-07 to verify accounts and to assure proper use of capital managed by

public enterprises, and is now a chamber of the government audit agency, the Cours des Comptes. The

CVCCEP has the status of an independent magistrate, and is part of the judiciary. The CVCCEP prepares

a report of its reviews of companies or company transactions. Companies are included in this report based

on the CVCCEP’S own schedule. This report is published, and is a valuable and independent control over

the activities of SOEs.

Commissaire aux Comptes (external auditor). SOEs are also subject to external audit, like other private

sector companies.

Ownership Functions

The division of responsibilities over the ownership functions of the State is described in detail in the

Guideline-by-Guideline review, below. The following table summarizes the role of the different

institutional players:

Majority –owned SOEs Other companies with state

ownership (including banks)

Setting an explicit ownership policy No clear policy in place.

Setting policy goals and objectives Line Ministry / CGCPE (although

many companies do not have explicit

goals and objectives).

None.

Voting State shares MOFE / CGCPE MOFE / CGCPE

Board nomination Board appointments generally split

between Line Ministry and MOFE.

Appointed in proportion to state

holding.

Monitoring Performance Line Ministry / CGCPE Line Ministry / CGCPE

Aggregated Reporting CGCPE (but report not made public) None.


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State-Owned Enterprises in Senegal:

Institutional Framework for Ownership and Control

Ministère de Tutelle

Entreprise Public

Ministère de l’Économie et Finance

Conseil d’Administration

Directeur Générale

Cabinet du Président de la République

Commissaire aux Comptes

C.G.C.P.E

Nomination du D.G.

élection

rapportsNomination du CA

Nomination du CA

Contrôle Financière

Rapportsspéciaux

ReprésentationAuprès du C.A..

Commission des Vérification des

Comptes (Cour des Comptes)

Inspection Générale de l’É_)tat)


June 2006

Page 9

Key Issues and Policy Recommendations SOE governance in Senegal follows many aspects of good practice. Many of the recommendations

contained in the OECD Guidelines were implemented during the last public enterprise reform (the

passage of Law 90-07 in 1990):

The State has largely separated the ownership and regulatory functions for many of the large

SOEs. Independent regulatory authorities have been created in a number of areas.

SOEs are in general subject to the same laws and regulations as other companies.

SOEs do not appear to be provided with special lines of credit (although do appear to be allowed

to build up major arrears to social insurance funds).

The State is not generally involved in the day-to-day management of SOEs.

SOEs are subject to the same accounting and auditing standards as listed companies.

However, there are a number of areas where the SOE governance framework diverges from international

good practice, as identified in the review of the OECD Guidelines below.

Lack of a strong ownership entity

As noted in the description of the institutional framework, the nominal body responsible for exercising

ownership (the CGCPE) is weak, due to a lack of resources and limited authority. Senegal’s dual

ownership structure is quite common worldwide, but is now being supplanted by a move towards more

centralization. France employed this ownership model before its recent reform (and the creation of the

new Agence de Participation de l’Etat).

The current framework suffers from a number of problems:

Responsibility for most ownership functions is relatively diffuse, particularly for the nomination of

directors. Nobody appears to be truly responsible for making sure that a high-quality governance

framework is in place.

The accountability of the board and of each oversight body is relatively low. The CGCPE receives

annual reports from majority or wholly-owned companies, and prepares an internal report

summarizing the situation of each SOE, but cannot take action.

The control bodies report to a variety of entities, notably the office of the President, which has only

ad hoc management responsibilities and can draft corrective decrees, but can only indirectly oversee

implementation.

There is active consultation between Ministers and other senior government officials (on the one

hand) and board members – and in fact most board members are senior government officials. As a

result, the State’s ability to give direction to the SOE or its board is NOT limited to strategic issues

and policies, and is not publicly disclosed. The presence of a contrôleur financière as a (non-voting)

member of the board, with a reporting responsibility to the Presidential administration, gives the chief

of state the ability (or gives the perception of the ability) to directly intervene as needed in the affairs

of the company.

There is no standardized public reporting on SOEs, and no aggregate reporting. While some annual

reports are publicly available (e.g. SENELEC), obtaining financial and non-financial information

about most SOEs is extremely difficult in practice.

The role of the Ministry of Finance and Economy also raises some significant issues – as in many

countries, representatives of the Ministry are under pressure to maintain / increase tax revenues,

which may be in conflict with their ownership role in building valuable companies.


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Perhaps most important, the resources devoted to the ownership function are very small. The CGCPE

has a professional staff of four.

Recommendation 1: Create a strong owner of SOEs. Several options exist to build a strong owner

(henceforth the “ownership entity”). These include:

Strengthen the authority and autonomy of the CGCPE by giving it the authority and resources to

develop a consistent ownership policy, monitor company performance, and prepare a public report on

the state portfolio. The Line Ministries would continue to be involved in the board nomination

process, and would work with the CGCPE to explicitly set commercial and non-commercial goals for

each company in the portfolio.

A further step would be to remove the influence of the Line Ministries by removing their formal

influence and authority over SOEs and concentrating all ownership functions (including board

nominations and goal-setting) in the MOFE/CGCPE.

The final step (and the option most consistent with evolving international good practice) is to create a

central independent ownership agency reporting directly to parliament, along the lines of the Agence

de Participation de l’Etat in France (whose lessons of experience should be carefully studied).

The ownership entity should have authority and responsibility for all types of state ownership shares of

commercial companies, including both majority and minority-owned companies.

Lack of any clear ownership policy

There is also no formal ownership policy of the State. For about 20 years the only formal policy of the

State vis-à-vis SOEs has been to privatize them. This policy has been successful in that it has resulted in a

significant reduction of the public sector. However, the State is likely to own holdings in an important

portfolio of companies for many years to come.

The OECD Guidelines place special emphasis on the idea that “active and informed ownership by the

State” will result from a clear and transparent ownership strategy, which includes an ownership strategy, a

structured board nomination process, and exercise of established ownership rights.

Government intervention in day-to-day management does appear to be relatively limited in Senegal.

There were no reports of companies under the direct operational control of Ministries or other

government agencies. The Ministry of Economy and Finance does consistently exercise ownership rights.

However, in Senegal, there is no clear and consistent ownership strategy or rationale, and no policy of

how the state should exercise its responsibilities. The process for nominating board members is not clear

or well-structured. Members are appointed through each Ministry’s internal processes, which are not

transparent. Many outside observers commented that many board members (especially those appointed by

the line Ministries and to smaller SOEs) were not highly qualified, and some had limited or financial,

business or related experience, and that some were appointed for reasons of political connections.

Recommendation 2: The Government should develop and issue an ownership policy that defines the

overall objectives of state ownership, and policies for how the State will nominate board members

and vote shares. The ownership policy could also clarify government guarantees to large SOEs.

Recommendation 3: The ownership entity should pay equal attention to the oversight of minority-

owned companies. Recent problems at large privatized companies in Senegal (and elsewhere) show that

risks increase after privatization. The ownership entity should carefully monitor the performance of

minority-owned companies, should insist on strong internal controls, high-quality financial reporting,

independent audit committees, and disclosures and pre-approvals of related party transactions and other

conflicts of interest.

Recommendation 4: The Line Ministries should work with the new ownership entity to formulate

measurable high-level commercial and non-commercial goals for each company. These goals will be

used to monitor performance.


June 2006

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Insufficient SOE boards of directors

Modern corporate governance places great emphasis on concentrating responsibility at and increasing the

authority of the board of directors. However, as a general rule, boards of SOEs in Senegal are not always

considered to be strong, professional, or accountable.

Board authority Formally, boards have all the authority of their private-sector counterparts, including the

power to hire and fire the Director General (CEO). In practice, boards ‘rubber-stamp’ the nominations

made by the President and Line Ministers, and do not have the authority to remove general directors. This

fatally weakens the board by reducing its power and authority over management, and increases the

perception of political interference in SOEs.

Board composition. In general, board composition of most companies in Senegal (particularly SOEs) is

based on a “parliamentary” model. Board members are allocated to shareholders based on their ownership

in the company, sometimes by formal shareholder agreement. As a general rule, the Ministry of Economy

and Finance and the Line Ministry split board seats 50/50, although in important SOEs other Ministries

and government bodies may be represented. In most majority-owned SOEs the board consists only of

civil servants.

Board qualifications. Many board members are not considered to have the required professional

qualifications. There are no rules or guidelines on the professional qualifications required to become a

board member of an SOE. Informal interviews suggest that, in practice, the qualifications of SOE board

members varies widely. Many board members appear to have limited private sector experience, and no

financial experience. There are no guidelines or codes of ethics that have been developed for the board

members of state companies, and no training is provided. Many observers express the opinion that board

members of SOEs do not understand many aspects of their role.

Board accountability and liability. The Corporate Governance ROSC notes that there is no tradition of

board members acting in the interests of the company and all shareholders. SOE board members appear to

be even less accountable than their private sector counterparts. As in many countries and companies, SOE

board members appear to act in the interest of the State or individual that appoints them, and not in the

interests of the company. Most State representatives are appointed to the board by their Ministry, and

represent the interests of their Ministry. Some Ministries apparently have “pre-board” meetings for some

companies in which important issues are discussed and instructions. There is no tradition of acting in the

interests of all shareholders. The mandate of directors has not been clarified.

Board Remuneration. The State currently does not ensure that board members are sufficiently

compensated, and most boards are not. Traditional sitting fees for board members are CFA 25,000 (USD

50) per meeting, which are low relative to Chairman and general director pay. Remuneration is

insufficient to attract new, qualified candidates with higher levels of responsibility and liability.

Recommendation 5: The board of each company should have the formal and informal authority to

hire and fire the general director. Provisions in Law 90-07 that require proposals from the office of the

President or from a Minister should be repealed. General Directors should be selected following a formal

search procedure, and hired based on their qualifications.

Recommendation 6: The ownership policy to be developed by the State should include a specific

policy on how the government nominates board members and its expectations for board

composition:

As a first general principle, boards of SOEs should be assigned a clear mandate and ultimate

responsibility for the company’s performance, in line with the policy and commercial goals set by

the State. In conjunction with their increased responsibility, boards should meet more often - at

least 6 times a year for larger companies.

As a general principle, boards should be composed of the most highly qualified people available,

regardless of whether they come from the private or public sector, and if they are affiliated with a


June 2006

Page 12

particular Ministry or not. All board members should act in the interest of the company and all

shareholders.

Boards should include at least two private sector business or financial experts. In the long-run, the

majority of board members in each company should have private sector expertise.

Large SOEs should set up audit committees, to oversee the relationship with the external and

internal auditors, and manage conflicts of interest. The committee should be composed of outside

(and preferably “independent”) directors.

The remuneration of board members should be increased, to compensate board members for their

increased liability and to attract board members with higher qualifications.

The ownership entity (in conjunction with private sector bodies such as the Institut Sénégalaise

des Administrateurs) should provide board members with the tools required to help them to do

their job. These might include (i) a director training for SOE board members, in all areas of

modern corporate governance, and (b) the development of detailed guidelines for SOE board

members. The ownership entity should assist SOE boards to carry out board self-evaluations on a

periodic basis.

Recommendation 7: The role of the Contrôle Financier should be carefully reviewed. The presence

of non-voting participant at board meetings, who owes his duty not to the company but to the State, is

somewhat at odds with good board practice. Most observers feel that the current structure is not

particularly useful or productive. The ownership entity could usefully combine the employ the experience

of the existing group of contrôleurs with training from private sector institutions to create a professional

cadre of board members (who could serve on both SOE boards and other private sector boards). Other

contrôleurs could work as employees at large SOEs in the role of “company secretaries”, guiding boards

and management in correct corporate governance procedure.

Low levels of transparency

Another basic principle of modern corporate governance is that companies (including state-owned

companies) should be highly transparent. Transparency allows an early detection of problems, and

increases the confidence of shareholders, stakeholders, and the public in the company.

SOEs in Senegal are characterized by a lack of transparency. SOEs (like any company) are required to file

their financial statements at the Commercial Registry. However, in practice financial statements do not

include the information described in the OECD Guidelines, many SOEs have been late in preparing their

financial statements, and the statements are frequently not publicly available (although compliance has

recently been improving).4

Recommendation 8: The new ownership entity should develop a framework for aggregate reporting

on state-owned enterprises and publish an annual report.

Recommendation 9: The ownership policy should require a high degree of transparency. Large

SOEs should follow information disclosure requirements of the OECD Principles of Corporate

Governance and Guidelines on SOE Governance, including a clear statement of the company objectives

and their fulfillment, the ownership and voting structure of the company, a description of any financial

assistance (including subsidies and guarantees) received from the state, and any material transactions with

related entities.

The ownership entity should demand high-quality financial reporting and audits, should carefully review

the quality of information submitted, and work to continuously improve the quality of financial

4 See the Accounting and Auditing ROSC for additional details.


June 2006

Page 13

information.

Recommendation 10: The ownership policy should require SOEs to establish an independent audit

committee of the board, to establish an internal audit function that is monitored by and reports

directly to the audit committee, and to develop efficient internal audit procedures,

A Country Action Plan The main objective of this assessment is to assist the Government in its efforts to strengthen corporate

governance and transparency in State-Owned Enterprises. The above policy recommendations will be

presented to country stakeholders at a workshop in Dakar. Inputs from the stakeholders will be

incorporated into a country action plan that will be developed under the supervision of the Government,

with the assistance of the World Bank and other donors including the Global Corporate Governance

Forum.

Implementing these recommendations is likely to require substantial technical assistance and capacity-

building efforts. Areas that could require significant technical assistance include:

Capacity building and training of the ownership entity

The development of an ownership policy

The development of a reporting framework

Work at the company level with a specific enterprise, to create a “champion” of SOE governance

reform.


June 2006

Page 14

Guideline - By - Guideline Review of Corporate Governance of

State-Owned Enterprises

SECTION I: ENSURING AN EFFECTIVE LEGAL AND REGULATORY FRAMEWORK FOR

SOES

The legal and regulatory framework for state-owned enterprises should ensure a level playing field

in markets where state-owned enterprises and private sector companies compete in order to avoid

market distortions. The framework should build on, and be fully compatible with, the OECD

Principles of Corporate Governance.

Guideline IA: There should be a clear separation between the state’s ownership function and other

state functions that may influence the conditions for state-owned enterprises, particularly with

regard to market regulation.

The State has largely separated the ownership and regulatory functions for many of the large SOEs. For

example, independent regulatory agencies have been created in the electricity and telecommunications

sector.

There has been no active industrial policy for many years – the stated policy for all SOEs is privatization.

Some SOEs are artifacts of the privatization strategy, and represent state assets that are managed by a

separate company (e.g. SONES).

There are no SOEs that are owned by other SOEs.

Guideline IB. Governments should strive to simplify and streamline the operational practices and

the legal form under which SOEs operate. The SOE legal form or arrangement should allow

creditors to press their claims and to initiate insolvency procedures.

SOEs are in general subject to the same laws and regulations as other companies. All commercial SOEs

operate as standard public limited companies (société anonymes). The portfolio includes 19 commercial

companies with majority state ownership. These companies are governed by Law 90-07 on public

enterprises, which defines three types of public enterprises5:

1. Sociétés nationales are standard public limited companies (sociétés anonymes), where the State (or

other state bodies) holds 100 percent of capital. Statutes are fixed by decree.

2. (Sociétés anonymes à participation publique majoritaire). Majority state-owned companies are also

public limited companies in which one or several state bodies own directly or indirectly more than 50

percent of capital.

3. EPICs (Établissements Publics à Caractère Industriel et Commercial) are “specialized legal entities,

with financial autonomy”, but with no private founding capital. They do not operate under standard

company law, and their statutes are set by decree. In practice, EPICs appear to include a variety of non-

commercial entities, and are not included in the analysis in this report.

SOEs do have some important differences in their corporate governance structure, particularly in the

nomination of board members and general directors; these are addressed below.

Guideline IC. Any obligations and responsibilities that an SOE is required to undertake in terms of

5 Article 2, Loi 90-07 du 26 juin 1990 relative à l'organisation et au contrôle des entreprises du secteur parapublic et au contrôle des personnes morales de droit privé bénéficiant du concours financier de la puissance publique


June 2006

Page 15

public services beyond the generally accepted norm should be clearly mandated by laws or

regulations. Such obligations and responsibilities should also be disclosed to the general public and

related costs should be covered in a transparent manner.

There appears to be a wide variation in practice. Some SOEs (e.g. SENELEC) appear to have relatively

clear policy goals (even if these goals conflict with company profitability). However, company

obligations and responsibilities are not explicitly disclosed.

Some subsidies appear to be covered in a relatively transparent manner (e.g. the government subsidy to

SENELEC for rising fuel prices has been budgeted and widely reported).

Guideline ID. SOEs should not be exempt from the application of general laws and regulations.

Stakeholders, including competitors, should have access to efficient redress and an even-handed

ruling when they consider that their rights have been violated.

SOEs are formed as standard public limited companies and are not exempt from other laws and

regulation. They are not exempt from labor or bankruptcy law, and do not have any special legal

immunities, or sovereign immunity to lawsuits.

SOEs governed by Law 90-07 (sociétés nationales and sociétés a participation publique majoritaire)

have different procedures for liquidation; the CGCPE supervises the activities of the liquidator.6 The

CGCPE has liquidated 32 enterprises since the beginning of the privatization program, and five more are

in the process of liquidation. The remaining enterprises must be liquidated by July 2006.

Guideline IE: The legal and regulatory framework should allow sufficient flexibility for

adjustments in the capital structure of SOEs when this is necessary for achieving company

objectives.

There is no ownership entity or holding company structure that provides capital flexibility (for example,

the ability to reinvest dividends of one SOE into another). All dividends are the property of the state

budget (Trésor Publique). Any new state funds raised by SOEs would come from the Ministry of

Economy and Finance.

Guideline IF: SOEs should face competitive conditions regarding access to finance. Their relations

with state-owned banks, state-owned financial institutions, and other state-owned companies should

be based on purely commercial grounds.

The main source of credit to SOEs is the commercial banking sector. At least two SOEs and minority-

owned companies (Port Autonome de Dakar and ICS) have issued bonds to the public.

Bad debt owed to State-owned banks by SOEs was a traditional problem in Senegal. Bad debts (including

loans to SOEs) resulted in a banking crisis in the early 1990s. However, the past few years have seen the

completion of Senegal’s bank privatization program. As a result, there are no more state-controlled

commercial banks, and collusion with state-owned banks is no longer a possibility.

A number of observers noted that many private commercial banks have (until quite recently) treated the

large SOEs (including large companies with minority state participation such as ICS) as “too big to fail”,

with an implicit state guarantee, and thus provided credit on better terms than would have otherwise been

the case.

6 Liquidations rules and procedures for public enterprises are set by law n° 84-64 of 16/08/1984 and the AUSGIE.


June 2006

Page 16

SECTION II: THE STATE ACTING AS OWNER

The state should act as an informed and active owner and establish a clear and consistent

ownership policy, ensuring that the governance of state-owned enterprises is carried out in a

transparent and accountable manner, with the necessary degree of professionalism and

effectiveness.

Guideline IIA: The Government should develop and issue an ownership policy that defines the

overall objectives of state ownership, the state’s role in the corporate governance of SOEs, and how

it will implement its ownership policy.

There are no formal objectives of State ownership. The formal policy of the State for two decades has

been divestiture and privatization (including liquidation of non-viable enterprises). This policy has

resulted in the reduction in the number of SOEs from 87 in the mid-1980s to 24 SOEs at the end of 2005

(excluding the EPICs) today. The organization that comes closest to playing the role of “ownership

entity” (the CGCPE) has been more focused on its privatization mission. The State’s ownership policy for

many SOEs remains privatization at some point in the future; SENELEC, LONASE, and CICES are

currently slated to be privatized during 2007.

Senegal experimented with earlier forms of setting specific goals for SOEs, including performance and

management contracts. Between 1981 and 1988, nine performance contracts (called letters de mission)

were signed between the State and strategic SOEs. These contracts were considered to be unsuccessful.

Today the performance contracts remain only in the agricultural sector, in two enterprises (SAED and

SODAGRI).

See the “Overview of State-Owned Enterprise Governance in Senegal, above, for a description of the

current framework.

Guideline IIB. The Government should not be involved in the day-to-day management of SOEs and

allow them full operational autonomy to achieve their defined objectives.

Government intervention in day-to-day management appears to be relatively limited in Senegal. There

were no reports of companies under the direct operational control of Ministries or other government

agencies. The Ministry of Economy and Finance does consistently exercise ownership rights.

There is a potential conflict of interest in the role of the Ministry of Finance and Economy. Some

observers indicated that in certain cases, the Ministry supports the goal of increasing tax payments, rather

than creating valuable companies.

Guideline IIC: The state should let SOE boards exercise their responsibilities and respect their

independence.

Government intervenes in SOE governance beyond the level deemed appropriate by the Guidelines:

There is no clear and consistent ownership policy or strategy, and the board nomination process is not

optimal.

There is active consultation between Ministers and other senior government officials (on the one

hand) and board members – and in fact many board members are senior government officials. As a

result, the State’s ability to give direction to the SOE or its board is not limited to strategic issues and

policies, and is not publicly disclosed.

The presence of a contrôleur financière as a (non-voting) member of the board, with a reporting

responsibility to the Presidential administration, gives the chief of state the ability (or gives the

perception of the ability) to directly intervene as needed in the affairs of the company.

Director Generals (CEOs) are nominated / approved by the Cabinet du Président, giving further


June 2006

Page 17

influence to the State and weakening the power of the Board.

The OECD Guidelines call for the State to avoid nominating “an excessive number” of board members

from the State administration. Civil servants and political nominees should only be elected to the board if

they meet high qualifications and if they do not act as “conduits for undue political influence.” However,

as a general rule, boards of public enterprises in Senegal do not meet these criteria;

Only civil servants are appointed to the board. In most SOEs companies 50% of board members

are appointed by the Ministry of Economy and Finance, and 50% are appointed by the line ministry.

Many board members are not considered to have the required professional qualifications. There

are no rules or guidelines on the professional qualifications required to become a board member of an

SOE. Informal interviews suggest that, in practice, a wide variety of board members are appointed,

including some without any private sector experience, and no financial experience.

There is no tradition of board members acting in the interests of the company and all the

shareholders. As in many countries and companies, board members appear to act in the interest of

the State or individual that appoints them, and not in the interests of the company. Some Ministries

apparently have “pre-board” meetings for some companies in which important issues are discussed

and instructions

There are no board guidelines that have been developed for the board members of state

companies to assist them in carrying out their duties, and no training is provided. Many

observers expressed the opinion that board members of SOEs do not understand many aspects of their

role, and that guidelines and training would be a welcome step in assisting them to carry out their

duties. Some companies (e.g. Senelec) have developed codes of ethics.

Guideline IID: The exercise of ownership rights should be clearly identified within the state

administration. This may be facilitated by setting up a coordinating entity or, more appropriately,

by the centralization of the ownership function.

Ownership rights (including voting at general assemblies and nominating board members) are divided

between the Ministry of Economy and Finance - Cellule de Gestion et de Contrôle de Portefeuille de

l’Etat, who vote the State’s shares, and nominate about half of the board members (in most companies),

and the Line Ministry, who nominates the other half of the board. Either the Director of the CGCPE or a

director nominated by the State casts the State’s votes at general assemblies.

Guideline IIE: The coordinating or ownership entity should be held accountable to representative

bodies such as the Parliament and have clearly defined relationships with relevant public bodies,

including the state supreme audit institutions.

As noted in the description of the institutional framework, there is no clearly defined coordinating or

ownership entity in practice. The CGCPE, a directorate of the Ministry of Economy and Finance, is

charged by law with supervising the State-owned portfolio. It receives reports from the SOEs, drafts an

annual report to the government on the SOE portfolio, and votes the State’s shares at annual meetings of

shareholders. It also plays the important role of acting as the government’s secretariat for the privatization

process, and overseeing liquidations.

However, in practice, true responsibility and accountability are shared with the Line Ministries and with

the Presidential administration. The CGCPE’s activities are hampered by its lack of resources and small

staff size (four professionals).

Guideline IIF: The state as an active owner should exercise its ownership rights according to the

legal structure of each company. Its prime responsibilities include:

(1) Being represented at The Ministry of Economy and Finance represents the State at general


June 2006

Page 18

the general shareholders

meetings and voting the

state shares.

shareholders meeting and does vote the shares under State ownership.

(2) Establishing well-

structured and

transparent board

nomination processes in

fully or majority owned

SOEs, and actively

participating in the

nomination of all SOE

boards.

The process for nominating board members is not clear or well-structured.

The number of board seats is generally proportional to the level of State

ownership. The Ministry of Economy and Finance and the Line Ministry

generally appoint equal numbers of board members. In some large and

important companies, the Primature (Prime Minister’s office) also appoints

board members.

The members appointed are nominated through each Ministry’s internal

processes, which are not transparent. Many outside observers commented

that many board members (especially those appointed by the line Ministries

and to smaller SOEs) were not highly qualified, and some had limited or

financial, business or related experience, and that some were appointed for

reasons of political connections.

(3) Setting up reporting

systems allowing regular

monitoring and

assessment of SOE

performance.

The CGCPE receives annual reports from majority or wholly-owned

companies, and prepares an internal report summarizing the situation of each

SOE. However, the report is limited, focuses on company indebtedness, and

does not provide a complete assessment of company performance.

(4) When permitted by

the legal system and the

state’s level of

ownership, maintaining

continuous dialogue with

external auditors and

specific state control

organs.

The ownership entities (Line Ministry / MoEF - CGCPE) have limited

contact with the external auditors or state audit bodies. They do not approve

or communicate with the external auditors of SOEs.

Two control bodies (the Contrôle Financier (CF) and the Inspection Générale

d’Etat (IGE)) carry out inspections. The Presidential Administration can then

take action (although how much and how formally this is done in practice is

unclear). This process does not appear to involve the CGCPE.

(5) Ensuring that

remuneration schemes

for SOE board members

foster the long-term

interest of the company

and can attract and

motivate qualified

professionals.

The State currently does not ensure that board members are sufficiently

compensated, and most boards are not. Traditional sitting fee for board

members is CFA 25,000 (USD 50) per meeting, which is considered derisory

by the private sector and insufficient to attract qualified professionals.

SECTION III: EQUITABLE TREATMENT OF SHAREHOLDERS

The state and state-owned enterprises should recognize the rights of all shareholders, and in

accordance with the OECD Principles of Corporate Governance, ensure their equitable treatment

and equal access to corporate information.

Guideline IIIA: The coordinating or ownership entity and SOEs should ensure that all shareholders

are treated equitably.

Awareness of corporate governance is in its early stages in Senegal. Most market participants and board

members (from the private and the public sectors) tend to have a traditional view of corporate


June 2006

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governance, in which board members act in the interests of those that appoint them, and not necessarily in

the interest of the company as a whole. In addition, majority-owned companies have only a handful of

shareholders, who are most often represented on the board.

While CGCPE staff is well aware of modern corporate governance principles, the CGCPE does not have

sufficient authority to set policy for SOEs as a whole. In addition, CGCPE has functioned as a

privatization agency, and in many countries privatization goals have been in conflict with internationally

recognized shareholder rights.

Guideline IIIB: SOEs should observe a high degree of transparency toward all shareholders.

In general, SOEs (both majority and minority-owned) practice very poor public disclosure of information.

In the one listed company (SONATEL, with about 28 percent State ownership) the company discloses

according to regulation; there are no complaints about its transparency. In non-listed companies, the only

source of public information is the company registry (greffe du tribunal), where all companies are

required to file financial statements. In practice, this information is frequently unavailable. Most SOEs

have traditionally been very late in filing financial statements, although this has reportedly improved in

recent years.

In practice, outside shareholders are represented on the board in proportion to their ownership, which

provides shareholders with an important source of information.

Guideline IIIC: SOEs should develop an active policy of communication and consultation with all

shareholders.

In general few companies commit to an active policy of communication and consultation with all

shareholders. This practice is rare among majority- or wholly owned SOEs.

SENELEC does publish an annual report. SONATEL maintains an investor relations department and

states a policy of full information and disclosure. SENELEC also produces an annual report which

comments on its commitment to full transparency.

Guideline IIID: The participation of minority shareholders in shareholder meetings should be

facilitated in order to allow them to take part in fundamental corporate decisions such as board

election.

Shareholder meetings are held according to standard company law. There were no reports of problems in

this area.

SECTION IV: RELATIONS WITH STAKEHOLDERS

The state ownership policy should fully recognize the state-owned enterprises’ responsibilities

toward stakeholders and request that they report on their relations with stakeholders.

Guideline IVA: Governments, the coordinating or ownership entity and SOEs themselves should

recognize and respect stakeholders’ rights established by law or through mutual agreements, and

refer to the OECD Principles on Corporate Governance in this regard.

Employee rights are strong in Senegal, particularly at SOEs. Unions are present at most major companies,

and work to protect the interests of their members.

At SONATEL, employees are represented on the board by an elected union representative. However, this

board representation is in their capacity as shareholders (approximately 10% at the time of privatization in

1997, now reduced to approximately 8 percent), not as employees.

Guideline IVB: Listed or large SOEs, as well as SOEs pursuing important public policy objectives,

should report on stakeholder relations.


June 2006

Page 20

There is no public reporting at all by most large SOEs, or special reporting on stakeholder relations.

Those companies that do produce annual reports (e.g. SENELEC, SONATEL) do contain sections that

focus on corporate social responsibility issues, including information about contributions to employee

health care, sporting clubs, etc.

Guideline IVC. The board of SOEs should be required to develop, implement, and communicate

compliance programs for internal codes of ethics. These codes of ethics should be based on country

norms, in conformity with international commitments and apply to the company and its

subsidiaries.

There is only limited practice of developing company codes of ethics.

SECTION V: TRANSPARENCY AND DISCLOSURE

State-owned enterprises should observe high standards of transparency in accordance with the

OECD Principles of Corporate Governance.

Guideline VA: The coordinating or ownership entity should develop consistent and aggregate

reporting on state-owned enterprises and publish annually an aggregate report on SOEs.

There is no standardized public reporting on SOEs. The CGCPE does prepare a summary report on SOE

activities, but it is not published.

The Cours des Comptes does prepare an ad hoc report on the independent investigations of SOEs by the

Commission des Vérifications des Comptes. This report consists of specific reviews of companies or

company transactions. Companies are included in this report based on the CVCCEP’S own schedule. This

report is published, and is a valuable and independent control over the activities of SOEs.

Guideline VB: SOEs should develop efficient internal audit procedures and establish an internal

audit function that is monitored by and reports directly to the board and to the audit committee or

the equivalent company organ.

According to Law 90-07, each SOE must have a “procedure manual” and an internal auditor (contrôleur

interne) who is responsible for monitoring compliance with the manual.7 The law also requires the

company to establish a management control unit (cellule de contrôle de gestion). This unit is responsible

is responsible for establishing a set of company indicators, monitoring the budget and cash flow, drafting

a quarterly report on management, and keeping track of the number of company employees.

In practice, large SOEs do have internal audit departments. However, internal auditors report to

management, and not to the board, and are not considered by most observers to be particularly effective.

Guideline VC: SOEs, especially large ones, should be subject to an annual independent external

audit based on international standards. The existence of specific state control procedures does not

substitute for an independent external audit.

SOEs are subject to external audit. However, the audit process in Senegal is not always in line with

international good practice (see the Accounting and Auditing ROSC). In addition, international good

practice requires the creation of an audit committee of the board, which would oversee the audit process.

Guideline VD: SOEs should be subject to the same high quality accounting and auditing standards

as listed companies. Large or listed SOEs should disclose financial and non-financial information

7 Article 36, Loi 90-07.


June 2006

Page 21

according to high quality internationally recognized standards.

See the Accounting and Auditing ROSC for a complete description of the relevant accounting standards.8

SOEs (which are sociétés anonyme) are subject to the same accounting standards as listed companies.

Guideline VE: SOEs should disclose material information on all matters described in the OECD

Principles of Corporate Governance and in addition focus on areas of significant concern for the

state as an owner and the general public. Examples of such information include;

1. A clear statement to the public of the company objectives and their fulfillment;

2. The ownership and voting structure of the company;

3. Any material risk factors and measures taken to manage such risks;

4. Any financial assistance, including guarantees, received from the state and commitments

made on behalf of the SOE;

5. Any material transactions with related entities.

SOEs are required to file financial statements at the Commercial Registry like any other private company.

The financial statements do not include the information described in the Guideline. Many SOEs have

been late in preparing their financial statements, although compliance has recently been improving.

SECTION VI: THE RESPONSIBILITIES OF THE BOARDS OF STATE-OWNED

ENTERPRISES

The boards of state-owned enterprises should have the necessary authority, competencies and

objectivity to carry out their function of strategic guidance and monitoring of management. They

should act with integrity and be held accountable for their actions.

Guideline VIA: The boards of SOEs should be assigned a clear mandate and ultimate responsibility

for the company’s performance. The board should be fully accountable to the owners, act in the

best interest of the company, and treat all shareholders equitably.

The mandate of directors is not particularly clear. Overall accountability appears to be shared with

government Ministries and the Presidential administration (see separate discussion below).

Directors of public limited companies (including SOEs) owe a duty to the company and to third parties to

obey the law and applicable regulations, as well as the Articles of Association.9 There is a general duty of

care; officers must act as “a good father” towards the company (under the Civil Code). There is no

general duty for board members to act in the interests of the company and all shareholders (i.e. a duty of

loyalty). Some specific ad-hoc duties are set out by the law: management and directors are liable for false

or insufficient disclosure when raising new capital10

, and for irregularities related to share issuance,

especially handing out share certificates before full payment, and for failure to assure pre-emptive rights

to all shareholders or present false or misleading information at the annual meeting of shareholders where

the pre-emptive rights are being waived.11

Management and the board are jointly and severally liable for:

distributing dividends without the underlying assets of financial health to do so; false statements in the

published financials; using company assets of credit against the interests of the company, for personal

gain.12

8 http://www.worldbank.org/ifa/rosc_aa_sen_fre.pdf 9 AUSCGIE §740. 10 AUSCGIE §905. 11 AUSCGIE §893, 894, 895. 12 AUSCGIE §161, 889, 890, 891.

http://www.worldbank.org/ifa/rosc_aa_sen_fre.pdf


June 2006

Page 22

There are no precedents for any enforcement of any of these duties in court, and even during recent

corporate governance scandals, no legal action has been taken against management or directors.

SOE board members appear to be even less accountable than their private sector counterparts. Most State

representatives are appointed to the board by their Ministry, and represent the interests of their Ministry.

There is no tradition of acting in the interests of all shareholders.

.

Guideline VIB: SOE boards should carry out their functions of monitoring of management and

strategic guidance, subject to the objectives set by the Government and the ownership entity. They

should have the power to appoint and remove the CEO.

According to AUSGIE, all boards “…shall have the widest powers to act in all circumstances on behalf of

the company…The board of directors shall … define the company's objectives and guidelines for its

administration”. The board is responsible for defining company objectives and management guidelines

and management oversight.

In practice, SOE board responsibilities are poorly defined, and many directors do not understand their

duties. There are no regulations or best practice recommendations that give the board explicit

responsibility over the monitoring of corporate governance practices or evaluating their performance.

Board self-evaluation does not take place.

According to the law, “the board of directors shall … control, on a permanent basis, the management.”

The board formally appoints, remunerates, and removes the general director (§462 AUSCGIE). In

practice, in many SOEs, the general director is nominated by the Presidential administration, and the

nomination is then approved by the board. This practice greatly weakens the board in these companies.

The board “adopts” the annual financial statements. However, there does not appear to be any practice of

the board overseeing or managing the process of internal controls. Many companies have internal

auditors, but they report to the general director, not the board. The directors or manager do not need to

certify the financial statements.

Guideline VIC: The boards of SOEs should be composed so that they can exercise objective and

independent judgment. Good practice calls for the Chair to be separate from the CEO.

Board composition. In general, board composition of most companies (particularly SOEs) is based on a

“parliamentary” model. Board members are allocated to shareholders based on their ownership in the

company, sometimes by formal shareholder agreement. As a general rule, the Ministry of Economy and

Finance and the Line Ministry split board seats 50/50, although in important SOEs other Ministries and

government bodies may be represented.

Independent board members. In general, board independence is a new concept and is not practiced in

Senegal. There is no definition of “independence” in the law, and in general the concept is new.

SONATEL has had two independent directors since its privatization in 1997, and this is considered by

most observers to be a success. Other companies are now discussing the concept as part of a general

corporate governance reform.

Separation of Chairman and CEO. The position of Chairman and the CEO (Directeur Générale) are

separate in SOEs. The two positions are separately regulated under basic company law.

Remuneration. In practice, board remuneration remains very low, especially compared to Chairman and

general director pay. Remuneration is insufficient to attract new, qualified candidates with higher levels

of responsibility and liability.

Guideline VID: If employee representation on the board is mandated, mechanisms should be

developed to guarantee that this representation is exercised effectively and contributes to the


June 2006

Page 23

enhancement of the board skills, information and independence.

Employee representation is not mandated on the board of any companies in Senegal. One company

(SONATEL) does have employee board representation, but in their capacity as shareholders, not

employees.

Guideline VIE: When necessary, SOE boards should set up specialized committees to support the

full board in performing its functions, particularly in respect to audit, risk management and

remuneration.

Law 90-07 allows the board of directors to delegate some functions to a Management Committee of the

board (Comité de Direction), except for those specifically enumerated in the law.13

The Management

Committee must inform the full board about its meetings. It must be overseen by the Chairman of the full

board; representatives of the Line Ministry are automatic members; three other members must be elected

by the board.

Board committees (other than the management committee) are not present in SOEs. As noted in the

Corporate Governance ROSC, audit committees and similar structures are a new concept in Senegal.

Guideline VIF: SOE boards should carry out an annual evaluation to appraise their performance.

Board appraisal and other forms of evaluation are not practiced in Senegal.

13 Article 18, Law 90-07. Prohibited issues include internal rules, investment plans, budgets and provisional accounts, acquisitions and sales of assets, investments (see Article 11).

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