Strategic commercial interventions - initiating companies in public ownership: standard operating procedures - part 1

Chapter 2: Initiating and Financing a Public Corporation or NDPB

2.1 Setting up New Public Bodies SG Guidance

SG’s policy on the establishment of new public bodies is detailed below and is overseen by SG’s Public Bodies Unit:

a) Any new public body should only be set up as a last resort.

b) The approval process for setting up a new public body through the Ministerial Control Framework should be followed only after consideration of all other delivery mechanisms is exhausted.

c) Approval for setting up a new public body must be sought formally from Cabinet before any decision, or announcement is made.

The Public Bodies Unit can help you to contact policy and specialist support colleagues.

There are two main pieces of guidance:

a) The Ministerial Control Framework, which sets out the approvals process for the creation of new public bodies.

b) The guidance on the establishment of new public bodies is structured around nine separate guidance notes. These include: a list of key actions, links to reference documents, a general overview of key considerations, a detailed description of the issues.

Scottish Ministers previously committed that Public Bodies would be established within the Accountability Framework to allow audits to be carried out by Audit Scotland. The SPFM team should be contacted to discuss the required process under Article 483 of the Companies Act.

The guidance below does not supersede the established SG guidance and should only be used to supplement this.

2.2. Principles on Establishing Public Bodies

New Public Corporations or NDPBs should only be initiated if there is no viable alternative and a clear need for intervention to provide the function or service through such a public body. This requires an understanding of the various alternatives for delivering new services or functions.

When seeking to initiate a Public Corporation or NDPB, the OECD guidelines on corporate governance for State Owned Enterprises provide principles which departments within SG can apply in ensuring success of the public body and enhancing public value:

OECD Principle – rationale for ownership:

• Outcome – SG exercises the ownership of companies in the interest of Scotland by evaluating and disclosing the objectives that explain public ownership and subject these to a regular review.

OECD Principle – role as an owner:

• Outcome – SG should function as an informed and active owner, ensuring that the governance of public companies is conducted in a transparent and accountable manner, with a high degree of professionalism and effectiveness.

OECD Principle – public bodies in the marketplace:

• Outcome – consistent with the rationale for SG ownership, the legal and regulatory framework for public corporations / NDPBs should ensure a level playing field and fair competition in the marketplace when public corporations / NDPBs undertake economic activities.

OECD Principle – equitable treatment of shareholders and other investors:

• Outcome – where an SG owned company is listed or otherwise includes non-state investors among their owners, SG and the publicly owned company should recognise the rights of all shareholders and ensure shareholders’ equitable treatment and equal access to corporate information.

OECD Principle – stakeholder relations and responsible business:

• Outcome – SG’s ownership policy should fully recognise the body’s responsibilities towards stakeholders and request it to report on their relations with stakeholders. It should make clear any expectations SG has in respect of responsible business conduct by companies in public ownership.

OECD Principle – disclosure and transparency:

• Outcome – Public corporations / NDPBs should observe high standards of transparency and be subject to the same high-quality accounting, disclosure, compliance, and auditing standards as listed companies.

OECD Principle – The responsibilities of the boards of public companies:

• Outcome – The boards of public corporations / NDPBs should have the necessary authority, competencies, and objectivity to conduct their functions of strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions.