ABSTRACT

This chapter aims to suggest reforms that might help to achieve some of the benefits of privatised, market-based governance without giving up governmental control. It describes the characteristic governance dilemmas encountered in government owned corporations (GOC). The chapter focuses on the Australian GOCs; each private firm has two shareholders: the Treasurer and the Minister of the relevant portfolio. GOCs raise three kinds of concerns. These are: the familiar problem of managerial agency costs; ministerial shareholders may themselves have problematic incentives; and, even if Ministerial shareholders and managers focus solely on running the firm efficiently, they may have an incentive to poach on the interests of third parties. The chapter also focuses on contractual responses to the managerial agency cost problem. It argues that the annual contract between GOC managers and Ministerial shareholders – the Statement of Corporate Intent – helps to address the problem. The chapter considers the benefits of requiring that GOCs issue puttable subordinated debt.