The challenge of parliamentary "over-steering" of SOEs: can mid-term strategic objectives for SOEs mitigate such interference?

When governments enact their role as owners of SOEs, they are both principal and agent at the same time. On the one hand, government is a principal whereas SOEs act as agents in order to realize certain public missions. On the... [ view full abstract ]

When governments enact their role as owners of SOEs, they are both principal and agent at the same time. On the one hand, government is a principal whereas SOEs act as agents in order to realize certain public missions. On the other hand, government is an agent in relation to the parliament which decides by legislation about the existence and public mission of SOEs and which has the oversight over the government’s steering of SOE, thereby acting as a principal.

The literature on the steering of SOEs has mainly focused on the government as the principal who has to control SOEs, for example by performance measurement systems, by reporting and accountability duties, and by government representatives on the boards of SOEs. However, the literature on SOEs contains barely any studies analyzing the relationship between the government as an agent and the parliament as a principal.

We draw on principal-agent literature and on public accountability literature which have shown that agents may face serious problems in fulfilling their tasks when:
1.) a collective principal with multiple preferences
2.) defines unclear or conflicting objectives.
This situation is likely to occur in the parliament which is an agglomeration of many parties and people, who may define unclear or conflicting objectives because of diverging preferences. From the perspective of the government (and the SOE), this situation is a problem insofar as it leads to irregular, hands-on and arbitrary parliamentary interference into the SOEs’ activities and into the steering of SOEs by the government. This stands in contradiction to best practices on public corporate governance which stipulate that the state should refrain from intervening in SOE management and should not too often modify the objectives of SOEs.

We analyze how the Swiss government as an agent tries to minimize interference of the principal, i.e. the Swiss parliament, into the activities of the main Swiss SOEs. We hypothesize that the Swiss government avoids or mitigates parliamentary interference by mid-term strategic objectives for SOEs which counteract short-term requests of the parliament to intervene into SOE management. Hence, our research question:
Are mid-term strategic objectives for SOEs – as applied in Switzerland – able to mitigate (arbitrary) parliamentary interference into the activities of SOEs?

We answer the research question by focusing on two Swiss SOEs, namely SwissPost and the Swiss Federal Railways. For both cases, we analyze the answers of the government to parliamentary requests, the content of the mid-term strategic objectives and the annual accountability report of the government to the parliament.

We found that the Swiss government uses mid-term strategic objectives in order to reject parliamentary demands for more intervention into SOE activities. Particularly, mid-term financial objectives for Swiss SOE serve as a justification to reject special requests by parliamentarians. Moreover, the Swiss government annually informs the parliament about the achievement of the strategic objectives, thereby anticipating certain issues which could later become subject of parliamentary interference.