International Journal of Economics, Commerce and Management

United Kingdom Vol. V, Issue 2, February 2017

http://ijecm.co.uk/ ISSN 2348 0386

STATE-OWNED ENTERPRISES: A COMPARISON

BETWEEN THE UK, JAPAN, AND MALAYSIA

Hartini Binti Mohd Nasir

Meiji University, Japan
[email protected]

Abstract
State-owned Enterprises (SOEs) played a crucial role in developed and developing countries as
a tool for promoting the social and economic development. Although the objective is similar to
an agency, SOEs activities are more commercial and they view profit as their objectives. In
comparing with private companies, SOEs social obligations is the important element that distinct
them from private companies. SOEs are commonly argued for its lack of corporate governance,
unclear objective, underperformance and crowding out of private investment. From comparison
made on SOEs in developed (the UK and Japan) and developing countries (Malaysia), this
study found that government in the UK and Malaysia has a broader scope in defining its control
on SOEs, as compared to Japan. This include control exercise through regulations imposed on
SOEs and the ability to decide on major decisions of SOEs In terms of shareholders
arrangements of SOEs, the UK and Malaysian type is centralized and oversees and managed
by company-type entities while Japan has a decentralized model, monitored by the respective
ministry, showing that the Japanese SOEs is closer to the central government than SOEs the
UK and Malaysian SOEs.

Keywords: SOEs, UK, Malaysia, Japan, governance, control, shareholder

INTRODUCTION
In most countries, Public Corporations (PCs) is an entity with the aim of providing good and
services for the market (Lienert, 2009, p.10). PCs has a diverse range of legal status and
control structure, and are also known by many different names such as state-owned enterprises
(SOEs), government corporations, government-linked companies (GLCs), state enterprises,

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parastatals, publicly owned corporations, government business enterprises, crown corporations,

and nonprofit organizations (World Bank, 2006, p.1). Consistent with the terminology of SOEs
used by the Organization for Economic Cooperative and Development (OECD) and the World
Bank, this study uses the term SOEs for simplicity.
There is a high incidence of SOEs in the world's rapidly developing economies. The
Economist in 2012 surveyed on the state advances and found that SOEs represent 80% of
Chinas stock market capitalization, 62% of Russias, and 38% of Brazils (The visible hand,
2012). Some examples of these SOEs include the worlds largest natural-gas company,
Russias Gazprom, the largest oil companies in the world based on oil reserves, and the worlds
largest mobile-phone operator, China Mobile (The visible hand, 2012). SOEs also contribute
approximately 10% of the world GDP (Peng, Bruton, Stan and Huang, 2016, p.1). Due to this,
there often arguments on the advantages and disadvantages of SOEs in terms of its role in the
social and economic development lack of governance, underperformance, unclear objectives,
and crowding out of private investment due to SOEs presence.
SOEs definition differs from country to country. For example, Malaysian SOEs is defined
as business entities that the government has a controlling stake (Ministry of Finance (MOF),
2007, p.92). The controlling stake is where the government could exercise control in terms
appointing the board of directors or other major decisions regardless of the percentage of
shares (Putrajaya Committee on GLCs High Performance (PCG), 2005, p.18). While in the UK,
Millward (2000, p. 158)studied on the rise and fall of SEOs in the UK and defined SOEs as
enterprises that aim at least to break even financially and that sell goods and services to large
numbers of buyers. While in Japan, it is as chartered companies that has a strong link to the
public benefit (Tamamura, p.20).
There was no comprehensive study that compared the country model of SOEs with other
countries in one paper, so far as known to date. Therefore, the first objective of this study is to
review major arguments on advantages and disadvantages of SOEs. Secondly, this study
explored SOEs in the UK, Japan and Malaysia as proxies of developed and developing
countries. The basis for comparing the model of Malaysian SOEs with the UK is because there
is a historical linkage in terms of the administrative system between Malaysian and the UK due
to the long colonization by the British period from 1824 until 1957. On the other hand, the
reason for comparing with the Japanese model is due to the similar developmental state
category that both countries are categorized in. The characteristics used for comparison are the
definitions, type of organizations, legal and governance structures and shareholders
arrangements.

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The rest of the paper is organized as follows: Section 2 described SOEs and compares them
with an agency and private companies. Section 3 explains major arguments on advantages and
disadvantages of SOEs. Section 4 discusses countries comparison between the UK, Japan, and
Malaysian SOEs. Section 5 concludes the study.

OVERVIEW OF SOES
In many countries, the government has ownership in a number of companies (La Porta, Lopez-
de-Silanes, and Shleifer, 1999, p.474) and can be perceived in some cases as an aggressive
entrepreneur wanting to develop its owned companies, while in other cases giving a patronage
of troubled companies, stepping in when it fails as in the case of Germany SOEs (Wengenroth,
2000, p.123-125). The International Monetary Fund (IMF) defined these companies as
commercial entities owned or control by the government' (IMF, 2016, p.1). Another definition
from OECD is enterprises where the state has significant control, through full, majority or
significant minority ownership' (OECD, 2005, p.11). In other words, the basic criteria for SOEs
are a business entity and controlled or owned by the government.
Fang, Qian and Tong (2004, p.5) defined Singaporean SOEs as companies in which
some shares are owned by the government. They used a minimum of 20% as a threshold for
government effective ownership, which is also used by used by researchers that studied on
Malaysian SOEs (Lau and Tong, 2008; Muhamed, Stratling and Salam, 2014, p.453, 462-462).
However, another study on by Ramirez and Ling (2003, p.7) classifies a company as
Singaporean SOEs if the government, its proxies or a statutory board is one of the substantial
shareholders in the company. Another study by (Claessens, Djavkov and Lang (2000, p. 91)
used shareholders who control over 5% of the votes in determining the control rights of
companies.
Apart from government shareholding in ordinary shares of SOEs, the government could
exercise control through the provision of golden share. This is common for privatized SOEs in
Australia, Sweden, and the UK, where the government exercises the provision in the golden
share in order to retain control in privatized SOEs (Bortolotti and Faccio, 2007, p.4). Another
criterion to determine SOEs is when the government has controlling power in companies, as in
the definition used for the UK and Malaysian SOEs (Ministry of Finance, 2007). The control
could be in the form of regulations, as been exercised by the UK government or the ability of the
government to decide on the major decision of companies, as in the case of Malaysia.
The purposes of setting up or investing in SOEs are varied across countries. In general,
SOEs have become tools for the development of some countries (PwC, 2015,p.6). As be
pointed by the World Bank (2006, p.1), SOEs are created to support government policy such as

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building physical infrastructure, providing finance, water, and electricity, generating revenue for
the treasury, achieving self-sufficiency in the production of basic goods and services, controlling
natural resources, addressing market failures, curbing oligopolistic behavior; and promoting
social objectives such as employment generation, regional development, and benefits for
economically and socially disadvantaged groups.
With regard to Malaysia, the initial establishment of SOEs is to takeover Colonial
companies after independence. Other than this, the government or through its proxies called
Governmentlinked Investment Companies (GLICs) may make a substantial investment in
companies to allow them to have a controlling. The objectives of these investments can be
divided as profit-oriented and non-profit oriented (Muhamed, Stratling and Salama, 2014, p.453,
462; Rasli, Goh and Khan, 2013, p.239). In addition to this, SOEs were derived through the
corporatization of some government departments, where the government exercises its control
rights through golden share provision. After the Asian Financial Crisis, the government plays a
role in aiding recovery from the crisis where some SOEs were recapitalized and restructure. To
date, Malaysia SOEs remain the main service providers to the nation in key strategic utilities
and services including electricity, telecommunications, postal services, airlines, airports, public
transport, banking and financial services (PCG, 2015, p.193).
The legal status of SOEs varies countries to countries, depending on the factors such as
the level of government that owns SOEs, mechanism of its establishment, position in the public
service, its purpose and current status, whether it is going to be privatized (PwC, 2015, p. 8).
The most common are company governed by the Companies Acts, with the management and
board of directors structure, as in the case of Malaysian Government-linked Companies (GLCs)
and Japanese Special Companies. However, in some countries like in the UK, SOEs also
consists of other public bodies and stock companies in which its shares not held by the
government, as shareholding is not the only criteria in determining SOEs in the UK (List of
company names that have the UK taxpayer as a shareholder). The government regulations
imposed on companies may result in the company being categorized as the UK SOEs.
Accordingly, the governance structure of a company-type SOEs in the UK is similar with the one
in Japan and Malaysia. On the other hand, the governance structure of public bodies type SOEs
depends on the governance structure of the public bodies.
The World Bank has identified four ownership arrangements of SOEs; the decentralized
model, where ownership responsibilities are dispersed among different line ministries, the dual
model, in addition to line ministries a second ministry, such as the ministry of finance, may also
have certain responsibilities, the advisory model, where ownership remains dispersed but an
advisory or coordinating body is created to advise ministries on ownership matters and the

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centralized model, where ownership responsibilities are centralized in an entity or entities that
may be independent or may fall within government (The World bank, 2014, p. 70).
To obtain in-depth understanding about SOEs, comparisons with other government-
related corporations such as agencies and with the private companies are worth to be studied.
These include difference and similarities in ownership, the purpose of establishment or
possession, legal status, function and objective, funding, distance from government controls,
organizational forms, funding, accountability and relationship with stakeholders. For the purpose
of comparing SOEs with an agency and the private companies, this study regards SOEs as
company-type entities that have distinct legal status, controlled by the government through its
percentage of shareholding.

Comparison with Agency

Talbot (2004) employed criteria of an agency as an organization that at arm's lengths from the
main ministries, carrying public task, staffed by public servants, financed by the government
budget and subject to at least some public/administrative law procedures. The government
transferred some of its activities to the agency (Pollitt, Talbot, Caulfield and Smullen (2004,
p.271) on the ground of efficiency Taliercio (2004, p.265). Agency subsisted in most of the
countries, such as in the OECD countries like the United Kingdom (UK), United States (US),
Netherlands, Sweden, Japan, Germany and Canada (OECD, 2002, p.11), in middle income
country like Malaysia (various ministries websites) and in less developing countries such as in
Jamaica and Tanzania (Pollitt, Caulfield, Smullen and Talbot, 2001). However, they are known
and differently across countries such as quangos in the UK (Pearson, Gash and Rutter, 2015,
p.1), agencies in Malaysia (various ministries websites) and Special Corporations in Japan
(Tamamura). Although an agency has a long history in many countries, some of the new types
of agency were derived from national economic reform and their existence has been diffused
around the world (Pollitt et al. (2001).For instance, the creation of agencies through reforms was
inspired by the New Public Management, originated from the UK, such as the establishment of
the Executive Agencies and Independent Administrative Agencies in Japan (Kaneko, 1999, p.5;
Yamamoto, 2003, p. 17-18).
Agency and SOEs are similar in terms of its purpose of establishment, as both entities
are created in order to address potential market failure (IMF, 2015, p.2) and to support
government policy; for the social and economic development of a country. Despite this, the main
difference between SOEs and agency is in their objectives and functions. While an agency is
required to perform public task (Pollit et al., 2004, p. 271), SOEs are linked to commercial
activities (OECD, 2005, p.11; IMF, 2016, p.1). Other than this, as mentioned previously, an

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agency is at arms length from ministry, though some of them do not have any legal status, as in
the case of the UK Executive Agencies, as in the case of Companies House (List of company
names that have the UK taxpayer as a shareholder). On the other hand, a company-type SOEs
has a distinct legal status and is not part of the ministry.
While SOEs activities are regard as commercial, SOEs may view profit as one of its
objectives whilst an agency required to perform public duties thus do not view profit as its
objective. An agency is financed through the government budget, while in SOEs, no yearly
budget is provided by the government. However, SOEs could obtain external financing from
financial institutions, which this is not the case of an agency. With regards to accountability,
agency is accountable to parent ministries, whilst SOEs are accountable to its shareholders and
others stakeholders such as employees, supplier, community and government.

Comparison between SOEs the private companies

La Porta, Lopez-de-Silanes and Shleifer (1999, p. 476) categorizes companies according to
ultimate owners into four groups; a family or individual, the government, widely held financial
institutions, and widely held corporations. Accordingly, private companies are companies who
owned by private shareholders; family and individual, financial institutions or corporations. SOEs
and the private companies have a similar governance structure, which consists of the
shareholders, the board of directors and the management. The main difference is the
government is the shareholder of SOEs. Due to this, SOEs have difference purpose, mission,
and objective with regards to some aspects of public service or social obligations. SOEs may
have twin goals, to be profitable and discharge its social obligations. On the other hand, private
companies purpose, mission objectives are to be profitable and maximizing their shareholder's
value. SOE are more regulated that the private companies as to align their objectives with the
government agendas. These regulations may not favor SOEs objective of maximizing profit. For
example, monopoly SOEs is obliged to the government regulation on pricing its products or
services. This prevents SOEs from being profitable, which this is not the case for private
companies.

MAJOR ARGUMENT OF ADVANTAGES AND DISADVANTAGES OF SOES

There are several major arguments on the advantages and disadvantages of SOEs. The main
advantage is regarding SOEs role in the social and economic development of a country. On the
other hand, SOEs are commonly argued for its lack of governance, having unclear objectives,
less regulated in terms of monopoly SOEs and its presence crowd out private investment in
some countries.

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SOEs role in the Social and Economic Development

As mentioned previously, SOEs have become tools to support government policy in social and
economic aspects for the development of some countries (PwC, 2015, p.6; The World Bank,
p.1). With regard to the social aspect, Malaysian case can be good example. In the late 80s
and early 90s, Malaysian high economic growth was due to the extensive role of the
government in promoting political stability. This has been achieving, among others through the
establishment by few SOEs to support the government policy at that time.
Other than this, SOE have been a major player in the economic development in many
countries. For example, in n the western, SOEs role is crucial in supporting industrialization
between the late 1960s and the early 1980s. This situation led to the creation of big SOEs such
as British Petroleum (Toninelli, 2000, p.15). In another region such as in Singapore, Ramirez
and Tan (2003, p.4,14) conceded commercial SOEs spearheaded the development in key
sectors of the economy.

Lack of corporate governance

Corporate governance is defined as the system by which companies are directed and
controlled (The Financial Aspects of Corporate Governance (1992). The ultimate objective of
corporate governance is to realize the long-term shareholder's value whilst taking into account
other stakeholders interest. Thus, corporate governance is meant to come up with reasonable
assurance on the right manner of managing companys resources. In an organization where
there is a separation between decision making and residual risk bearing, the top level of
decision control device in financial mutual is the board of directors (Fama & Jensen,1983,
p.318). However, distinct types of owners have different objectives and motivations, which has
an impact on the way they exercise their control rights over their portfolio companies (Chen,
Firth and Xu, 2009, p.180).
In the case of SOEs, Wicaksono (2009, p.82) explained that the key difference in the
governance of SOEs is its ownership structure whereby the government is the owner. One of
the ways for the government exercises its control in SOEs is by appointing its nominee on the
board of directors of SOEs. Through appointed directors, the government is able to pursue their
own interests at the expense of other shareholders by reducing the effectiveness of the
monitoring capacity of the board. For example, Yu and Zheng (2014, p. 203) found that
government is prone to appoint politically connected directors without professional backgrounds
in Chinese SOEs. As discovered by Fan, Wong, Zhang (2007, p. 353), politically connected
Chief Executive Officers do not enhance a firm's efficiency but rather confirms the goals of the

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politicians. Yeh, Shu and Chiang (2010) concluded that the quality of corporate governance is
negatively associated with the likelihood of firms engaging in political connections in China.

Unclear Objective
The objective of establishing SOEs are not clear enough, as most of them were created with a
broad objective with multiple activities to be implemented to achieve such objectives. Apart from
that, Wong, (2006, p.8) argued that SEOs have conflicting objectives between the social and
financial objectives that constraint the ability of insider and outsider to know the ultimate goal of
SOEs. This may create excuse by the insider to perform at their best due to social objective
mandated to SOEs. At the same, the outsider will be curious if SOEs is performing well as these
entities are expected to discharge its social obligations.

Performance of SOEs
Poorly managed SOEs can impose substantial economic and fiscal costs to a country.
However, the arguments on the performance of SOEs lie in 2 schools of thoughts. The first
argument is linked to its underperformance and lower governance quality due to political
interference, conflicting objectives, boards issues, lack of performance management and
inactive shareholders. Many researchers found that government ownership undermines the
companys performance because of lower incentivizing or inefficient management in meeting
the politicians needs (Boycko, Shleifer and Vishny, 1996, p. 309; Shleifer, 1998, p.17; Fan et
al., 2007, p.353; Boubakri, Cosset and Saffar, 2008, p.28). Another study on ownership
structure found that privatizations of SOEs/private companies are more competitive, innovative
and more costs conscious (Boycko et al., 1996; Boubakri and Cosset, 1998; Shleifer, 1998;
Dewenter and Malatesta, 2001, p.332; Sun and Tong, 2002, p.79)
Other literatures suggested that companies with government ownership are better
governed (Kole and Mulherin, 1997, p.1; Ang and Ding, 2006, p.85-86; Lau and Tong, 2008, p.
10; Najid and Rahman, 2011, p.42) and strong political connections are alternative means to
create firm value. However, these connections create uneven playing field between SOEs and
private companies that have a negative effect on the private investment that will be discussed in
the next section.

SOEs Presence Crowd-out Private Investment

Crowding out or crowding in is the response of private investment to the government investment
(Mitra, 2006, p.337; Furceri and Sousa, 2009, p. 518; Xu and Yan, 2014, p.1; IMF, 2015, p.4)
Government investment stimulates significant important crowding out effects by negatively

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affecting both private consumption and investment, as been found by Furceri and Sousa (2009,
p.517), who used panel data set of 145 countries from 1960 to 2007. In China, Xu and Yan
(2014, p.1) concluded that government spending on public goods and infrastructure crowd in
private investment, while spending them through Chinese SOEs crowd out private investment
significantly.
Due to government controlling stake in SOEs, they hold a vested interest in ensuring
that SOEs succeed. Menon (2012, p.10) argued that due to the GLCs significant market
capitalization, they possess market power that discourages the entry of private investment.
Further empirical study by Menon and Ng (2013, p.14) found that some of Malaysian SOEs are
crowding out private investment, due to SOEs obtaining preferential treatment and less credit
constrained than private competitors. This allows SOEs to profitably increase its investment in
sectors where they already have a significant presence (Menon and Ng, 2013, p.9)

COMPARISON BETWEEN SOES IN DEVELOPED AND DEVELOPING COUNTRIES

Comparing SOEs in developed and developing will give more understanding on the similarities
and difference in criteria of SEOs This study compares Malaysia, a developing country with the
UK and Japan, both categorized as developed countries. The reason to compare with the UK is
because of the historical linkage between these two countries that led to the similar
administrative system. This historical linkage derived from the long colonization by the British
period from 1824 until 1957. On the other hand, this study compared Malaysia and Japan SOEs
as both Malaysia and Japan is categorized as a developmental state. In comparing SOEs in the
UK, Japan and Malaysia, the Malaysian GLCs understudy excluded the one owned by the
Ministry of Finance (Incorporated) (MOF (Inc.), because MOF(Inc.) not a full-fledged entity
where control on its GLCs are manage by a division of Ministry of Finance. Other than this,
GLCs under MOF Inc. are solely charged for social obligations.

The UK
With regard to SOEs, there is a consistent definition by the OECD and the IMF in its commercial
and government control aspects. However, definitions used in the UK, Japan and Malaysia are
different. Millward (2000, p. 158) studied on the rise and fall of SEOs in the UK where he
defined SOEs as enterprises that aim at least to break even financially and that sell good and
services to large numbers of buyers. He further concluded that the intention of the UK
government in establishing SOEs/take over companies is to regulate some important sectors
such as infrastructure (Millward, 2000, p.179).The UK SOEs is not part of the UK public bodies
as the type of organizations in the UK SOEs varies, from public bodies to stock companies

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without government shareholding but regulated by the government (List of company names that
have the UK taxpayer as a shareholder). The public bodies can be in the form of Executive
Agencies (EAs), Non-Departmental Public Bodies (NDPB), public corporations or ministries.
The process of creation a new SOE varies, depending on the type of entities (OECD, 2015, p.
43). Therefore, in order to have a comprehensive understanding on the UK SOEs, one has to
have some understanding of the criteria of EAs, NDPB, ministries and public corporations in UK.
EAs is a well-defined business unit with a clear focus on delivering specified outputs
within a framework of accountability to ministers to perform executive functions within
government (Cabinet Office, 2006, p. 2). Despite this, EAs enjoy considerable freedom from
government intervention (James, 2003). It does not require any new legislation to be created
and is part of the ministries/departments. Another public bodies type of SOEs is NDPBs, which
is defined as a body which has a role in the process of national government, but it is not a
government department or part of one, and which accordingly operates to a greater or lesser
extent at arms length from ministers (OECD, 2002, p. 227). Their sources of income are from
the department in the form of grant in aid and internal income from levy powers and charitable
donations (Cabinet Office, 2006, p.13). On the other hand, NMDs are similar to the normal
government department in terms of its functions (usually more specialized). However, in a
certain condition, NMDs report directly to Parliament, instead of having a sponsoring ministry as
their representative.
Another type of SOEs is known as Public Corporations, defined as a market body
controlled by the government but has a day-to-day operating independence. It is funded by the
license fee by UK household as in the case the BBC, PC in the Department of Culture, Media
and Sport (Cabinet Office, p. 29). Lastly, the UK government consider normal stock companies
as SOEs in the event they are able to control these companies through regulation and golden
share provisions, that has been placed in some British privatized companies since early 1980s
(Bortolott and Faccio, 2007, p.14). This golden share is defined as system of the states special
powers and statutory constraints on privatized companies (Bortolott and Faccio, 2007, p.11).
In terms of the UK shareholders arrangement, it is centralized by a company-type entity
wholly owned by the HM Treasury, the UK Government Investment (UKGI) (UKGI, 2015-2016,
p.3). UKGI act as a shareholder for those arm's length bodies of the UK. UKGI are structured to
allow a meaningful shareholder function and for other UK Government (UKGI, 2015-2016, p.3).

Japan
With regard to the brief history of Japan, its high economic growth is commonly described as
due to the role of the developmental state (Johnson, 1982, p.17). A developmental state is

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defined as a state that puts economic development as the top priority of governmental policy
and is able to design effective instruments to promote such a goal (Bagchi, 2000, p.398). The
Japanese government is commonly argued for its continuing intervention across all the
administrative system that is manifested in the form of legislation (Mulgan, 2005, p.1-3, 14),
where the laws permit ministries to exercise power in particular economic and social sector
(Mulgan, 2005, 14).
Japan SOEs is known as Special Companies (Tokushu Kaisha), which refers to a
chartered company that has a strong link to the public benefit (Tamamura, p.20). Due to the
Japanese government shareholding in these companies, they are considered part of public
bodies, different from the UK SOEs that do not consider its SOEs as part of the UK public
bodies. Other than this, Special Companies is established by laws in the form of company-
specific legislation and governed by the Companies Act, similar to public corporations legal
status in the UK. Special Companies are also subject to the supervision and control of ministers
through the means of appointment of directors and financial supervision.
To understand Special Companies, one has to differentiate it with Japanese agency
called Special Corporations based on special legislation (Kosha). While this Kosha is also
established for public purposes and have to acknowledge the importance of being a profit-
oriented entity (Mizutani and Uranishi, 2006, p.5), Special Companies businesses are more
commercial-oriented than Koshas (Mizutani and Uranishi, 2006, p.5). Regardless of this, most
Special Companies derived from the privatization of national Kosha in the 1980s (Masaharu,
2003, p. 3-4).
Examples of these companies are NTT, and Japan Tobacco Inc. (Masaharu, 2003, p. 4).
With regard to government retaining control in privatized SOEs, Japanese government remains
the sole or primary shareholders in these companies after privatization(US Department of State,
2014, p.5). This is different with the UK government that retains control through golden share
provisions.
While the UK shareholders arrangement is centralized by a company-type entity, the
Japanese model of SOEs is a ministry-type structure, owned and monitors by ministries. Most
Special Companies are owned by the Ministry of Finance. However, other Ministries can also
own share in Special Companies, for example, Ministry of Transport owns shares of railways
companies. Special Companies can have mix shareholdings between the government and the
private entities, as in the case of companies that are listed on the stock exchange. The
government through the ministries exercise controls in accordance with the percentage of
shares they held in Special Companies.

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Malaysia
With regard to Malaysia, as mentioned previously, the British colonization has transformed the
social and economic of Malaysia. The lasting British influenced include a parliamentary
democracy, English common Law, and administrative system. In social aspect, the colonization
has help to ship thousand of immigrants from China and India to work in the rubber, tin, and oil
industries. Then after, British has used race and religion in their divide and rule policy with the
goal to quash any attempt at a political uprising against British rule in Malaya.
Malaysia high economic growth in the late 80s and early 90s was due to the extensive
role of the government in promoting political stability. In this case, the government
developmental role is done through policies and regulations. Following the 1969 race riot, the
government has extensively intervened in the economy by introducing the National Economic
Policy (NEP), the core policy that was aimed to eradicate poverty irrespective of race as well as
to eliminate the identification of occupation with race (New Economic Policy).Though this policy,
the government had created few agencies to support NEP (New Economic Policy). The agency
includes the Statutory Body, which is defined by the Statutory Bodies (Accounts and Annual
Reports) Act 1980 [Act 240] as Federal Statutory Bodies, incorporated pursuant to the
provisions of Federal Law and which became public authorities or agencies of Malaysia
government (Statutory Body Act).
Some Statutory Bodies have transformed their status to become stock companies
owned by the government (SOEs) (National archives website). This is one of the evolutions of
Malaysian SOEs, where the government defines it as business entities that the government has
a controlling stake (PCG, 2005, p.18). After Malaysian gained independence from the British in
1957, GLCs are linked with the takeover of Colonial companies to assume control. Other than
through nationalization, companies are also classified as GLCs when the government or
through its proxies called Governmentlinked Investment Companies (GLICs) made substantial
investment thus allowing them to have a controlling stake in these companies. On the than this,
in the 1980s, the corporatization of some government departments has transformed them to
become GLCs, where the government also exercises its control rights through its golden share
in the corporatized companies, on top of the percentage of shares held by other GLICs. As an
illustration, Tenaga Nasional Berhad (TNB) is a GLC derived from the privatization exercise of
the National Electricity Board. Although the government retained control in this company by
having a golden share, other GLICs, Khazanah Nasional Berhad, a GLIC has substantial shares
in TNB.
After the Asian Financial Crisis in 1997, the government plays a role in aiding recovery
from the crisis where some GLCs were recapitalized and restructure, such as Malaysian Airline

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System and MRCB and restructuring of financial institutions ((PCG, 2015, p.193). Currently,
there are seven GLICs with different legal status, governance structures, and investment
objectives. Despite the difference in the legal structure, these GLICs are similar in their
company-type structure that consists of management and the board of directors.
Similar to the Japanese Special Companies, Malaysia GLCs is a company-type entity,
governed by the Companies Act. However, while the Japanese government control exercise is
linked with the percentage of shareholding in Special Companies, Malaysian GLCs is said to be
controlled by the government when the government has the controlling stake in the major
decisions such as in the appointment the board of directors of GLCs, regardless of the
percentage of the shares. This control includes the golden share provision in the privatized
GLCs. In this respect, the control element for the government in the UK and Malaysia in their
respective SOEs is not confined to the percentage of shareholding but also includes other
elements such as regulations, as in the UK and the ability to decide on major decisions, as in
the Malaysian GLCs. Other than this, the golden share provision is also exercised in the UK
and Malaysian privatized SOEs, whereas, in Japan, the government retains its control in its
privatized Special Companies through the percentage of shareholding.
Malaysian government ownership in GLCs can be categorized as centralized, oversee
and manage by company-type structures entities called GLICs, a similar arrangement with
Singapore and Hungary (The World Bank, 2014, p.82). Similar to Malaysia, The UK government
has implemented a company-type structure since the establishment of UK Government
Investment (UKGI), a company wholly owned by HM treasury in April 2016 (UKGI homepage).
On the other hand, the Japanese model of SOEs is a ministry-type structure, most shares of
Special Companies are owned by the Ministry of Finance with a few exceptions of other
Ministries and a mix shareholding between the government and private entities.

CONCLUSION
Despite the substantial role of State-owned enterprises in social and development of a country,
there are arguments on SOEs pertaining to its lack of corporate governance and unclear
objectives that lead to the underperformance. In other situation, some dominant SOEs in the
market are argued to crowd-out private investment. SOEs have existed in developed and
developing countries as a government tool for development. There are different definitions,
types, governance structure, and shareholders arrangements of SOEs in the UK, Malaysia, and
Japan. The Japanese and Malaysian SOEs is a company-type entity, while the UK SOEs has a
diverse set of organizational forms, from ministries to regulated stock companies. While the
percentage of shareholding is the main criteria for the Japanese government to control its

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Special Companies, the UK and Malaysian government control element is not confined to the
percentage of shareholding but also includes the ability to regulate or decide on the major
decision of SOEs. Despite this, shareholders arrangement in both the UK and Malaysia is
company-type entities, where in this case, SOEs in both countries have a distance from the
central government. This evidenced the similarity in the government control in SOEs for both in
the UK and Malaysia that could be due to the similarities in government administrative system.
On the other hand, Special Companies are placed under the purview of ministries, displaying
that Japan Special Companies is closer to the central government, as compared to the UK and
Malaysian SOEs.
Regardless of the type and governance structure of SOEs in developed or developing
countries, their role and presence are crucial in the social and economic development.
Therefore, reforms of SOEs need to be taken in acceptable intervals so that improvements in its
performance can be introduced while rationalizing the government role in business in order to
avoid market distortion due to SOEs presence.

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