State‐owned enterprises (SOEs) face conflicts of interest that stem from a government's dual role as an owner, operator and businessman on the one hand and as the protector of the public interest and therefore a regulator of the SOE on the other hand. Besides pursuing profit maximisation like any private business, SOEs often have a mandate if not an obligation, for broader social goals, such as community education and employment generation. In its function as regulator, a government has to ensure that certain standards, for instance labour and environmental regulations, will be implemented and enforced. These two conflicting goals are difficult to reconcile. The proposed solution to the conflicts of interest is to provide for a clear separation of the ownership and regulatory functions. A SOE should be granted entrepreneurial independence to enable the management to pursue exclusively commercial goals. In order to fulfil its regulatory function the government should also establish separate and independent regulatory bodies. However, a necessary precondition for positive changes is recognising the inherent conflicts of interest in SOEs, and an open and frank discussion about possible solutions.

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