Summary
Why do some state-owned enterprises replace their CEOs after political change yet become less likely than private firms to make large layoffs during crises? Following 292 Brazilian firms across dictatorship, democratization and recession, we show that state ownership does not impose a fixed public mandate. Political coalitions and economic conditions reweight organizational objectives, changing how firms are allowed to adapt. Historical evidence reveals how and why those priorities shift.
Austerity on paper, employment protection in practice
In 1981, the Brazilian government instructed its state-owned enterprises not to expand their workforces. Yet employment continued to rise. Telebras grew from approximately 94,000 employees in 1979 to 104,000 in 1984. When SERPRO, a state-owned data-processing company, dismissed workers, its chief executive was called before Congress.
These episodes show that formal mandates do not fix the weight attached to different objectives. Fiscal restraint mattered, but so did employment and the political consequences of job losses. What the state wanted from its companies was being renegotiated under pressure.
State ownership does not produce a fixed mandate
Debates often cast SOEs either as inefficient firms subject to political interference or as organizations with a durable public mission. Both views miss how the relative weight of economic, political and social objectives shifts. Governments may value control over senior appointments at one moment, while recession can strengthen financial discipline and make layoffs more politically costly at another.
In our study, published in the Journal of Management Studies, we examined 160 state-owned and 132 comparable private Brazilian firms from 1973 to 1993, covering military rule, democratization and two severe downturns.
Democracy destabilized leadership
Democratization did not affect every outcome equally: SOE leadership became more unstable, while large layoffs became less likely. SOEs experienced more CEO turnover than private firms, and democratization widened the gap. Under democracy, our estimates imply that nearly three in ten SOEs changed CEO in a given year, compared with about one in twenty-five comparable private firms.
Democratization expanded the groups able to contest control over public organizations, and senior SOE positions became useful in coalition building. We call this appointment politicization: as more political actors gained influence over senior positions, CEO tenure became increasingly contingent on the coalition supporting the appointment. This is not an argument against democracy, but an account of how democratic competition operated where appointments were insufficiently insulated from coalition bargaining.
Yet employment became more protected
The workforce followed a different pattern. SOEs were not consistently less likely to dismiss workers, but the gap appeared when job losses became especially costly.
During downturns, the estimated probability that a private firm would reduce its workforce by more than 20 per cent rose to 23.9 per cent. For SOEs, it was 6.1 per cent.
SOE workers may deliver essential services, sustain local economies and have groups able to impose political costs on governments. We call this constituency-protection salience: when job losses become more visible, employment is harder to use as an ordinary adjustment mechanism. SOEs do not always preserve jobs, nor is doing so necessarily efficient.
Why history changed what we could see
Comparing public and private firms reveals different rates of turnover and layoffs, but not why the gaps changed.
Historical analysis reconstructed the processes behind the patterns. Under military rule, SOE appointments were concentrated within a small political and technocratic circle. Democratization fragmented access to senior positions, while unions regained influence and collective dismissals attracted greater scrutiny.
Company reports, newspapers, and interviews with former policymakers showed managers responding through hiring restrictions, wage restraint and postponed investment, often stopping short of mass layoffs.
Historical evidence did more than illustrate the patterns: it showed how control over appointments and the political costs of layoffs changed, identifying the mechanisms behind the estimates.
Where will the organization absorb the pressure?
Our findings matter for those who govern, lead, or work with SOEs because political and economic pressure does not produce one predictable response. It may be absorbed through leadership replacement, employment buffering, or operational restructuring, depending on which objective becomes most salient.
The two mechanisms identified in our study suggest a practical diagnostic: How easily can political actors influence the appointment or removal of SOE leaders? And how costly would visible employment reductions be for the government and its constituencies?
When appointment politicization and constituency-protection salience are both high, pressure is likely to move upward: leaders can be replaced while deep workforce reductions remain constrained. Under other conditions, SOEs may have more room for operational restructuring. The same organization can move between these positions as coalitions, institutions, and economic conditions change.
These implications follow from our evidence. CEO turnover rose when appointments became more exposed to coalition bargaining, so reforms should clarify who can nominate, evaluate, and remove SOE leaders. Formal austerity demands also coexisted with political pressure to protect employment, so public objectives should be explicit. When governments expect an SOE to preserve jobs, maintain services, or protect strategic capabilities, those expectations should be recognized, funded, and evaluated rather than left as informal constraints on managers.
What different audiences should take from this
Our evidence comes from Brazil between 1973 and 1993, but the issue remains current. Governments still use enterprises to secure energy, finance infrastructure, provide essential services and cushion societies during crises.
For policymakers and state owners, SOE reform cannot focus only on financial targets or board structure. It must ask which objectives the firm is expected to protect, and whether those objectives are formally recognized or imposed through political pressure.
For SOE boards and executives, the challenge is to recognize when the balance between commercial and public goals has shifted. CEO replacement may signal accountability while leaving the underlying problem unresolved. Employment protection may preserve capabilities and communities, but shift the burden to fiscal transfers, lower investment, or delayed restructuring.
For private partners, investors, and lenders, political exposure is not only a risk of interference. It is also a clue to where adjustment is likely to occur: leadership continuity, employment decisions, investment, or service commitments.
For researchers, the article shows why history matters for management theory. SOEs are not defined by a fixed bundle of public and commercial goals. The weight of those goals changes as political coalitions and economic conditions change. The relevant question is what the organization is being asked to protect now, who can change that priority and where the cost of adaptation will eventually fall.
