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Appendix 3

Classification category definitions for the control classification

Control is the ability to determine the general corporate policy of the institutional unit. In a broad sense this means the key financial and operating policies relating to the institutional units’ strategic objectives. It does not necessarily include the direct control of day-to-day activities or operations of a particular unit. The unit’s officers would normally be expected to manage these in a way that was consistent with, and supported the overall objectives of the unit.

Control is a separate, but linked, classification that can have a strong influence on the economic behaviour of institutional units. Breakdowns by the four types of control can be linked to most institutional sector subgroups. For example, units in almost all categories of the financial institutions sector can be foreign or government controlled. However other links are neither practical nor conceptually correct; for example, it is impossible to link foreign control to the household sector.

The method of control can vary considerably. Factors to consider when determining how control can be applied include:

  • ownership of the majority of the voting interest 
  • right to appoint to the board or other governing body 
  • right to appoint and remove key personnel 
  • ability to appoint key committees of the entity 
  • golden shares and options 
  • regulations so tight they effectively dictate how the entity performs its business 
  • a dominant customer 
  • borrowing from a single entity that imposes conditional controls for the loans.

1 National private control

This subsector includes all resident units that control their own decision-making. It is a residual category once foreign, central, and local government control are determined.

2 Foreign control

In general, an institutional unit is under foreign control if a non-resident unit owns more than 50 percent of the unit’s equity. This can be passed down indirectly (cascade) to subsidiaries, as long as the ownership level stays above 50 percent.

3 Central government control

Central government exercises sovereign powers through legislation, regulations, and orders. However, laws and regulations that apply to all units as a class, or to a particular industry, should not be seen as control of these units.

Government can exercise control through ownership of the majority share, the right to appoint directors or executives, golden shares or by being a dominant customer.

4 Local government control

Local government exercises its authority through regulations, by-laws, and orders. However, regulations and by-laws that apply to all units as a class, or to a particular industry, should not be seen as control of these units.

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