Mazars Romania launched the study “Corporate Governance: building trust or compliance burden?”, where it analyses the companies listed on the Bucharest Stock Exchange (BVB), in terms of compliance with the Corporative Governance Code of BVB, implementing the principle Comply or Explain (CoE).
The findings revealed that out of the 75 companies listed on the Bucharest Stock Exchange and surveyed here only 4% had a compliance level of 100%, the average level being 60%.
The analysis was conducted based on the statements of the companies for 2017 and 2018 regarding the implementation of the recommendations within the Code, which is considered a guideline especially created to improve the practice of the listed companies on corporative governance.
Corporative governance is a developing sector within the Romanian companies and its growth can be also accelerated through specific regulations that are to be adopted. An example in this regard is the Law 162 from July 6th, 2017, regarding the statutory audit of the annual financial statements and the consolidated annual financial statements, where certain issues related to the organization of the internal audit are also consolidated. The BVB Code, with its four sections, indicates several solid principles which a healthy corporative governance framework is based on, through which companies can develop a better relationship with investors and shareholders and they can be protected against the inscrutability of the macro-economic environment.
“Corporate governance has become over the last decade an important part of the Romanian businesses driven by the need to build strong relationships with all stakeholders, increase trust in the internal control framework, communicate effectively and transparently and show openness to potential investors. Good corporate governance is essential for an organization’s long-term survival. Companies need to establish effective corporate governance strategies, implement pragmatic internal controls and effective internal audit functions to sustain their business objectives and ensure continuous and sustainable growth and transparency.”, mentioned Răzvan Butucaru, Partner & Financial Advisory Services Leader, Mazars România stated.
Section D – Investors Relationship – registered the highest compliance level
Based on the statements of the listed companies, the section dedicated to investors’ relationship registered the highest level of compliance of 75% as indicated in their responses in 2017 and in 2018.
Among the recommendations with the lowest implementation rate in this section, we would like to mention those related to the organization of meetings or conferences with analysts and investors at least twice a year. The information presented during those meetings should be published on the companies’ website within a dedicated section Investors’ Relationship. Only 38% of the companies that did not implement this recommendation mentioned their intention of doing so within the following period.
Section C – Fair reward and motivation – registered the lowest compliance level
Unlike section D, the criteria of section C registered the lowest number of affirmative responses; the compliance level decreased by 2% compared to the previous year, resulting in an average of 22%.
Amongst the recommendations with the lowest implementation rate, we would like to list the need of publishing a remuneration policy on the website, which should include details regarding the remuneration criteria and principles of the companies’ management. More than half of the companies, 58% that registered negative answers regarding the implementation of this recommendation, declared they intended to publish a remuneration policy, however without indicating a deadline.
Section B – Risk management and internal control system – registered the highest evolution, probably influenced by the enactment of certain legislative measures
The compliance level related to the risk management and internal control system increased by 8% in 2018, from 61% in 2017 to 69% in 2018.
Among the recommendations with the highest improvement rate, 10 are included in section B, and 5 of them registered an evolution exceeding 10% in 2018 compared to 2017 referring to the members and responsibilities of the audit committee. This evolution can be correlated with the implementation of certain specific regulation of Law 162 from July 6th, 2017.
Section A – Responsibilities – registered an increase of 2% in 2018 with a compliance level of 49%, compared to 47% in 2017. One of the criteria with the highest rate of non-implementation is found within this section and it refers to the implementation of a policy or a guideline regarding the assessment of the Board of Directors including the scope, criteria, and frequency of the assessment process. The non-implementation rate here is more than 50%.
Out of the total of 7,950 responses of the listed companies analyzed by Mazars Romania for the two years included in the study, there was a 3% increase of the improvement rate regarding the implementation of the recommendations presented within the Code, from 57% in 2017 to 60% in 2018. It is an encouraging result, but not sufficient for a constantly changing business environment, in which companies must be prepared to face multiple risks and challenges.