Hanfa and ZSE sign new Code of Corporate Governance for undertakings listed on ZSE

Published: 15 September 2019

Today’s conference on the quality of corporate governance, co-organised by the Croatian Financial Services Supervisory Agency (Hanfa), gathered about 300 experts from the economic, political and academic community. It was an opportunity to present the new Corporate Governance Code that was signed by Mr Ante Žigman, President of Hanfa’s Board and Ms Ivana Gažić, President of the Board of the Zagreb Stock Exchange (ZSE).

The new Code of Corporate Governance sets standards of corporate governance and business transparency of joint-stock companies whose shares are admitted to trading on the regulated market of the ZSE. It represents an updated version of the 2010 Code and will be applied as of the beginning of the next year.

“The adoption of the New Code and its application will reduce to a minimum the possibility of the recurrence of omissions or business decisions that, as we still remember, occurred in Agrokor. The new principles introduce the best European corporate governance practices into the Croatian Capital Market and place emphasis on the responsibility of companies’ governance structures as regards expertise, independence, remuneration, relationship to shareholders and all key stakeholders”, Mr Žigman said.

The new Code requires, among other things, increased responsibility and independence of Croatian companies’ governing bodies and the adoption and publication of the Code of Conduct for all employees and management bodies, it abolishes variable bonuses for supervisory board members related to the performance of companies and sets time limits within which management board members are not allowed to dispose of securities received as remuneration for their business results. Furthermore, the Code obliges issuers to ensure increased long-term female management and supervisory board representation, provides for communication with minority shareholders and obliges issuers to disclose in their business reports their socially responsible activities, not only those related to ecological issues but also those regarding human rights protection, corruption prevention etc.

"We are very pleased to have been able to work with Hanfa on the new text of the Code. Corporate governance has been in our focus for many years, and together with the regulator, issuers and other stakeholders, we are continuously working to create an environment that fosters excellence and the highest ethical business standards. According to some research, reputation can account for 75 percent of a company’s value, which means that companies take a huge risk when taking care of only what they do, not the way they do it. The capital market rests on trust, and once trust disappears, it is very difficult to regain it. We believe that with this Code we are opening a new chapter of corporate governance in Croatia and we look forward to continuing our joint efforts to raise the transparency and standards of corporate governance," said Ms Ivana Gažić. 

The project was implemented with the financial support of the EBRD, which was addressed by the EBRD Croatia Director, Victoria Zinchuk: "We are delighted to support HANFA and ZSE in developing the new Code of Corporate Governance. As the essential purpose of a corporate governance code is to foster a dialogue between issuers and the market, we are very pleased that the new Code sets a robust and modern foundation for this dialogue. EBRD will continue to support the Croatian authorities in establishing a monitoring framework for the Code and motivating businesses to adopt its principles and put them into practice."

Corporate governance in listed companies has a major impact on trading in these companies' financial instruments. Unfortunately, the liquidity of the Croatian capital market is much lower today than it was ten years ago. In 2018, the total turnover on the Zagreb Stock Exchange amounted to HRK 2.1 billion, while in 2009, it amounted to HRK 7.4 billion. Moreover, Croatian issuers have only 40% of independent supervisory board members, while there are only 20% of women on supervisory boards and 15% on management boards. Furthermore, the average number of shareholders attending general meetings dropped from 38% in 2014 to 22% in 2018. Only 30% of issuers have a separate department or employees in charge of investor relations, while 30% of issuer companies do not have an English language website.

"In order to revive the trading volume and stimulate the capital market, one of the key factors is to secure and increase investor confidence in the financial instruments they buy, and the high level of corporate governance of companies that issue these instruments directly affects this. With the new Code, we will increase this standard in Croatia, avoid overlaps with the existing laws, eliminate redundant and unnecessary details, and shorten the time that companies spend on reporting. On the other hand, we will maintain and raise the standards of corporate governance, thereby increasing the trust of investors and protecting their interests," said Mr.Žigman. 

The assets of HANFA's supervised entities, i.e. assets under their management, today amount to over HRK 206 billion, while the market capitalisation of companies that have listed their financial instruments for trading on the regulated market amounts to HRK 145.5 billion. The trading volume in the first nine months of 2019 amounted to HRK two billion, therefore this year should be slightly better than the previous one.