The new Code of Corporate Governance open for public consultation

Published: 29 April 2019.

The new Code on Corporate Governance, created jointly by the Croatian Financial Services Supervisory Agency (HANFA) and the Zagreb Stock Exchange, was today delivered for public consultation to the capital market participants, higher-education institutions and the interested public. Their comments and suggestions should contribute to the final Code of a high quality. The consultation will last until 29 May 2019.

The idea behind the new Corporate Governance Code was to modernize the Code published in 2007, and last updated in 2010. Existing guidelines need to be improved, and best experiences of the European and global practice need to be implemented into the new Code. The project is financed by the European Bank for Reconstruction and Development.

The Code of Corporate Governance is a document which defines corporate governance and business transparency standards of joint stock companies whose shares are listed on the Zagreb Stock Exchange. This document prescribes governance procedures based on international experience and standards, with the aim of increasing the company's business transparency, establishing quality internal processes and overseeing management functions, preventing conflicts of interest, establishing a more efficient internal control and a system of accountability. This should all contribute to greater transparency, easier investment decisions and, ultimately, better investor Protection.

“Causes of financial crises are often associated with poor corporate governance. By creating the new Code, we will avoid some overlapping with the existing laws, eliminate superfluous and unnecessary details, but also shorten the time that companies spend on reporting. In addition, we will keep and increase the standards of corporate governance, thus increasing confidence and protecting the interests of investors.“ – said Ante Žigman, President of HANFA Board.  

All companies whose shares are listed on the Zagreb Stock Exchange will have to comply with the new Code or, should this not be possible as regards certain items, to argue in detail the reasons for the non-compliance. The greatest expected benefit of the Code is an improvement in the reporting segment, and its mandatory application will begin as early as in 2020.

The most significant proposed novelties relate to responsibilities of Management and Supervisory Boards of companies, diversification of Board members, especially when it comes to gender, and the independency of Management and Supervisory Boards. Some of the proposals are as follows:

  • adoption and publication of the so-called Conduct of Business Rules with respect to members of Supervisory and Management Boards, as well as other employees,
  • Management Boards and Supervisory Boards shall consist of experts of various profiles,
  • Supervisory Board of a company shall determine a target percentage of female members of the Supervisory Board and Management Board which has to be reached in the following five years,
  • all companies shall designate a person for the function of a company secretary,
  • Management Boards shall respect a minimum period in which they have to hold securities that they obtained as a reward/bonus and they shall not be able to sell them immediately,
  • rewards for members of Supervisory Boards shall not include variable elements or other elements connected with business performance,
  • establishment of a mechanism for communication with minority shareholders and key stake-holders,
  • companies shall publish policies with respect to corporate social responsibility, including not only environmental aspects, but also human rights, anti-corruption, etc.

Moreover, with regard to both existing questionnaires, representatives of companies will be able to complete and send them electronically to only one address, instead of both to HANFA and the Zagreb Stock Exchange, as it is the case at the moment. This will ease and simplify procedures for all involved.

Original content.