This paper presents a cross-country comparative study of corporate governance forma-tion in four transition countries that differ significantly in the reform design, implementation, and outcome. The analysis showed that corporate governance formation in these countries is characterized by both similarities and differences. Similarities originate first of all from the common features of the historical background of these countries, the features of centrally planned economy; from the similarities of the principles of the reform programs; and from similarities of certain basic, objective regularities of the post-Communist transition. Such common features include, e.g., highly insiderized initial ownership patterns, high role of man-agers, high ownership concentration, dual trends of ownership structures’ evolution towards concentration and outsiderization, and many others. The differences originate, among others, from the specific features of the countries’ historical, cultural, and institutional heritage, the soundness of the reform design and implementation, the main characteristics of the enter-prise sector, the quality of the legal base and enforcement mechanisms. Countries that had more favorable “background” (traditions of private entrepreneurship, capacities of the elites) and during the transition period managed to create good legal background for private sector and appropriate institutions are more likely to enjoy formation of more efficient corporate governance mechanisms and patterns.
Authored by: Piotr Kozarzewski
Published in 2007
The paper consists of two parts. In the first part, the authors briefly summarize the results of previous analyses devoted to such issues of relevance as the ownership structure of privatized companies in Poland and how it changed over the course of the 1990s, what factors seemed to have influenced those changes, the economic performance of these companies, and the composition of corporate governance organs such as supervisory and executive boards. In the second part, the authors present the results of econometric analysis of the relationship between performance and ownership structure evolution, focusing on concentration and the respective roles of three types of owners - managers, non-managerial employees, and strategic outside investors. In reference to the debate about whether ownership variables are exogenous or endogenous for performance, they test both hypotheses concerning the effect of ownership on performance and concerning the effect of performance on ownership change.
Authored by: Piotr Kozarzewski, Richard Woodward
Published in 2004
The paper consists of two parts. In the first part, the authors briefly summarize the results of previous analyses devoted to such issues of relevance as the ownership structure of privatized companies in Poland and how it changed over the course of the 1990s, what factors seemed to have influenced those changes, the economic performance of these companies, and the composition of corporate governance organs such as supervisory and executive boards. In the second part, the authors present the results of econometric analysis of the relationship between performance and ownership structure evolution, focusing on concentration and the respective roles of three types of owners - managers, non-managerial employees, and strategic outside investors. In reference to the debate about whether ownership variables are exogenous or endogenous for performance, they test both hypotheses concerning the effect of ownership on performance and concerning the effect of performance on ownership change.
Authored by: Piotr Kozarzewski, Richard Woodward
Published in 2004
Organizational form of Labor Motivation in Various Proprietary EnterprisesYogeshIJTSRD
Motivation is complex and multifaceted phenomenon. Work place motivation is an endless struggle for both employers and employees. The reason is that labor motivation helps to increase the productivity of the enterprise. The article discusses the organization of labor motivation in various forms of ownership, as well as research on this topic. At the end of the topic the necessary conclusions are given. Kuchkorov Gaybulla Fayzullaevich | Yuldoshev Mukhammadjon Dilshodo’g’li | Sattorov Umirzok Normengovich "Organizational form of Labor Motivation in Various Proprietary Enterprises" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Special Issue | Innovative Development of Modern Research , April 2021, URL: https://www.ijtsrd.com/papers/ijtsrd40025.pdf Paper URL : https://www.ijtsrd.com/management/hrm-and-retail-business/40025/organizational-form-of-labor-motivation-in-various-proprietary-enterprises/kuchkorov-gaybulla-fayzullaevich
This paper is an overview of the achievements in the area of employee financial participation (EFP) during the last fifty years. It addresses the question of the extent to which EFP is relevant in today’s world. EFP is distinguished from participation in management (industrial democracy), and the various types of EP are discussed. The major arguments for EFP are presented and discussed critically. The evolution of major forms of EFP, the scale of their operation in several advanced economies, and the legal and tax incentives for EFP are described. The efforts of European Union bodies to popularise this idea in all member countries are illustrated. Showing that EFP has become a broadly recognised principle of modern management in thousands of enterprises, we consider opportunities for disseminating these solutions on a wider scale, in particular in Poland. Finally, a number of directions for further research on financial participation are considered.
Authored by: Barbara Blaszczyk
Published in 2014
The OECD Corporate Governance Factbook (the Factbook) supports the implementation of good corporate governance practices by providing easily accessible and up-to-date information about countries’ institutional, legal and regulatory frameworks. Governments may use the Factbook to compare their own frameworks with that of other countries and also to obtain information about practices in specific jurisdictions.
The Factbook contains comparable data and information on 49 OECD, G20 and Financial Stability Board jurisdictions, and can be used by governments, regulators and the private sector to compare their own frameworks with those of other countries.
The Factbook was presented at the G20/OECD Seminar on Corporate Governance in Today's Capital Markets in Fukuoka on 8 June 2019 in the presence of Taro Aso, Deputy Prime Minister, Minister of Finance, and Minister of State for Financial Services of Japan, and Ángel Gurría, Secretary-General, OECD.
Thanks to all my readers. It gives boost when I get calls from my readers and am always happy to revert back to my followers and readers. I am sorry if I am unable to reply to all the e-mails due to my busy schedule.
Contact me for any type of assignments help(nominal charges).
Thanks and Regards,
Er. Bhavi Bhatia
e-mail: bhavi.bhatia.411@gmail.com
Phone: +91-9779703714, +91-9814614666
The following presentation takes you through the Corporate Governance norms as prescribed by SEBI with a bit of detail into some major Corporate governance scams in INDIA
Organizational form of Labor Motivation in Various Proprietary EnterprisesYogeshIJTSRD
Motivation is complex and multifaceted phenomenon. Work place motivation is an endless struggle for both employers and employees. The reason is that labor motivation helps to increase the productivity of the enterprise. The article discusses the organization of labor motivation in various forms of ownership, as well as research on this topic. At the end of the topic the necessary conclusions are given. Kuchkorov Gaybulla Fayzullaevich | Yuldoshev Mukhammadjon Dilshodo’g’li | Sattorov Umirzok Normengovich "Organizational form of Labor Motivation in Various Proprietary Enterprises" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Special Issue | Innovative Development of Modern Research , April 2021, URL: https://www.ijtsrd.com/papers/ijtsrd40025.pdf Paper URL : https://www.ijtsrd.com/management/hrm-and-retail-business/40025/organizational-form-of-labor-motivation-in-various-proprietary-enterprises/kuchkorov-gaybulla-fayzullaevich
This paper is an overview of the achievements in the area of employee financial participation (EFP) during the last fifty years. It addresses the question of the extent to which EFP is relevant in today’s world. EFP is distinguished from participation in management (industrial democracy), and the various types of EP are discussed. The major arguments for EFP are presented and discussed critically. The evolution of major forms of EFP, the scale of their operation in several advanced economies, and the legal and tax incentives for EFP are described. The efforts of European Union bodies to popularise this idea in all member countries are illustrated. Showing that EFP has become a broadly recognised principle of modern management in thousands of enterprises, we consider opportunities for disseminating these solutions on a wider scale, in particular in Poland. Finally, a number of directions for further research on financial participation are considered.
Authored by: Barbara Blaszczyk
Published in 2014
The OECD Corporate Governance Factbook (the Factbook) supports the implementation of good corporate governance practices by providing easily accessible and up-to-date information about countries’ institutional, legal and regulatory frameworks. Governments may use the Factbook to compare their own frameworks with that of other countries and also to obtain information about practices in specific jurisdictions.
The Factbook contains comparable data and information on 49 OECD, G20 and Financial Stability Board jurisdictions, and can be used by governments, regulators and the private sector to compare their own frameworks with those of other countries.
The Factbook was presented at the G20/OECD Seminar on Corporate Governance in Today's Capital Markets in Fukuoka on 8 June 2019 in the presence of Taro Aso, Deputy Prime Minister, Minister of Finance, and Minister of State for Financial Services of Japan, and Ángel Gurría, Secretary-General, OECD.
Thanks to all my readers. It gives boost when I get calls from my readers and am always happy to revert back to my followers and readers. I am sorry if I am unable to reply to all the e-mails due to my busy schedule.
Contact me for any type of assignments help(nominal charges).
Thanks and Regards,
Er. Bhavi Bhatia
e-mail: bhavi.bhatia.411@gmail.com
Phone: +91-9779703714, +91-9814614666
The following presentation takes you through the Corporate Governance norms as prescribed by SEBI with a bit of detail into some major Corporate governance scams in INDIA
The purpose of the paper is to present the current state of knowledge on both theoretical models and empirical evidence of interrelations between emerging corporate governance mechanisms and ownership structure of privatized enterprises in post- Communist countries.
Authored by: Barbara Blaszczyk, Iraj Hashi, Alexander Radygin, Richard Woodward
Published in 2003
The paper is devoted to formation of the modern corporate governance system in Kyrgyz Republic. The main factors that influence this process have been studied, e.g., legal background and practice of privatization; corporate and antimonopoly law; financial markets; stakeholders activities, etc. The authors conclude that there were significant positive changes in the sphere of corporate governance in Kyrgyzstan. First of all it should be marked that in the country that had no previous experience of private property and market, institutions of corporate governance were formed, there was a process of learning of both owners and managers how to govern the company using the available set of laws and regulations. But this process is far from being complete, since the real corporate relations are still very dysfunctional. In the authors’ opinion, improvement of corporate governance in the country requires a complex approach: upgrading of legislation must be accompanied by active measures aimed at improving the situation in all spheres that influence the quality of corporate governance. The main task in this sphere is creation of favorable legal and institutional climate which would lead to improvement of common norms of corporate governance and to attraction of external investments.
Authored by: Alexey Kisenkov, Piotr Kozarzewski, Irina Lukashova, Maria Lukashova, Julia Mironova
Published in 2006
The paper is devoted to the problems of the impact of privatization on corporate governance formation in Poland. It discusses the dilemmas of choosing a model for privatization and corporate governance, legal background, mechanisms of corporate governance formation depending on a privatization method applied, and the evolution of these structures in the course of systemic transformation in Poland.
Recently, new trends are seen that can be interpreted as a certain convergence of corporate governance models and a convergence between the effects of different privatization methods in corporate governance and performance of enterprises. Taking this into account, the Author elaborates on whether the “how to privatize” question still actual and on the “feasibility vs. efficiency” privatization policy dilemma.
Authored by: Piotr Kozarzewski
Published in 2006
Corporate Governance of Capital Market of BangladeshIOSR Journals
This paper outlines the conceptual, contextual and disciplinary scope of the rapidly evolving area of corporate governance of capital market of Bangladesh. As a basis for improving the rigor of research and analysis, some definitions, principles, theories and legal frame work of corporate governance are examined. This study also investigates the extent to which the capital market of Bangladesh comply with the corporate governance guidelines of Securities and Exchange Commission Bangladesh(SECB) and it also indicates that only sound corporate governance practices are the foundation upon which the trust of investors(stakeholders, banks, and non bank financial institutions) and other stakeholders is founded.
Governance in State-Owned Enterprises Revisited - The Cases of Water and Elec...FGV Brazil
Research working paper - November 2007.
Governance in State-Owned Enterprises Revisited - The Cases of Water and Electricity in Latin America and the Caribbean.
By Luis Andres, José Luis Guasch and Sebastián Lopez Azumendi
Publication courtesy of FGV’s Center for Regulation and Infrastructure Studies (FGV/CERI).
For more information about FGV/CERI, in Portuguese, please visit: www.fgv.br/ceri
61
Management
2019
Vol. 23, No. 1
ISSN 1429-9321DOI: 10.2478/manment-2019-0004
HANNA DOROSHUK
Organizational
development as
a modern management
tool for transformation
of the company (case
of Ukrainian energy
company)
“You never change things by fi ghting the existing reality. To
change something, build a new model that makes
the existing model obsolete”
Richard Buckminster Fuller
1. Introduction
Globalization processes in the world of
economics lead to a growing number of
interconnections and interdependencies
between different economical objects, make
the businesses and organizations structures
much more complicated and, as a result, it
becomes rather diffi cult to manage them. In
fact, organizational development as one of the
methods of changes management is becoming
more relevant, because of its impact on the
company’s activities and because it is a tool
that, for the sake of development, maximizes
human potential and uses modern managerial
technologies.
While organizational development can be
considered as one of changes management
methods, it also can be one of the organization
development directions. It is worth noticing that
organizational development, in comparison
with other methods of changes management,
Assoc. Prof. Hanna Doroshuk, Ph.D.,
Odessa National Polytechnic
University,
Department of Management,
Ukraine,
ORCID: 0000-0002-0340-7514.
62
Management
2019
Vol. 23, No. 1
Organizational development as a modern
management tool for transformation of the
company (case of Ukrainian energy company)
applies the behavioural approach, motivation and staff development, besides,
organizational development always deals with development of the entire
organization. As a whole this development is longer and larger in scale than
any other methods of changes management, it uses evolutionary approach of
organization development.
2. Methodology of organizational development
The issues of organizational changes can be found in foreign papers and in
works of our scientists. The researches proposed numerous methods, models
and techniques. The most popular directions of change are business process
reengineering and organizational development.
The both directions derive from the need for a fundamental revision of the
existing organization and conduct of business and the implementation of
radical changes that affect the entire organization. The difference between these
approaches is that in the case of reengineering the organization redesigns its
processes and systems on the basis of which the business practice, people and
organization culture change, while in the case of organizational development
at the beginning there must be fi rst trainings and informing of people and only
after that the business conducting is started to be changed (Doroshuk, 2014).
The peculiarity of using organizational development as a modern management
method is that this method incorporates modern manage ...
Corporate Governance and Its Impact on Financial Performance in Nepalese Comm...IJMREMJournal
Corporate governance is about building credibility, ensuring transparency and accountability as well as
maintaining aneffective channel of information disclosure that would foster good corporate performance.
Corporate governance is the extent to which companies are run in an open and honest manner is important for
overall market confidence. Corporate governance describes all of the devices, institutions, and mechanisms by
which corporations are governed. The basic objective of the study is to analyze the level and structure of
corporate governance in Nepal and determine its effects on financial performance in commercial banks of
Nepal. Descriptive research design has been followed and multistage sampling method is used. Both primary as
well as secondary data have been used to collect the information. It is found that corporate governance has
played the significant role to keep the corporate governance in Nepalese commercial Banks
Summary of Research on Financial Governance TheoryYogeshIJTSRD
Since the theory of financial governance came into being in my country’s academic circles, scholars have systematically studied financial governance in terms of the connotation, system, subject, and object of financial governance on the basis of foreign research and based on my country’s financial practice. A relatively complete theory of financial governance. But in general, due to the short research time, the research perspective is not comprehensive enough, and the research needs to be further enriched and developed. Zhang Yue "Summary of Research on Financial Governance Theory" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd44982.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/44982/summary-of-research-on-financial-governance-theory/zhang-yue
“The Ethics of Corporate Governance: Bangladesh Perspective”Anamika Hore
This Assignment is about the ethics of corporate governance of Bangladesh. Here in this assignment some common Corporate Governance theories are also evaluated. In Bangladesh what ethics are followed rigidly by the corporations of Bangladesh are also focused.
The Relevance Of The Organization's Entrepreneurial Leader" Case Study - Auto...inventionjournals
Entrepreneurship is a concept increasingly present in business organizations or in educational systems, assuming an incremental prominence in public debate regarding the future of economic policies for competitiveness within the knowledge economy and information society. Its relevance prompted the study in its various aspects, worsened by the structural crisis of capital. The privileged behavioral analysis of the entrepreneur's profile and identification of its role in organizations was supported by a case study on the automotive companies in Portugal, Vila Nova Famalicão. It states a close relationship between the entrepreneurship concept and the fruitful discovery of opportunities, which are based on spirit of change and innovation, central to the entrepreneur. Competitiveness appears as a basic premise in value creation and sustainable progress of organizations. The study also allowed confirming a dissimilarity of concepts and approaches, grounded in empirical and scientific evidence that is still exiguous. The work thus aimed to raise awareness of organizational and academic communities to this issue, contributing to a more comprehensive and current understanding of its relevance within the organizations. The multidimensional paradigm change occurs in a structurally weakened economic and financial situational context, which instigates a transfiguration of the concepts and patterns observed until now. Entrepreneurship and the behavioral profile of the entrepreneurial leader are of paramount importance in the effective value creation process: incremental, distinctive and sustainable.
A C A D E M I C P A P E RReforming policy roles in the Jor.docxblondellchancy
A C A D E M I C P A P E R
Reforming policy roles in the Jordanian policy‐making process
Rami Tbaishat1 | Ali Rawabdeh1 | Khaled Qassem Hailat2 | Shaker A Aladwan1 |
Samir Al Balas1 | Mohammed Iqbal Al Ajlouny3
1 Department of Public Administration, Faculty
of Economics and Administrative Sciences,
Yarmouk University, Irbid, Jordan
2 Department of Marketing, Faculty of
Economics and Administrative Sciences,
Yarmouk University, Irbid, Jordan
3 Department of Business Administration,
Faculty of Business, Al‐zaytoonah University
of Jordan, Irbid, Jordan
Correspondence
Rami Tbaishat, Department of Public
Administration, Faculty of Economics and
Administrative Sciences, Yarmouk University,
Irbid 21163, Jordan.
Email: [email protected]
The aim of this diagnostic analysis is to identify the weaknesses in the process of
reforming policy in Jordan. This study will first present a diagnostic analysis of the
characteristics of administrative reform in Jordan. Following this, weaknesses will be
identified with a focus on policy roles in the policy‐making process. Administrative
reform has long been an area of interest and development in Jordan since the early
1980s. Conferences were held, political and technical committees formed, and exper-
tise and resources invested. The outcomes of these programs have been below
expectations, with inadequate impact. This investigation paid attention on how
Jordan can best invest its resources to maximize efficiency in the public sector, spe-
cifically the process of reforming policy. This study concludes that the primary factor
impacting efficiency, accountability, and responsiveness is the degree of authority at
both national and organizational level. Recent efforts in Jordan to tackle these issues
could create more conflicts that threaten the Jordanian government's stability. Other
resources have been dedicated to reviewing the rules and values that govern the rela-
tionship between state and society.
1 | INTRODUCTION
The bureaucratic ethos that emphasizes the importance
of centrally controlled rationality considers one of the
most important characteristics of the political regime
which Jordan has experienced during the last decades
(UNDP Report, 2015). In this context, economic
performance in most cases proved to be less than
adequate for either ensuring self‐sustained development
or, at a minimum, being able to meet the basic
requirements of the populace. In Jordan, the movement
away from the authoritarian past is characterized by
the efforts to maintain or improve the neoliberal
foundations of the economy while opening the political
arena to ensure the participation of a traditionally
marginalized citizenry that demands an equitable and
prompt share of the benefits of economic growth.
Despite the official political structure, it is so clear that the domination
of the executive branch over the judicial and legislative branch of
government is eminent. The extreme cen ...
A C A D E M I C P A P E RReforming policy roles in the Jor.docxmakdul
A C A D E M I C P A P E R
Reforming policy roles in the Jordanian policy‐making process
Rami Tbaishat1 | Ali Rawabdeh1 | Khaled Qassem Hailat2 | Shaker A Aladwan1 |
Samir Al Balas1 | Mohammed Iqbal Al Ajlouny3
1 Department of Public Administration, Faculty
of Economics and Administrative Sciences,
Yarmouk University, Irbid, Jordan
2 Department of Marketing, Faculty of
Economics and Administrative Sciences,
Yarmouk University, Irbid, Jordan
3 Department of Business Administration,
Faculty of Business, Al‐zaytoonah University
of Jordan, Irbid, Jordan
Correspondence
Rami Tbaishat, Department of Public
Administration, Faculty of Economics and
Administrative Sciences, Yarmouk University,
Irbid 21163, Jordan.
Email: [email protected]
The aim of this diagnostic analysis is to identify the weaknesses in the process of
reforming policy in Jordan. This study will first present a diagnostic analysis of the
characteristics of administrative reform in Jordan. Following this, weaknesses will be
identified with a focus on policy roles in the policy‐making process. Administrative
reform has long been an area of interest and development in Jordan since the early
1980s. Conferences were held, political and technical committees formed, and exper-
tise and resources invested. The outcomes of these programs have been below
expectations, with inadequate impact. This investigation paid attention on how
Jordan can best invest its resources to maximize efficiency in the public sector, spe-
cifically the process of reforming policy. This study concludes that the primary factor
impacting efficiency, accountability, and responsiveness is the degree of authority at
both national and organizational level. Recent efforts in Jordan to tackle these issues
could create more conflicts that threaten the Jordanian government's stability. Other
resources have been dedicated to reviewing the rules and values that govern the rela-
tionship between state and society.
1 | INTRODUCTION
The bureaucratic ethos that emphasizes the importance
of centrally controlled rationality considers one of the
most important characteristics of the political regime
which Jordan has experienced during the last decades
(UNDP Report, 2015). In this context, economic
performance in most cases proved to be less than
adequate for either ensuring self‐sustained development
or, at a minimum, being able to meet the basic
requirements of the populace. In Jordan, the movement
away from the authoritarian past is characterized by
the efforts to maintain or improve the neoliberal
foundations of the economy while opening the political
arena to ensure the participation of a traditionally
marginalized citizenry that demands an equitable and
prompt share of the benefits of economic growth.
Despite the official political structure, it is so clear that the domination
of the executive branch over the judicial and legislative branch of
government is eminent. The extreme cen.
Similar to CASE Network Studies and Analyses 347 - Corporate Governance Formation in Poland, Kyrgyzstan, Russia, and Ukraine (20)
The report examines the social and economic drivers and impact of circular migration between Belarus and Poland, Slovakia, and the Czech Republic. The core question the authors sought to address was how managing circular migration could, in the long term, help to optimise labour resources in both the country of origin and the destination countries. In the pages that follow, the authors of the report present the current and forecasted labour market and demographic situation in their respective countries as well as the dynamics and characteristics of short-term labour migration flows between Belarus and Poland, Slovakia, and the Czech Republic, concentrating on the period since 2010. They also outline and discuss related policy responses and evaluate prospects for cooperation on circular migration.
Podręcznik został opracowany w celu przekazania trenerom i nauczycielom podstawowej wiedzy, która może być przydatna w prowadzeniu szkoleń promujących pracę rejestrowaną. Prezentuje on z jednej strony korzyści z pracy rejestrowanej, z drugiej – potencjalne koszty związane z pracą nierejestrowaną. W pierwszej kolejności informacje te przedstawiono w odniesieniu do pracowników najemnych (rozdział 2), podkreślając w sposób szczególny to, że negatywne konsekwencje pracy nierejestrowanej są ponoszone przez całe życie. Ze względu na specyficzną sytuację cudzoziemców pracujących w Polsce konsekwencje ponoszone przez tę grupę opisano oddzielnie (rozdział 3). Ponadto zaprezentowano skutki dotyczące pracodawców z szarej strefy z wyodrębnieniem tych, którzy zatrudniają cudzoziemców (rozdział 4). Uzupełnieniem przedstawionych informacji jest opis działań podejmowanych przez państwo w celu ograniczenia zjawiska pracy nierejestrowanej w Polsce (rozdział 5) oraz prowadzonych w Wielkiej Brytanii, czyli w kraju będącym liderem w walce z szarą strefą (rozdział 6).
European countries face a challenge related to the economic and social consequences of their societies’ aging. Specifically, pension systems must adjust to the coming changes, maintaining both financial stability, connected with equalizing inflows from premiums and spending on pensions, and simultaneously the sufficiency of benefits, protecting retirees against poverty and smoothing consumption over their lives, i.e. ensuring the ability to pay for consumption needs at each stage of life, regardless of income from labor.
One of the key instruments applied toward these goals is the retirement age. Formally it is a legally established boundary: once people have crossed it – on average – they significantly lose their ability to perform work (the so-called old-age risk). But since the 1970s, in many developed countries the retirement age has become an instrument of social and labor-market policy. Specifically, in the 1970s and ‘80s, an early retirement age was perceived as a solution allowing a reduction in the supply of labor, particularly among people with relatively low competencies who were approaching retirement age, which is called the lump of labor fallacy. It was often believed that people taking early retirement freed up jobs for the young. But a range of economic evidence shows that the number of jobs is not fixed, and those who retire don’t in fact free up jobs. On the contrary, because of higher spending by pension systems, labor costs rise, which limits the supply of jobs. In general, a good situation on the labor market supports employment of both the youngest and the oldest labor force participants. Additionally, a lower retirement age for women was maintained, which resulted to a high degree from cultural conditions and norms that are typical for traditional societies.
Until now, the banking sector has been one of the strong points of Poland’s economy. In contrast to banks in the U.S. and leading Western European economies, lenders in Poland came through the 2008 global financial crisis without a scratch, without needing state financial support. But in recent years the industry’s problems have been growing, creating a threat to economic growth and gains in living standards.
For an economy’s productivity to increase, funds can’t go to all companies evenly, and definitely shouldn’t go to those that are most lacking in funds, but to those that will use them most efficiently. This is true of total external financing, and thus funding both from the banking sector and from parabanks, the capital market and funds from public institutions. In Poland, in light of the relatively modest scale of the capital market, banks play a clearly dominant role in external financing of companies. This is why the author of this text focuses on the bank credit allocation efficiency.
The author points out that in the very near future, conditions will emerge in Poland which – as the experience of other countries shows – create a risk of reduced efficiency of credit allocation to business. Additionally, in Poland today, bank lending to companies is to a high degree being replaced by funds from state aid, which reduces the efficiency of allocation of external funds to companies (both loans and subsidies), as allocation of government subsidies is not usually based on efficiency. This decline in external financing allocation efficiency may slow, halt or even reverse the process, that has been uninterrupted for 28 years, of Poland’s convergence, i.e. the narrowing of the gap in living standards between Poland and the West.
The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance.
This paper is organized as follows: Chapter 2 deals with the economic characteristics of the COVID-19 pandemic and its impact on the effectiveness of the monetary policy response measures undertaken. In Chapter 3, we analyse the monetary policy decisions of the ECB (and other major CBs for comparison) and their effectiveness in achieving the declared policy goals in the short term. Chapter 4 is devoted to an analysis of the policy challenges which may be faced by the ECB and other major CBs once the pandemic emergency comes to its end. Chapter 5 contains a summary and the conclusions of our analysis.
Purpose: This paper tries to identify the wage gap between informal and formal workers and tests for the two-tier structure of the informal labour market in Poland.
Design/methodology/approach: I employ the propensity score matching (PSM) technique and use data from the Polish Labour Force Survey (LFS) for the period 2009–2017 to estimate the wage gap between informal and formal workers, both at the means and along the wage distribution. I use two definitions of informal employment: a) employment without a written agreement and b) employment while officially registered as unemployed at a labour office. In order to reduce the bias resulting from the non-random selection of
individuals into informal employment, I use a rich set of control variables representing several individual characteristics.
Findings: After controlling for observed heterogeneity, I find that on average informal workers earn less than formal workers, both in terms of monthly earnings and hourly wage. This result is not sensitive to the definition of informal employment used and is
stable over the analysed time period (2009–2017). However, the wage penalty to informal employment is substantially higher for individuals at the bottom of the wage distribution, which supports the hypothesis of the two-tier structure of the informal labour market in Poland.
Originality/value: The main contribution of this study is that it identifies the two-tier structure of the informal labour market in Poland: informal workers in the first quartile of the wage distribution and those above the first quartile appear to be in two partially different segments of the labour market.
The rule of law, by securing civil and economic rights, directly contributes to social prosperity and is one of our societies’ greatest achievements. In the European Union (EU), the rule of law is enshrined in the Treaties of its founding and is recognised not just as a necessary condition of a liberal democratic society, but also as an important requirement for a stable, effective, and sustainable market economy. In fact, it was the stability and equality of opportunity provided by the rule of law that enabled the post-war Wirtschaftswunder in Germany and the post-Communist resuscitation of the economy in Poland.
But the rule of law is a living concept that is constantly evolving – both in its formal, de jure dimension, embodied in legislation, and its de facto dimension, or its reception by society. In Poland, in particular, according to the EU, the rule of law has been heavily challenged by government since 2015 and has evolved amid continued pressure exerted on the institutions which execute laws. More recently, the outbreak of the COVID-19 pandemic transformed the perception of the rule of law and its boundaries throughout the EU and beyond (Marzocchi, 2020).
This Study contains Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified methodology for 2019, the year immediately preceding the analysis, and includes revised estimates for 2014-2017. It also includes the updated and extended results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). As a novelty, the econometric analysis to forecast potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT Gap in 2020 is reported.
In 2018, most European Union (EU) Member States (MS) saw a slight decrease in the pace of gross domestic product (GDP) growth, but the economic conditions for increasing tax compliance remained favourable. We estimate that the VAT total tax liability (VTTL) in 2018 increased by 3.6 percent whereas VAT revenue increased by 4.2 percent, leading to a decline in the VAT Gap in both relative and nominal terms. In relative terms, the EU-wide Gap dropped to 11 percent and EUR 140 billion. Fast estimates show that the VAT Gap will likely continue to decline in 2019.
Of the EU-28, the smallest Gaps were observed in Sweden (0.7 percent), Croatia (3.5 percent), and Finland (3.6 percent), the largest – in Romania (33.8 percent), Greece (30.1 percent), and Lithuania (25.9 percent). Overall, half of the EU-28 MS recorded a Gap above 9.2 percent. In nominal terms, the largest Gaps were recorded in Italy (EUR 35.4 billion), the United Kingdom (EUR 23.5 billion), and Germany (EUR 22 billion).
The euro is the second most important global currency after the US dollar. However, its international role has not increased since its inception in 1999. The private sector prefers using the US dollar rather than the euro because the financial market for US dollar-denominated assets is larger and deeper; network externalities and inertia also play a role. Increasing the attractiveness of the euro outside the euro area requires, among others, a proactive role for the European Central Bank and completing the Banking Union and Capital Market Union.
Forecasting during a strong shock is burdened with exceptionally high uncertainty. This gives rise to the temptation to formulate alarmist forecasts. Experiences from earlier pandemics, particularly those from the 20th century, for which we have the most data, don’t provide a basis for this. The mildest of them weakened growth by less than 1 percentage point, and the worst, the Spanish Flu, by 6 percentage points. Still, even the Spanish Flu never caused losses on the order of 20% of GDP – not even where it turned out to be a humanitarian disaster, costing the lives of 3-5% of the population. History suggests that if pandemics lead to such deep losses at all, it’s only in particular quarters and not over a whole year, as economic activity rebounds. The strength of that rebound is largely determined by economic policy. The purpose of this work is to describe possible scenarios for a rebound in Polish economic growth after the epidemic.
A separate issue, no less important, is what world will emerge from the current crisis. In the face of the 2008 financial crisis, White House Chief of Staff Rahm Emanuel said: “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” Such changes can make the economy and society function better than before the crisis. Unfortunately, the opportunities created by the global financial crisis were squandered. Today’s task is more difficult; the scale of various problems has expanded even more. Without deep structural and institutional changes, the world will be facing enduring social and economic problems, accompanied by long-term stagnation.
"Many brilliant prophecies have appeared for the future of the EU and our entire planet. I believe that Europe, in its own style, will draw pragmatic conclusions from the crisis, not revolutionary ones; conclusions that will allow us to continue enjoying a Europe without borders. Brussels will demonstrate its usefulness; it will react ably and flexibly. First of all, contrary to the deceitful statements of members of the Polish government, the EU warned of the threats already in 2021. Secondly, already in mid-March EU assistance programs were ready, i.e. earlier than the PiS government’s “shield” program. The conclusion from the crisis will be a strengthening of all the preventive mechanisms that allow us to recognize threats and react in time of need. Research programs will be more strongly directed toward diagnosing and treating infectious diseases. Europe will gain greater self-sufficiency in the area of medical equipment and drugs, and the EU – greater competencies in the area of the health service, thus far entrusted to the member states. The 2021-27 budget must be reconstructed, to supplement the priority of the Green Deal with economic stimulus programs. In this way structural funds, which have the greatest multiplier effect for investment and the labor market, may return to favor. So once again: an addition, as a conclusion from the crisis, and not a reinvention of the EU," writes Dr. Janusz Lewandowski the author of the 162nd mBank-CASE seminar Proceeding.
Dla wielu rodaków europejskość Polski jest oczywista, trudno jest im nawet wyobrazić sobie, jak kształtowałyby się losy naszego kraju bez uczestnictwa w integracji europejskiej. Szczególnie młode pokolenie traktuje osiągnięty przez nas dzięki uczestnictwie w Unii ogromny postęp cywilizacyjny jako coś danego i naturalnego. Jednak świadomość tego, jaki był nasz punkt wyjścia, jaką przeszliśmy drogę i jak przyczyniły się do tego unijne działania oraz jakie wynikały z tego korzyści powinna nam stale towarzyszyć. Bez tej świadomości, starannego weryfikowania faktów i docenienia naszych osiągnięć grozi nam uleganie niesprawdzonym argumentom przeciwników integracji europejskiej i popełnienie nieodwracalnych błędów. Dla tych, którzy chcą poznać te fakty, przygotowany został raport "Nasza Europa. 15 lat Polski w Unii Europejskiej". Podjęto w nim ocenę 15 lat członkostwa Polski z perspektywy doświadczeń procesu integracji, z jego barierami i sukcesami, a także wyzwaniami przyszłości.
Raport jest wynikiem pracy zbiorowej licznych ekspertów z różnych dziedzin, od wielu lat analizujących wielowymiarowe efekty działania instytucji UE oraz współpracy z krajami członkowskimi na podstawie europejskich wartości i mechanizmów. Autorzy podsumowują korzyści członkostwa Polski w Unii Europejskiej na podstawie faktów, nie stroniąc jednakże od własnych ocen i refleksji.
This report is the result of the joint work of a number of experts from various fields who have been - for many years – analysing the multidimensional effects of EU institutions and cooperation with Member States pursuant to European values and mechanisms. The authors summarise the benefits of Poland’s membership in the EU based on facts; however, they do not hide their own views and reflections. They also demonstrate the barriers and challenges to further European integration.
This report was prepared by CASE, one of the oldest independent think tanks in Central and Eastern Europe, utilising its nearly 30 years of experience in providing objective analyses and recommendations with respect to socioeconomic topics. It is both an expression of concern about Poland’s future in the EU, as well as the authors’ contribution to the debate on further European integration.
Poland’s new Employee Capital Plans (PPK) scheme, which is mandatory for employers, started to be implemented in July 2019. The article looks at the systemic solutions applied in the programme from the perspective of the concept of the simultaneous reconstruction of the retirement pension system. The aim is to present arguments for and against the project from the point of view of various actors, and to assess the chances of success for the new system. The article offers a detailed study of legal solutions, an analysis of the literature on the subject, and reports of institutions that supervise pension funds. The results of this analysis point to the lack of cohesion between certain solutions of the 1999 pension reform and expose a lack of consistency in how the reform was carried out, which led to the eventual removal of the capital part of the pension system. The study shows that additional saving for old age is advisable in the country’s current demographic situation and necessary for both economic and social reasons. However, the systemic solutions offered by the government appear to be chiefly designated to serve short-term state interests and do not create sufficient incentives for pension plan participants to join the programme.
Belarus was among the few post-communist countries to resign from comprehensive market reforms and attempt to improve the efficiency of the economy through administrative means, leaving market mechanisms only an auxiliary role. Since its inception, the ‘Belarusian economic model’ has undergone several revisions of a de-statisation and de-regulation kind, but still the Belarusian economy remains dominated by the state. This paper analyses the characteristic features of the Belarusian economic system – especially those related to the public sector – as well as its evolution over time during the period following its independence. The paper concludes that during the post-Soviet period, the Belarusian economy evolved from a quasi-Soviet system based on state property, state planning, support to inefficient enterprises and the massive redistribution of funds to a more flexible hybrid model where the public sector still remains the core of the economy. The case of Belarus shows that presently there is no appropriate theoretical perspective which, in an unmodified form, could be applied to study this type of economic system. Therefore, a new perspective based on an already existing but updated approach or a multidisciplinary approach that incorporates the duality of the Belarusian economy is required.
Belarusian economy has been stagnating in 2011-2015 after 15 years of a high annual average growth rate. In 2015, after four years of stagnation, the Belarusian economy slid into a recession, its first since 1996, and experienced both cyclical and structural recessions. Since 2015, the Belarusian government and the National Bank of Belarus have been giving economic reforms a good chance thanks to gradual but consistent actions aimed at maintaining macroeconomic stability and economic liberalization. It seems that the economic authorities have sustained more transformation efforts during 2015-2018 than in the previous 24 years since 1991.
As the relative welfare level in Belarus is currently 64% compared to the Central and Eastern Europe (CEE) countries average, Belarus needs to build stronger fundaments of sustainable growth by continuing and accelerating the implementation of institutional transformation, primarily by fostering elimination of existing administrative mechanisms of inefficient resource allocation. Based on the experience of the CEE countries’ economic transformation, we highlight five lessons for the purpose of the economic reforms that Belarus still faces today: keeping macroeconomic stability, restructuring and improving the governance of state-owned enterprises, developing the financial market, increasing taxation efficiency, and deepening fiscal decentralization.
Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.
Estonia has Europe’s most transparent tax system (while Poland is second-to-last, in 35th place), and is also known for its pioneering approach to taxation of legal persons’ income. Since 2000, payers of Estonian corporate tax don’t pay tax on their profits as long as they don’t realize them. In principle, this approach should make access to capital easier, spark investment by companies and contribute to faster economic growth. Are these and other positive effects really noticeable in Estonia? Have other countries followed in this country’s footsteps? Would deferment of income tax be possible and beneficial for Poland? How would this affect revenue from tax on corporate profits? Would investors come to see Poland as a tax haven? Does the Estonian system limit tax avoidance and evasion, or actually the opposite? Is such a system fair? Are intermediate solutions possible, which would combine the strengths or limit the weaknesses of the classical and Estonian models of profit tax? These questions are discussed in the mBank-CASE seminar Proceeding no. 163, written by Dmitri Jegorov, deputy general secretary of the Estonian Finance Ministry, who directs the country’s tax and customs policy, Dr. Anna Leszczyłowska of the Poznań University of Economics and Business and Aleksander Łożykowski of the Warsaw School of Economics.
The trade war between the U.S. and China began in March 2018. The American side raised import duties on aluminum and steel from China, which were later extended to other countries, including Canada, Mexico and the EU member states. This drew a negative reaction from those countries and bilateral negotiations with the U.S. In June 2018 America, referring to Section 301 of its 1974 Trade Act, raised tariffs to 25% on 818 groups of products imported from China, arguing that the tariff increase was a response to years of theft of American intellectual property and dishonest trade practices, which has caused the U.S. trade deficit.
Will this trade war mean the collapse of the multilateral trading system and a transition to bilateral relationships? What are the possibilities for increasing tariffs in light of World Trade Organization rules? Can the conflict be resolved using the WTO dispute-resolution mechanism? What are the consequences of the trade war for American consumers and producers, and for suppliers from other countries? How high will tariffs climb as a result of a global trade war? How far can trade volumes and GDP fall if the worst-case scenario comes to pass? Professor Jan J. Michałek and Dr. Przemysław Woźniak give answers to these questions in the mBank-CASE Seminar Proceeding No. 161.
This Report has been prepared for the European Commission, DG TAXUD under contract TAXUD/2017/DE/329, “Study and Reports on the VAT Gap in the EU-28 Member States” and serves as a follow-up to the six reports published between 2013 and 2018.
This Study contains new estimates of the Value Added Tax (VAT) Gap for 2017, as well as updated estimates for 2013-2016. As a novelty in this series of reports, so called “fast VAT Gap estimates” are also presented the year immediately preceding the analysis, namely for 2018. In addition, the study reports the results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). It also scrutinises the Policy Gap in 2017 as well as the contribution that reduced rates and exemptions made to the theoretical VAT revenue losses.
More from CASE Center for Social and Economic Research (20)
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The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
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what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
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@Pi_vendor_247
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• Real GDP growth slowed down due to problems with access to electricity caused by the destruction of manoeuvrable electricity generation by Russian drones and missiles.
• Exports and imports continued growing due to better logistics through the Ukrainian sea corridor and road. Polish farmers and drivers stopped blocking borders at the end of April.
• In April, both the Tax and Customs Services over-executed the revenue plan. Moreover, the NBU transferred twice the planned profit to the budget.
• The European side approved the Ukraine Plan, which the government adopted to determine indicators for the Ukraine Facility. That approval will allow Ukraine to receive a EUR 1.9 bn loan from the EU in May. At the same time, the EU provided Ukraine with a EUR 1.5 bn loan in April, as the government fulfilled five indicators under the Ukraine Plan.
• The USA has finally approved an aid package for Ukraine, which includes USD 7.8 bn of budget support; however, the conditions and timing of the assistance are still unknown.
• As in March, annual consumer inflation amounted to 3.2% yoy in April.
• At the April monetary policy meeting, the NBU again reduced the key policy rate from 14.5% to 13.5% per annum.
• Over the past four weeks, the hryvnia exchange rate has stabilized in the UAH 39-40 per USD range.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
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CASE Network Studies and Analyses 347 - Corporate Governance Formation in Poland, Kyrgyzstan, Russia, and Ukraine
1. Studia i Analizy
Studies & Analyses
Centrum Analiz
Spoleczno – Ekonomicznych
Center for Social and Economic Research
3 4 7
Piotr Kozarzewski
Corporate Governance Formation in Poland, Kyr- gyzstan, Russia, and Ukraine
Warsaw,June 2007
3. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
Contents
Abstract.................................................................................................................5
1. Introduction.......................................................................................................6
2. Post-Communist reforms.................................................................................7
2.1. Conditions for the start of the reforms................................................7
2.2. Reform policies...................................................................................10
2.3. Reform outcome..................................................................................19
3. Evolution of ownership structure.................................................................27
4. Corporate governance goals, problems, and practices..............................33
5. Actors of corporate governance...................................................................39
6. Conclusions....................................................................................................43
References..........................................................................................................45
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4. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
Piotr Kozarzewski is a member of the Council of the CASE – Center for Social and Eco- nomic Research, Warsaw, and a docent at the Institute of Political Studies, Polish Academy of Sciences. He participated in numerous research projects focusing on transition problems, especially political economy of transformation, privatization, corporate governance and en- terprise sector reform in Poland and other countries of the former Soviet block. He also has an extensive experience in advisory projects for the governments of post-Communist coun- tries. He is an author of more than 150 publications and research papers, including Under- standing Reform: The Case of Poland (CASE, Warsaw 2005, together with Jacek Kochanowicz and Richard Woodward) and Prywatyzacja w państwach postkomunistycznych [Privatization in Post-Communist Countries] (ISP PAN, Warsaw 2006).
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5. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
Abstract
This paper presents a cross-country comparative study of corporate governance forma- tion in four transition countries that differ significantly in the reform design, implementation, and outcome. The analysis showed that corporate governance formation in these countries is characterized by both similarities and differences. Similarities originate first of all from the common features of the historical background of these countries, the features of centrally planned economy; from the similarities of the principles of the reform programs; and from similarities of certain basic, objective regularities of the post-Communist transition. Such common features include, e.g., highly insiderized initial ownership patterns, high role of man- agers, high ownership concentration, dual trends of ownership structures’ evolution towards concentration and outsiderization, and many others. The differences originate, among others, from the specific features of the countries’ historical, cultural, and institutional heritage, the soundness of the reform design and implementation, the main characteristics of the enter- prise sector, the quality of the legal base and enforcement mechanisms. Countries that had more favorable “background” (traditions of private entrepreneurship, capacities of the elites) and during the transition period managed to create good legal background for private sector 5
6. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
and appropriate institutions are more likely to enjoy formation of more efficient corporate governance mechanisms and patterns.
1. Introduction
This paper presents a cross-country comparative study of corporate governance forma- tion in four transition countries: Poland, Kyrgyzstan, Russian Federation, and Ukraine. These countries were chosen because, apart from the fact that all them originated from the centrally planned Soviet type economy and since the beginning of the 1990s implement reform pro- grams aimed at building of market economy, they differ significantly both in the ways this goal have to be achieved (i.e., patterns of the reform process), and in reform outcome. The main task is to find out what are the main peculiarities of corporate governance regimes that have formed in these countries and to try to find the most important factors that contributed to the present state of corporate governance and major differences between them.
The task of analyzing successes and failures of corporate governance in transition economies is of crucial importance because the quality of corporate governance is one of the key factors determining the microeconomic efficiency of the enterprise sector and quality of investment climate of the country. Consequently, this pre-determines perspectives for catch- ing-up economic growth of the national economies.
We use the term “corporate governance” in a broad sense as the system of legal and economic institutions that create formal and informal regulatory system that determines be- havior of enterprises. The central place is attributed to mechanisms of investors’ and other stakeholders’ impact on enterprises’ functioning. This understanding of corporate govern- ance is in line with the OECD 1994 definition: “Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the cor- poration, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also pro- vides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.”1
In the paper, an interdisciplinary approach involving microeconomic, social, institu- tional, and historical analyses was used. The study is of a mostly qualitative character; quan- titative analysis was used only where direct country data comparison is possible. The paper
1 Http://www.encycogov.com/WhatIsGorpGov.asp.
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7. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
is based on the findings on the INTAS “Corporate Governance Practices and Prospects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project,2 various pro- jects on corporate governance in Poland and other countries carried out by CASE – Center for Social and Economic research, and well as raw data and findings of other researchers and institutions.
The paper is divided into six sections. The second section is devoted to historical over- view of post-Communist reforms that created conditions for corporate governance formation. The third section deals with formation of ownership structure of private sector and the main trends of its evolution. In the fourth section, the main goals, problems and practices of corpo- rate governance are discussed. The fifth section is devoted to the analysis of the main actors of corporate governance at an enterprise level. The sixth section contains some general con- clusions.
2. Post-Communist reforms
2.1. Conditions for the start of the reforms
Generally speaking, conditions for the start of the reforms in all post-Communist coun- tries had a lot in common – economically, politically, culturally, etc. At the same time, there were significant differences between single countries and groups of countries that influenced the course of transformation, including corporate governance formation.
The countries of the Communist block were characterized by different depth of pre- transformation reforms of the command system.
Poland was one of the first Communist countries that started to try to resolve the prob- lem of low efficiency of the command economy not through administrative strengthening of the mobilization role of the state, but by introducing some elements of decentralization of economy, including governance of the enterprise sector. As in some other Communist coun- tries (first of all Yugoslavia), these changes were aimed at increase of microeconomic effec- tivity of economy through introducing motivation mechanisms based on employee self- management. As early as in 1956, the Act on Workers Self-Management was passed which granted state-owned enterprises (SOEs) a limited autonomy allowing insiders (directors and
2 The project was realized by the consortium that consisted of Stockholm Institute of Transition Economics (Sweden), CEFIR – Centre for Economic and Financial Research (Russia), CASE – Center for Social and Eco- nomic Research (Poland), CASE-Kyrgyzstan, Center for Social and Economic Research (Kyrgyzstan), Institute for the Economy in Transition (IET) (Russia), and Research Institute of Statistics (Ukraine). Within the framework 7
8. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
employees) to make decisions in some areas of SOEs’ operations. These changes in corpo- rate governance of SOEs were of superficial nature and in fact did not work, as they contra- dicted the model of central planning that has been adopted in Poland. Only in 1981 political (emergence of the Solidarity trade union, mass protest actions) and economic conditions (deep economic crisis) made possible a deeper reform of the enterprise sector, with em- ployee self-management being part of a new set of decentralized principles of SOE opera- tion, known as “The Three S’s” (self-management, self-financing and self-dependence). The new law (which is still in force for SOEs) has introduced a corporate governance system that to a certain extent imitated the two-tier “Continental” system with three bodies: director (as a managing body), employee council with supervisory functions, and general assembly of em- ployees whose competences resembled those of general meeting of shareholders. In fact it made incomplete property rights, which were immanent feature of the command economy based on state property, even more non-transparent because the law gave employees some features of owners – but without real owners’ financial responsibilities.
Enterprise reform was a part of a wider program of building quasi-market economy in Poland (of Yugoslavian and Hungarian type). Central plans were changed for the system of government-guaranteed orders, there was limited price, wages, and foreign trade liberaliza- tion, and more liberal conditions for small private businesses were created. As a result, by the time the Communist system collapsed, Poland, along with Yugoslavia and Hungary, was one of the most reformed economies of the Communist block. It should be added that the share of private sector in Polish economy was the highest among the Communist countries (about 30% of GDP), especially in agriculture (about 70% of GDP). Thus, at the verge of the transition, Poland already had some (although predominantly distorted) market institutions – both created in the course of the attempts to reform the centrally-planned economy, and that had survived during the much shorter, than in the case of the USSR, period of the Commu- nist rule.
Besides, Poland had educated elites, who through almost the whole period of Commu- nist rule in Poland, held serious discussions on improving the efficiency of Polish enterprise sector. Unlike in most other countries of the Soviet bloc, those discussions went far beyond ideas of how to improve the central planning system. The most popular approach was that of participation of employees in the management of state-owned firms. Even if some of the dis- cussion participants had doubts as to whether state-owned enterprises with employee par- ticipation were the most effective form of enterprise (especially compared to privately owned companies), they believed that in the given circumstances, this was the most radical and ef-
of the project, two rounds of surveys were conducted in 2005 and 2006 which included 978 and 981 enterprises respectively in Russia, 1232 and 1103 enterprises in Ukraine, and 299 and 306 enterprises in Kyrgyzstan.
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fective solution. However, there was an influential circle (Leszek Balcerowicz belonging to it) that believed that only consistent liberal market reforms would be able to ensure sustainable development of the Polish economy.
Soviet republics, including those being the subject of the research, at the verge of tran- sition found themselves in much more difficult situation. The USSR was the last Communist country that undertook serious attempts to reform the planned economy (although there were countries that hadn’t made even such an attempt: Albania, Bulgaria, Czechoslovakia, GDR, and Romania). Until mid-80s, the Soviet economy was one of the most “unreformed” cen- trally planned economies (there were two failed attempts of economy decentralization in 1957 and 1965). Depletion of capacities for extensive growth aggravated by the crisis on the world fuel markets forced Mikhail Gorbachev to start reforms – first being an attempt to un- dertake new forced industrialization (policy of “acceleration”). Only two years later, in 1987, the perestroika policy has been proclaimed to a large extent patterned after Yugoslavian, Hungarian and Polish solutions. A package of laws have been adopted that increased auton- omy of SOEs, introduced elements of employee self-management, allowed for creation of non-state firms and individual businesses (as a “pure” private ownership had still not been legalized). Elements of ownership changes have also been introduced in the form of the right of employees to lease assets of SOEs. The same as in other reforming Communist coun- tries, these measures were intended to keep the economy within the boundaries of the sys- tem of “real socialism.” These laws opened the process of spontaneous de-etatization of the Soviet economy, mostly through profit and asset stripping from the existing SOEs to new quasi-private entities. Later on, deepening economic crisis that put the country at the verge of real collapse, forced the Soviet leaders to look for more radical solutions, even if they would mean resignation from basic Communist economic dogmas. In 1990, the most radical ever in the Communist block program of reforms “500 Days” was prepared by a team headed by Grigoriy Yavlinskiy. It assumed far-reaching privatization, de-monopolization and building market structures as the first step, followed by macroeconomic stabilization and price/trade liberalization as the final step (Yasin 2003). The program was formally accepted by President Gorbachev but never implemented by the Soviet government which undertook the last at- tempt of Soviet-conservative “stabilization” at the beginning of 1991, involving a nonequiva- lent exchange of old banknotes and administrative price adjustment (Dabrowski et al. 2004).
Unlike in Poland and other Central and East European Communist countries, in the Soviet republics (with the exception of the Baltic states) there were no formal institutions that would facilitate development of market economy. Instead, a number of informal institutions existed (horizontal network links etc.). There were only traces of private property (mainly in agricultural sector) and co-operatives had been de facto etatized. Strong traditions of pater-
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nalistic state combined with lack of clear rules that all members of the society must obey, promoted passiveness, “legal nihilism,” and negative attitude towards private entrepreneur- ship (especially not related to production). However, the USSR was not fully homogenous in this respect. For example, in Central Asian republics (including Kyrgyzstan) and Caucasus region strong informal family and clan relationships existed, which resulted in situation, when the formal social and state structures did not reflect the real structure of social, political and economic linkages which substantially impeded rebuilding of theses structures in the course of transition (Kozarzewski 2006a: 37-40).
Intellectual potential of reformers in the Soviet republics was generally much weaker than in Central European countries, mostly due to very severe repressions against inde- pendent activities of Soviet intellectuals and very strong Communist indoctrination of the lar- ger part of the Soviet intellectual elite. Only at the times of perestroika systematic studies of crisis of Communism and possible remedies began. It should be also noted, that after the dissolution of the USSR, it turned out that the major part of pro-reform intellectual resources remained in Russia and, to much lesser extent, in Ukraine. Weak domestic intellectual re- sources in Kyrgyzstan and most other Soviet republics seriously impeded the processes of design and implementation of market reforms.
Lack of local knowledge and other capacities (not only in FSU countries, but in most of other post-Communist countries) was to some extent compensated with foreign technical as- sistance programs, which, due to various reasons, proved to be only of limited efficiency (World Bank 2004; Papawa and Beridze 2005; Kozarzewski 2006a: section 6.3.4). The same goes for (often informal) knowledge transfer between the FSU countries, especially from Russia to other countries (for example many laws were patterned after the Russian ones).
2.2. Reform policies
After the collapse of the Communist rule, all the four countries (as well as virtually all other countries of the region) embarked upon the market reforms that consisted of four main elements: stabilization, liberalization, privatization, and institutional reforms. The main differ- ence laid in the importance attributed to each element by the governments, the speed and sequence of their implementation. The sequence dilemma had two main solutions.
The first one assumed that macroeconomic stabilization should be achieved as fast as possible, together with imposing regulation and institutional constraints (in order to create a framework for actors’ behavior and prevent tunneling) (Murrell and Wang 1993). The second one assumed that stabilization and liberalization efforts would fail as long as the majority of the equity stayed in the state hands (which is by definition was an inefficient owner), thus
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ownership rights still being incomplete. Besides, privatization would create demand for fur- ther reforms (Frydman and Rapaczynski 1994; Boycko et al. 1995).
The “stabilization and liberalization first” approach was characteristic first of all for Po- land, Hungary, and Estonia; other countries implemented (with various degree of conse- quence) policies with delayed stabilization and liberalization measures. The speed dilemma meant the choice between a “big bang” policy (so-called shock therapy) and gradualist ap- proach that in theory, among others, should have “softened” the transformation shock for a large part of population and economic agents by allowing them more time for adaptation. There were only a few countries that decided to implement shock therapy at least in some areas of the reforms: first of all these were Poland (mainly in the field of stabilization and lib- eralization), Hungary, and Estonia. As in the case of the choice of the transformation model, real reform policies very often depended not only on the elaborated concept, but were the result of political interactions between main actors and interest groups.
In the next sections we will analyze policies in two areas of the reform directly relevant to the corporate governance formation, i.e. privatization and creation of legal background for corporate governance formation.
Privatization
In privatization policies, several patterns can be found. A lot depended on officially pro- claimed and/or unofficially pursued goals of privatization. These goals might be the following:
– systemic (to contribute to the change of the economic system through making private property the dominant form);
– economic (to solve the problem of microeconomic inefficiency of state-owned enter- prises and boost the performance of the enterprises sector);
– political (making the whole reform process smooth, stable and irreversible through creation of powerful pro-reform lobby of actors, involved in privatization process and using its results);
– fiscal (to obtain budget revenues from selling state property and to cut-off subsidies);
– social (attaining a kind of social justice through shares distribution schemes via distri- bution of part of the privatized stock among the whole population and resolving social prob- lems in concrete enterprises with the help of investors);
– hidden, when the government drew public attention to one goal while the real, most important goals were not advertised because they were less attractive to the broad public. The hidden agenda could be “honest” (aimed at acceleration of the reforms and avoiding
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some obstacles, e.g., related to public opinion) and “dishonest” (aimed at meeting interests of rent-seeking groups).
When boosting performance of enterprises by finding them an efficient owner was among the main goals, privatization policy was rather friendly towards investors, including foreign ones, with few sectors excluded from privatization. Only a small number of countries decided to that (mainly among the Central and East European and Baltic states). In other countries, where privatization de facto served many other political, social and fiscal goals, privatization policy was more restrictive both in terms of sectors designated for privatization, and type of investors that were allowed to take part in privatization processes. Here, the poli- cies were usually restrictive first of all against foreign investors. Several countries of the sec- ond group, however, started to manifest a kind of “pragmatization” of privatization policy, its reorientation towards meeting the economic goals. It led to lifting of most restrictions on pri- vatization (regarding both objects and subjects of privatization). Some countries, including Russia, still conduct restrictive policy that combines numerous exclusions of branches and enterprises from privatization with limiting the access for foreign investors.
All the four analyzed countries differed significantly in design and implementation of privatization programs.
Polish approach towards privatization was probably the most diversified, if not to say eclectic. It can be characterized by the two main features:
– diversity of privatization goals, most of them never being explicitly formulated. In fact, Polish government to greater or lesser extent tried pursue all the goals mentioned above with limited use of hidden agenda, especially “dishonest one” (in that country, rent-seeking groups were looking for profits not in privatization, but rather in retaining the state control over enter- prises);
– gradualist, highly consensual character of privatization processes. The reform au- thors were aware of a trade-off between the speed and quality of transformation processes. They believed that lower speed resulting from careful preparation of privatization deals (both in the technical and social dimensions) was much more important than massive and rapid formal change of owners, because the reformed market environment would exert strong pressure on state-owned enterprises and force them to adapt and restructure, thus making their privatization less urgent, although still necessary.
The main features of Polish privatization were reflected in the privatization law, which envisaged a wide range of possible methods and paths of ownership transformation: sale both to strategic investors and via the stock market, management-employee buyouts and even a unique kind of mass privatization that had been designed not only to transfer a sig- nificant (albeit limited in comparison with other post-Communist countries) part of the state’s
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sectors assets to Polish citizens, but also to create a mechanism of active restructuring of the companies participating in mass privatization (the National Investment Funds program).
In Russia, initially the main idea was to quickly create demand for the institutions of pri- vate property. According to the reform authors, it was not crucial how to distribute assets ini- tially – they believed that eventually, in the course of market supply and demand interplay, the property would be re-distributed efficiently. Therefore, during the first years of transition, mass, non-equivalent forms of property distribution prevailed. It led to emergence of insider- dominated ownership structures, with a significant managerial control as the managers had normally been able to force employees either to vote with the management, or to sell them their shares (CEFIR 2006). The next, case-by-case stage of privatization that started in 1995, was highly influenced by the political need of the government and the president to build a powerful social base that would make possible for them to keep power in the situation of very strong anti-reform attitude of population and very low ratings of president and the govern- ment just before the presidential elections of 1996. A non-transparent mechanism “loans for shares” was introduced that made possible transfer of a significant amount of state property in hands of limited number of persons (so-called oligarchs). Both groups of owners (insiders and oligarchs) were more oriented at rent seeking than value creation and thus failed to play a significant role in creating demand for market institutions that would promote competition, investor protection, property redistribution towards efficient owners, etc.
Characteristic features of Ukrainian privatization were a slow start and several concept changes that involved a wide range of privatization methods. At the first stage of privatization (1992-1995), a consensual model was adopted when enterprises decided themselves whether to privatize or not. Due to lack of reliable valuation procedures and qualified auditing firms, a significant number of companies was sold to their managers and employees at a very low cost. At the same time, despite the possibility to buy “cheaply,” insiders generally expressed very limited interest to privatization, mainly because of lack of understanding what privatization is for and shortage of financial resources of potential buyers (Kostyuk 2005). At the second stage (1995-1999), mass privatization was a prevailing method, quite similar to Russian program of voucher privatization. And, like in Russia, it led to mass enfranchisement of insiders which proved to be owners more inclined to asset stripping and wealth creation through salaries than through the raise of productivity. The third stage (2000-2004) was characterized by prevalence of case-by-case deals and attempts to attract strategic outside owners. Unlike the “wholesale” methods, case-by-case privatization assumed high role of the government in undertaking concrete decisions on privatization deals which created condi- tions for voluntary actions and corruption thus contributing to creation of powerful rent- seeking oligarchic groups. The privatization process lost its transparency and many privatiza-
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tion deals were conducted with serious violations of the law. At the beginning of 2005, priva- tization process was halted by the parliament and a campaign for wide-scale re-privatization began. After several months, the government dropped the idea of mass re-privatization, but didn’t revert to privatization, which since then has a very slow pace (Paskhaver and Verkho- vodova 2006).
In Kyrgyzstan, privatization policy can be clearly divided into several stages. At the first stage (1991-1993), the main accent was made on the “small” privatization of trade objects, catering and consumer services, and management-employee buyouts (MEBOs). On the second stage (1994-1997), the mass privatization had been implemented. As in the case of Russia and Ukraine, it led to enfranchisement of insiders. At the third stage started in 1998, mainly case-by-case deals were realized. After the March Revolution of 2005, the privatiza- tion process was de facto put on hold. The efficiency of the privatization policy on all the stages was not very high. The process of privatization was characterized by high level of politicization and low level of public support that created the opportunity for populist calls – sometimes successful – for slowing down privatization, its stoppage or even for reviewing its results (the latter even became one of the slogans of the March revolution). There are many influential special interest groups in the country that are not interested in privatization: offi- cials, enterprises getting various rents, misguided population. Too many goals were set for privatization, especially on the initial stages, when privatization was regarded as a panacea or a means for solving various social problems. Some restrictions on the privatization were excessive – there are still many sectors where privatization is restricted or forbidden due to some political, ideological, group, bureaucratic and other reasons. The quality of the legal regulations was also very doubtful – privatization programs and legal acts were in some re- spects too ideological and very frequently contradicted each other and other laws (Dabrowski et al. 2005; Kozarzewski et al. 2006).
Corporate governance
An important aspect of environment creation in transition countries was elaboration of the legal base for corporate government formation, including formal choice of corporate gov- ernance model that should be implemented by private entities. In the most developed marked economies, two main corporate models exist: Anglo-Saxon (mostly developed in the UK and USA) and Continental (to be found in most European countries). The main differ- ences lay in interrelations of a company with its owners and business environment (see Ta- ble 1).
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It seems that, pragmatically speaking, the Continental model was more suitable for post-Communist countries, at least at the first stages of transition, due to following of rea- sons:
– the influence of external control (in the form of commodity, financial, take-over and other markets) did not exist or was not sufficiently effective. In such conditions, the efficient functioning of internal supervision was of fundamental importance;
– the investment potential of population was weak; therefore the main sources of capi- tal had to be looked for elsewhere. The Continental model assumed the significant role of a strategic investor, in many post-Communist countries circumstances – most likely foreign (and, later, also domestic industrial and institutional);
– both the managerial skills and technical assets of existing enterprises were archaic and not adapted to the new challenges of the emerging market environment. Strategic inves- tors, especially foreign ones, might be expected to bring to a company not only capital, but also a new culture of management, of company behavior towards its environment, new tech- nology etc.
Second, the corporate governance model was expected not only to meet enterprises’ needs (i.e., improve their competitiveness), but also to serve the transition in general, being a part of the new political, social and economic model. Therefore, the choice of a model de- pended on social and political considerations as well. Here, the choice between Anglo-Saxon and Continental model was not so obvious, because the Anglo-Saxon idea of shareholder value suited the ideas of mass enfranchisement of population. On the other hand, the Conti- nental model was of a more participatory character, which suited the advocates of employee self-management and participation (Kozarzewski 2006b).
Third, unlike green-field companies, privatized enterprises did not emerge out of the blue. They represented a continuation (in economic, organizational, social and other ways) of former SOEs. The “legacy” of SOEs had several aspects, including the following:
– a state-owned enterprise had its own organizational structure, with each body having its own competencies to which all actors had become accustomed;
– in most state-owned enterprises, stable structures of power and influence had been established, and many insider actors were afraid of losing them after privatization;
– mentality and behavior of the main insider actors were to a great extent determined by their previous experience in the state-owned enterprise.
Table 1
Basic characteristics of the Anglo-Saxon and Continental models of corporate governance
Components
Corporate governance model
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Anglo-Saxon
Continental
Organization perceived as:
instrument
joint undertaking
Objectives of the organization:
to serve the owners
to serve all the groups engaged
Measures of success:
company value (price of shares, divi- dends)
meeting the needs of stakeholders
Perspective of operations:
short-term
rather medium-term
Ownership structure:
dispersed
concentrated
Shareholders’ identity:
– private persons
– financial institutions
industrial investors
institutional investors
private persons
Shareholders’ influence:
low
significant
Capital market:
highly developed, great diversity of capital suppliers, large set of financial instruments
much smaller diversity of financial instruments
Main source of raising capital:
– securities market
– stock exchange
institutional sources
Main forms of disciplining the managing staff:
– active enterprise control market
– main instrument: “high cost” take- over transactions
– emphasize on internal supervision mechanisms,
– “low cost” direct monitoring
– weak enterprise control market
System of the boards:
one-tier (board of directors)
two-tier (managing board and super- visory board)
Structure of the supervising board/board of directors:
– board of directors composed of ex- ecutive (insider) and non-executive (outsider) directors
– CEO sits on the board
– rare presence of large shareholders
– rare presence of bank representa- tives
– supervisory board members elected by shareholders and by employees,
– the CEO can not sit on the supervi- sory board
– large shareholders are always pre- sent
– bank representative often present
Sources: De Wit and Meyer (1998); Prowse (1994); Koładkiewicz (2000); Kozarzewski (2000).
Here, a real threat was that entrenched insiders would resist any attempt to change the internal status quo. Therefore, there was a popular view that strong owner control must be imposed, while taking insiders’ concerns into account. Under such circumstances, the Conti- nental model seemed to be a good solution (Jarosz and Kozarzewski 2002; Kozarzewski 2006a).
In their legislation, almost all the transition countries have introduced at least some ba- sic elements of Continental corporate governance model, among others, through introducing the two-tier structure of the boards (usually above some threshold of number of shareholders or fixed assets value). However, the quality of the legal base was often problematic, both at conceptual and implementation level. From the point of view of corporate governance forma- tion, apart from leaving legal gaps and contradictions with other laws, in many countries the legislation was devised under intellectual pressure of Anglo–Saxon model with its character- istic dispersed ownership and related to it protection of minority shareholders. It gave prefer- ences to minority owners and insiders and restricted the opportunities of large external shareholders to purchase shares. But the reality of post-Communist economy causes that minor owners are and in foreseeable future will be rather small category of investors. More-
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over, experience of many countries in the region shows that minority shareholders can be used by certain financial–industrial interest groups for a hostile take-over of a company. An- other drawback of legal systems in most post-Communist countries lies in that the strictest provisions concerning protection of property rights, especially in the field of disclosure re- quirements, apply only to listed companies, which, due to underdeveloped securities markets in these countries, represent a small part of the enterprise sector. Other companies enjoy more relaxed requirements.
Besides, the analyzed countries had their own specific legislative problems.
In Ukraine, there is still no Corporate Law and corporate governance in Ukrainian com- panies is regulated by a number of acts, including the Civil Code, Economic Activity Code, Act on Companies, privatization programs, etc. But still, many aspects of corporate govern- ance are not covered by legal regulations and, according to international surveys, Ukraine’s laws are among the less compliant with international standards of corporate governance regulation (Pugachova 2006).
In Kyrgyzstan, the adoption in 2003 of the new Act on Joint-stock Companies was the significant improvement in the legal base of corporate governance. First of all, we should mark out its detailed elaboration – the law became not only a set of norms but also a kind of a manual for companies. However, some contradictions with other laws remained, and the level of property rights protection at a company level is still not optimal (e.g., over-protection of minority shareholders). Besides, there are ill designed provisions that, e.g., do not require to increase the authorized capital after a new issue of shares; the role and functions of the board of directors is not clearly defined (see more Dabrowski et al. 2005; Kozarzewski et al. 2006).
By today Russia has entered the group of leaders among transitional economies in terms of level of comprehensiveness of economic law. At the same time, the country still demonstrates a far greater backwardness, as far as “efficiency” of its application (the court system etc.) is concerned. Enforcement now constitutes one of the weakest components in the system of property rights and honoring contract obligations. Complexities associated with the application of law in the corporate governance area arise due to both “flaws” in, and in- consistency of the procedural law and imperfection of the material law. As the judicial and arbitration practices have just begun taking shape, they do not always form the base suffi- cient to draw conclusions on judicial interpretation of complex or even disputable provisions of the law on joint-stock companies (especially in the field of ownership rights protection and abusive behavior of managers) (Hashi et al. 2004). Besides, law enforcement suffers from widespread corruption in courts, regulatory bodies, and law enforcement agencies (CEFIR 2006).
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Poland also found itself among transition countries with most elaborated economic and corporate law. The latter represents a “classical” Continental approach, although defining only the broad framework for the companies’ organizational structure and companies bodies’ activities, which makes possible for firms to create structures and rules that suit most their needs. However, the legal base is not free from faults. The first one is the dark side of the advantage mentioned above: the law proved to be not instructive enough in the situation when main actors, many of whom originated from the centrally-planned economy, lacked adequate knowledge on a modern private company structure and functioning. Second, the system of rights and safeguards that regulates corporate governance relations within com- panies is not very efficient. For example, minority interests can be (and sometimes are) abused with the help of anti-collusion provisions. Disclosure requirements are often regarded as very complicated and there is a widespread opinion among managers, that some of them are impracticable. Managers have some legal possibilities of profits stripping and tunneling, etc. Third, legal acts sometimes contradict each other and overlap. Fourth, the peculiarity of the Polish legal system is that the main vehicle for representation of stakeholder interests is privatization legislation, rather than regulations affecting the enterprise sector in general. Thus, there are fundamental differences in the corporate governance regime depending on whether an enterprise originated in the state sector or the de novo private sector – a situation which is, to our knowledge, not found in any other European country. Besides, Poland ex- periences serious enforcement problems, mainly due to inadequate capacities and skills of prosecutors and courts (Tamowicz and Dzierżanowski 2002; Kozarzewski 2003a).
In recent years, in many transition countries attempts have been made to strengthen corporate governance by elaborating and introducing best practices of corporate govern- ance. The main idea behind this approach was that because legal regulations themselves were incapable of dealing with all the problems of corporate governance, a set of principles should be prepared which would both serve as instruction on how to behave correctly and as a form of moral pressure on companies to introduce these principles. These initiatives – in the form of codes of corporate conduct or some other recommendations – took place in all four analyzed countries. Conceptually, they were to a large extent based on principles of good corporate governance proposed by the OECD and Cadbury Committee (OECD 2004; Cadbury 1992). In Russia (in 2002), Ukraine (2003) and Poland (2002) these codes were introduced by securities market regulators and apply only to listed companies and are of “comply or explain” type. In 1997 in Kyrgyzstan, the government has elaborated the Manual on Corporate Governance in Kyrgyz Republic as an annex to the model charter of a JSC.
There are also other areas of the reform policy that affect corporate governance forma- tion through creation friendly business environment for private sector development. Here,
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more decisive and comprehensive reform policy has been implemented by the states where fast and radical “liberal” reform approach has been chosen (mainly the Central and East European and Baltic states). Governments of these countries concentrated their efforts at creation of favorable conditions for functioning of private enterprises: their registration, prop- erty rights protection, contracts enforcement, well-elaborated and stable legal base, efficient tax incentives, insolvency procedures, equal treatment of domestic and foreign entities, de- monopolization and better supervision of natural monopolies, etc. Besides, governments of these countries were concentrated on creation of well-functioning financial market institutions which were to function in accordance with highest standards of quality. Such a policy also was aimed at creation conditions for foreign capital attraction. Whereas South European states and CIS member states usually conducted more restrictive and at the same time less coherent (inconsistent and stop-and-go) policy of creation of business environment.
2.3. Reform outcome
High diversity of reform programs implemented led to very mixed results across coun- tries and regions. From this perspective, three groups of countries can be singled out:
– successive reformers, who in many aspects came close to the most developed mar- ket economies (countries of Central and Eastern Europe and Baltic states – CEEB);
– catching-up reformers (South-Eastern European states – SEE) that at the beginning were slow reformers, but managed eventually to accelerate them;
– moderate reformers (most of the CIS countries) which conducted inconsistent stop- and-go reform policy prone to political struggle between various interest groups, but which nevertheless managed to build moderately successful market economy, although in many aspects significantly lagging behind the first group;
– market reform outsiders: Belarus and Turkmenistan being the countries that effec- tively do not conduct market reforms.
It should be noted, that many countries were characterized by inconsistent reform pace – lagging behind in some areas, they could outrun other countries in another areas.
Analyzed four countries belong to the first and the third group. After initially high reform pace, in these groups of countries reforms significantly slowed down after approximately 5 years after they had started. As a result, even the most reformed countries haven’t achieved yet the level of the developed market economies The main reason for this is emergence of a powerful coalition of special interest groups that extract rent from the transitive state of the economy in these countries and therefore are not interested in further reforms. This coalition strongly affects the economic policy of almost all governments of transition countries (see 19
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more Kozarzewski and Woodward 2006). The same processes can be witnessed in all the four analyzed countries (Figure 1).
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Figure 1
Overall dynamics of the reform progress 011223344 198919901991199219931994199519961997199819992000200120022003200420052006 KyrgyzstanPolandRussiaUkraine
Reform progress index is developed on the basis of the EBRD indexes which depict progress in main ar- eas of the economic reform (EBRD 2004: 199-201). It ranges from 1 (lack of reforms) to 4.3 (reforms are com- pleted).
Source: EBRD data; own calculations.
In every country that had started market reforms, the role of private sector in economy increased, albeit unevenly across the region – depending on the scope, consistency and depth of the reforms implemented. According to the EBRD estimates, on average, the share of private sector in the GDP of transition countries increased from about 10% in 1989 to 65% in 2006. Progress of privatization of economy is a good illustration of above-mentioned in- consistency of the reform pace with Poland lagging behind other CEEB states and Kyr- gyzstan outrunning CIS states.
In 2006 the share of private sector in GDP was about 75% in Poland in Kyrgyzstan, and approximately 65% in Russia and Ukraine. It should be noted that Russia was the only post-Communist country, where, due to recent centralistic trends in governmental policy, the share of private sector in the GDP decreased (Figure 3). Another remark: the process of pri- vatization in broad sense (measured by the share of private sector in economy) is far from completed even in the most successful transition countries: about 80% of private sector in GDP in Czech Republic, Slovakia, Estonia, and Hungary is still significantly lower than in the most developed market economies where it is usually far beyond 90% or even 95% (CEEP 2000).
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Figure 2
Dynamics of privatization 0123456789 198919901991199219931994199519961997199819992000200120022003200420052006 KyrgyzstanPolandRussiaUkraine
Synthetic index that takes into account progress in large and small privatization, and share of private sec- tor in GDP. Ranges from 0 (no progress) to 10 (completion of privatization; all the GDP is produced by private sector).
Source: EBRD data; own calculations.
Figure 3
Private sector share in GDP (in %) 01020304050607080 198919901991199219931994199519961997199819992000200120022003200420052006 KyrgyzstanPolandRussiaUkraine
Source: EBRD data.
It is not clear, what proportion of GDP is created by former state-owned enterprises and de novo private sector. Unfortunately there is no official statistical data, and all the esti- mates are very rough. According to the World Bank, de novo private sector is more devel- oped in CEEB and SEE states than in the CIS countries. Estimations show that it constitutes significantly more than 50% of employed in the whole private sector in Central and South
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European countries, and much less than 50% in CIS countries (World Bank 2002). The im- portance of this subject comes from the fact that privatized enterprises have to be reformed in order to get rid of the above-mentioned “legacy” after a SOE, while private companies cre- ated from a scratch do not have that intermediate period.3
Turning to privatization in the narrow sense (i.e., transfer of state property to non-state hands), we should mention that not only in the analyzed countries, but in most other transi- tion countries so-called small privatization (of small objects in retail trade, catering, and ser- vice) has ended or is close to the end, while so-called large privatization was not finished in any country (mainly largest objects of infrastructure and extracting industries still remaining in the state hands).
Figure 4
Progress in governance and enterprise restructuring 01234 198919901991199219931994199519961997199819992000200120022003200420052006 KyrgyzstanPolandRussiaUkraine
1 – Soft budget constraints (lax credit and subsidy policies weakening financial discipline at the enterprise level); few other reforms to promote corporate governance.
2 – Moderately tight credit and subsidy policy, but weak enforcement of bankruptcy legislation and little ac- tion taken to strengthen competition and corporate governance.
3 – Significant and sustained actions to harden budget constraints and to promote corporate governance effectively.
4 – Substantial improvement in corporate governance and significant new investment at the enterprise level.
4+ – Standards and performance typical of advanced industrial economies: effective corporate control ex- ercised through domestic financial institutions and markets, fostering market-driven restructuring.
Source: EBRD data.
General progress in governance and enterprise restructuring shows the growing dis- tance between the CEEB countries where steady improvements are seen (although these countries still conduct enterprise policy somewhat relaxed comparing to the most developed market economies), and CIS member states where, after significant improvements in 1993-
3 In Poland this period usually lasts for 2-5 years (Bałtowski 2002: 307).
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1996, the last 10 years were marked with stagnation. The latter group of countries is charac- terized now by moderately tight credit and subsidy policy, but weak enforcement of bank- ruptcy legislation and little action taken to strengthen competition and corporate governance. Poland, on the one hand, and Russia, Ukraine, and Kyrgyzstan on the other, seem to be typical representatives of the respective groups of countries (see Figure 4).
Securities markets and institutions remain underdeveloped in all the transition coun- tries. However, most of the CEEB countries quite early have reached the highest among all the post-Communist countries level of their development (Poland being unquestionable leader in this process), while other countries have lost impetus and now stagnate, or, like Russia, have ups and downs in development of the sector (presently we witness the swift catching-up dynamics in this country) (Figure 5).
Figure 5
Securities markets and non-bank financial institutions development 01234 198919901991199219931994199519961997199819992000200120022003200420052006 KyrgyzstanPolandRussiaUkraine
1 – Little progress.
2 – Formation of securities exchanges, market-makers and brokers; some trading in government paper and/or securities; rudimentary legal and regulatory framework for the issuance and trading of securities.
3 – Substantial issuance of securities by private enterprises; establishment of independent share regis- tries, secure clearance and settlement procedures, and some protection of minority shareholders; emergence of non-bank financial institutions (for example, investment funds, private insurance and pension funds, leasing com- panies) and associated regulatory framework.
4 – Securities laws and regulations approaching IOSCO standards; substantial market liquidity and capi- talization; well-functioning non-bank financial institutions and effective regulation.
4+ – Standards and performance norms of advanced industrial economies: full convergence of securities laws and regulations with IOSCO standards; fully developed non-bank intermediation.
Source: EBRD data.
Business environment for corporate governance development is gradually improving, but the scope and pace of this improvement remains uneven, which is clearly visible, e.g., in annual World Bank “Doing Business” reports. Besides, apart from positive changes, some 24
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negative factors emerge and strengthen in many countries of the region, such as deviated patterns of economic behavior that have formed due to adaptation of economic agents to dis- torted environment of not fully reformed economy. It leads to creation of so-called institutional traps – petrifaction of inefficient patterns of behavior adopted in the past (for example, oppo- sition of insider owners to outsider investors, reluctance in issuing new shares because of fear of losing control over a company, artificial delinquency, barter trade, etc.) (Kozarzewski 2006: 241-244). Basically, the business environment is more favorable in CEEB countries, SEE countries are now coming close to that group, and CIS countries are characterized by relatively less favorable business environment.
Finally, foreign direct investments should be mentioned as at the beginning of transi- tion, post-Communist countries faced the problem of inadequate financial resources for de- velopment, and inadequate capacities for creation of efficient corporate governance mecha- nisms. National reform policies manifested a significant variety of approaches towards for- eign investments from “open doors” policy to severe restrictions imposed due to economic (fear of competition) and political (fear of “selling-off national treasuries to foreigners”) rea- sons. Regardless formally proclaimed policies, these countries varied in the quality of in- vestment climate and attractiveness of objects to invest to in the course of privatization. All these factors were mutually reinforcing which resulted in huge differences in the level of for- eign direct investments (FDI) across the region, especially calculated on per capita basis: in CEEB countries, the cumulative net FDI is 3.5 times higher than in SEE countries, and from 7 to 17 times higher than in Central Asian and Western CIS countries. Russia especially is worth noting, with extremely low cumulative FDI inflow per capita. Besides, the “quality” of FDI differs across the region. Generally speaking, better investment climate contributes to attracting investors with long-term plans for investments made in this country, who, apart from financial resources, ensure transfer of knowledge, new technologies, know-how, gov- ernance culture, etc. – all that is so needed in a transition country. Countries with worse in- vestment climate are risking not only lower financial inflow (they may still enjoy FDI inflow, e.g., due to the size of the market or rich mineral resources – see Bevan and Estrin 2000), but also worse “quality” of foreign investors – more oriented at tunneling, less innovative, and very often in fact not being “true” foreign investors (representing the capital that had previ- ously fled from the country to one of the tax heavens) (Papava and Beridze 2005; Kozar- zewski 2006a: 166-169, 212-213).
The faults of business environment in transition countries come from uncompleted and/or suboptimal reform design and implementation. Liberalization and enterprise sector reform successes vary not only across the region, but across sectors of national economies as well. As it was mentioned above, the state still controls a fair part of equity; demonopoliza-
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tion of economy is far from being completed, and regulation of natural monopolies needs se- rious improvement. Investment climate in most countries is still far below the level of the most developed market economies:
– the quality and stability of legal base is inadequate. In most countries, the standard set of regulations has been adopted quite quickly, but usually: (1) it not fully took into account real needs and conditions of a country; (2) the process of law creation was poorly coordi- nated which resulted in inconsistent legal base; (3) laws were often poorly designed, full of gaps and contradictions; (4) law-making was prone to political pressure of rent-seeking groups and electoral cycles;
– administrative barriers for business activity are still high in most countries of the re- gion in the field of starting and closing business, administrative interference, etc.;
– enforcement is one of the biggest problems: for most countries, poor protection of property rights, creditors’ rights, and contract enforcement is characteristic. Enforcement in- stitutions are still usually weak and incompetent; there are no efficient bankruptcy proce- dures;
– the level of corruption in economic life is still much higher than in the most developed market economies even among the reform leaders. And some countries not successful in the reforms are placed among the most corrupt countries on the globe;
– access to financial resources (getting credit) is improving but companies still have in- adequately big problems in this respect, which is caused by underdeveloped financial sector in post-Communist countries.
Table 2
Basic data on conditions for corporate governance development
Country
Index/data
Kyrgyzstan
Poland
Russia
Ukraine
EBRD:
Reform progress indexa, b
3
4-
3
3
Privatizationc
8.2
8.2
7.2
7.2
Small-scale privatizationa
4
4+
4
4
Large-scale privatizationa
4-
3+
3
3
Private sector share in GDP estimate (%)
75
75
65
65
Governance and enterprise restructuringa
2
4-
2+
2
Competition policya
2
3
2+
2+
Banking reform and interest rate liberalizationa
2+
4-
3-
3
Securities markets and non-bank financial institutionsa
2
4-
3
2+
Cumulative FDI net inflow per capita 2004 (US$)
100
1,486
38
155
World Bank:
Ease of doing business (place)
90
75
96
128
Investor protection indexd
6
6
5.3
3.7
Getting credit (place)
65
65
159
65
Informal economy estimate (% of GDP) 2003-2005
39.8
27.6
46.1
52.2
Freedom House Corruption ratinge
6
3.3
6
5.8
Heritage Foundation Index of economic freedomf
62.8
61.6
54.3
55.5
a Ranges from 1 (lack of reforms) to 4+ (reforms are completed).
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b Index is developed on the basis of the EBRD indexes which depict progress in main areas of the eco- nomic reform (EBRD 2004: 199-201).
c Synthetic index that takes into account progress in large and small privatization, and share of private sec- tor in GDP. Ranges from 0 (no progress) to 10 (completion of privatization; all the GDP is produced by private sector).
d Ranges from 0 to 10, with higher values indicating better investor protection.
e Ranges from 1 to 7, with higher values indicating lower corruption.
f Ranges from 0 to 100 with higher values indicating higher level of economic freedom.
Source: EBRD, the World Bank, Freedom House, and Heritage Foundation data; own calculations.
3. Evolution of ownership structure
Formation of ownership structures in transition countries was influenced by the dual character of privatization processes which included, as it was mentioned above, privatization of state-owned enterprises and setting-up of de novo private firms. In the case of the latter type of companies, initial ownership structures from the very start reflected investors’ needs, whereas in the case of privatized SOEs, privatization methods and schemes often pre- determined initial ownership structures. First of all, these were mass privatization schemes that led to creation of predominantly dispersed ownership structures or concentrated in the hands of special investment funds, and various forms of MEBOs, that created very “insider- ized” ownership structures, sometimes dispersed and sometimes with shares concentrated in the hands of managers. These ownership structures very often did not reflect the specific needs of a company and interests of major insider and outsider actors – both stakeholders and actual and potential investors. In such circumstances, significant after-privatization own- ership changes were inevitable. Maybe a little exaggerated, a term “secondary privatization” was coined for this type of processes (Błaszczyk et al. 2003). It should be noted, that proc- esses of secondary privatization could be a part of privatization policy design (as, e.g., in Russia, where the government counted on swift redistribution of shares) or rather unex- pected side effect of government’s attempt to create ownership structure that suited some model visions, but did not take into account the strength of market forces (e.g., all the ideo- logically motivated MEBO schemes, including Polish employee privatization, restrictions im- posed on participation of foreign investors in privatization deals, etc.).
Despite all the variety of post-privatization ownership changes, some general patterns and trends can be seen. If we describe ownership structure with the help of two parameters: the level of ownership concentration and the level of its “outsiderization,” i.e., which part be- longs to insiders and which to outsiders, we can draw the ownership types matrix (see Fig- ure 6).
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Figure 6
Ownership types matrix
Concentration
Outsiders with small holdings (individual or portfolio investors)
Strategic outside inves- tors (e.g., domestic in- dustrial companies, for- eign investors)
“Outsiderization”
Insiders with small hold- ings (generally, non- managerial employees)
Insider shareholders with large holdings (first of all, managers)
Source: Own calculations.
Three of the four types are strongly present in transition economies (both insider types and outsider concentrated). At the same time, the role of outsider dispersed investors is very weak which is determined by the weak and shallow capital markets, especially of their organ- ized part. This also hinders certain kinds of financial investors (such as investment and pen- sion funds and insurance companies) from expanding their role as portfolio owners.
The general trend of secondary privatization processes is concentration of property on the one hand, and its “outsiderization,” on the other. Most often, one can see shifts of shares from employees to managers and, especially recently, from employees to outside strategic investors. These trends were so strong, that were seen even in countries, where severe re- strictions on post-privatization ownership redistribution were imposed – as, e.g., in Belarus (Kozarzewski 2001a).
There are usually three stages of post-privatization ownership redistribution (Figure 7). At the first stage, insiders are the main beneficiaries of privatization, so their share in prop- erty increases as the state share decreases. Non-managerial employees usually acquire more shares than managers. Outsider shareholders emerge slowly, especially small dis- persed ones. At the second stage, the pace of de-etatization slows down, and the secondary privatization starts – with its above-mentioned processes of concentration and “outsideriza- tion” of shares. The role of outsider investors is growing, especially strategic ones. By the end of this stage, mass property redistribution is mostly over. At the present, third stage, re- distribution is going on mainly within the analyzed categories of owners, especially external 28
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strategic investors. Such redistribution can have a form of “civilized” acquisitions on capital market, but may also assume more cruel and illegal forms.
Figure 7
Changes in ownership structure of privatized enterprises 0% 100% 0Non-managerialemployeesManagersOutside smallinvestorsOutside strategicinvestorsThe state1st stage2nd stage3rd stage
Values are tentative.
Source: Own calculations.
Common trends in post-privatization ownership structures evolution do not mean their homogenization. At some moment, a structure reaches its point of equilibrium that depends on characteristics of the company and its environment (size, performance, branch, level of property rights protection, development of financial institutions, interplay of main actors of the company, etc.). That’s why in every country one can find companies with different patterns of ownership structure.
In all the three countries analyzed in the INTAS project (Russia, Ukraine, and Kyr- gyzstan), two major categories of dominant shareholders exist – managers and domestic outside investors. Foreign investors control companies rather seldom – which is a reflection of the low level of FDI in these countries. In Russia and Kyrgyzstan, more than half of the companies are already under control of domestic outside investors, while in Kyrgyzstan manager-controlled firms are the most widespread form of ownership structure – which may originate not from the slower pace of ownership changes (the differences between the rounds of the survey were not important), but rather much smaller size of Kyrgyz companies which allowed them to reach “outsiderization” equilibrium at a higher level of insider control. This is rather typical for transition countries (Kozarzewski 2006a: 164) and is also seen in all the three countries in the presented surveys. At the same time foreign investors usually con- trol the largest companies, and domestic outsider owners control firms that are larger than managers’, but smaller than foreign-owned.
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Concentration levels are rather high – average C14 ranging from 59% in Russia to 71% in Kyrgyzstan. Only in about 10% of companies in each country small shareholders (which possess below 5% of shares) own more than a half of companies’ assets. Average block of shares possessed by the largest shareholder gives him very high voting power. Rather low C1 in the case of Russian companies where managers are the largest sharehold- ers should be noted – it may be explained by the typical for Russia situation, when managers can control employees-shareholders with administrative methods, without the necessity to buy-out their shares (CEFIR 2006).
Table 3
Ownership structure and level of ownership concentration at companies in Russia, Ukraine, and Kyrgyzstan in 2006 (in %)
Russia
Ukraine
Kyrgyzstan
Largest owner
Percentage of compa- nies
C1
Percentage of compa- nies
C1
Percentage of compa- nies
C1
Managers
28.2
43.8
20.9
60.2
44.9
71.3
Domestic outsiders
58.1
62.6
57.9
62.6
25.9
69.9
Foreign outsiders
3.6
72.6
14.4
76.8
10.7
67.5
State
10.1
61.5
6.8
67.9
18.5
71.1
Total/average
100.0
58.9
100.0
64.5
100.0
70.6
Source: Survey data (from the 2006 round) obtained in the “Corporate Governance Practices and Pros- pects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project (see footnote 2); own calcu- lations.
Dynamics of ownership changes in the three countries clearly show that in majority of companies post-privatization processes of concentration and outsiderization are over and now the “third stage” evolution is the main form of ownership change. The differences be- tween two rounds of the survey in terms of level of ownership concentration and identity of the largest shareholders are not significant; at the same time, in a fair number of companies new largest investors emerged. As a rule, these were friendly takeovers, although they often (especially in Kyrgyzstan) led to changes of a CEO. Most of the companies apparently do not perceive hostile takeovers as a serious threat: only 12% respondents in Russia and 4% in Kyrgyzstan are afraid of being a victim of them in the nearest future; 16% of companies in Russia and 5% in Kyrgyzstan managed to defend themselves against hostile takeovers in the course of the last 2 years (Table 4).
4 In fact, a quasi-C1 index has been calculated, because in the case of managers we didn’t have the data on individual shareholdings. It still gives adequate picture, at least from the perspective of control over a com- pany, because managers are the only shareholder category which is usually characterized by strong common interests which result in coordinated behavior.
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Table 4
Takeovers (in %)
Percentage of “yes” answers
Russia
Ukraine
Kyrgyzstan
Change of the largest shareholder or appearance of a new large shareholder took place in 2004-2005
22
15
14
Only the companies where the change took place:
The appearance of the new largest shareholder was a result of:
hostile takeover
13
4
–
friendly takeover
87
96
100
Appearance of the new largest shareholder entailed involvement of a court
10
7
15
The CEO was replaced as a result of a change of the largest shareholder
34
43
69
During the last 2 years, there were failed attempt(s) of hostile take- over of the company
16
n/a
5
Company feels the threat of a hostile takeover in the nearest future
12
n/a
4
N/a – data not available.
Source: Survey data (from the 2006 round) obtained in the “Corporate Governance Practices and Prospects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project (see footnote 2); own calculations.
Companies in Russia and Kyrgyzstan controlled by foreign investors appeared to be the most prone for takeovers (in 2004-2005 almost half of them had changed an owner); op- posite pole is represented by insider-dominated firms, where such changes were only spo- radic. Interestingly enough, there are no such clearly visible links between ownership struc- ture and takeovers among Ukrainian companies.
Certain conditions for development of ownership structure in Poland significantly dif- fered from that of CIS, including Russia, Ukraine, and Kyrgyzstan. Heterogeneous and con- sensual character of privatization, together with limited use of mass privatization schemes, on the one hand, led to heterogeneity of emerging types of ownership structure, and on the other hand, made initial ownership structure less “schematic” and more suitable to the needs of an enterprise and its actors. This made secondary privatization processes less urgent and created stronger path dependency effects.
So-called indirect privatization (through commercialization) included mostly large SOEs, in sectors whose privatization was politically uncontroversial. In the “mainstream” indi- rect privatization, strategic investors were preferred; minority blocks of shares were distrib- uted among employees and other small shareholders. So-called direct privatization (selling assets of SOEs as ongoing concern to a private entity) as a whole included mostly small and medium-sized enterprises, most of the buyers were insiders, especially provided that a half of direct privatization deals were employee leasing schemes, and in other cases majority of buyers were managers of these enterprises. The mass privatization program (limited to only 512 companies out of the total number of more than 8 thousand SOEs at the beginning of transition) included mostly medium-sized companies; the main blocks of shares were distrib-
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uted among 15 investment funds, the Treasury was the second largest shareholder that kept 25%, and employees who received 15%.
Specificity of privatization “background” and post-privatization ownership changes led to emergence of two basic patterns of ownership structure: “outsiderized” concentrated and more dispersed and “insiderized.”
The first pattern is represented mainly by the largest companies which went through capital privatization and have highly concentrated ownership structures, often dominated by foreign investors. By the way, in the sector of former SOEs, they are unquestionable leaders in post-privatization restructuring and creation of highly efficient corporate governance struc- tures and behavior. Insiders’ participation is very limited, unlike in privatized SMEs and in spite of pro-insider provisions of Polish privatization law. Within that pattern, two main groups of dominant owners exist: foreign investors and domestic institutional shareholders.
The second pattern is found predominantly in companies privatized through “direct” methods, especially management-employee buyouts. There were two main trends of owner- ship transformation in insider-owned companies: towards concentration of shares and toward their “outsiderization.” These processes had varying intensity in different groups of compa- nies, and two main sub-patterns of ownership structure have emerged: management- employee pattern (large blocks of shares in the hands of managers, the rest dispersed among non-managerial employees) and dispersed insider ownership. In a significant number of companies, ownership has eventually concentrated in the hands of an outside investor and now they represent the first ownership structure pattern (Kozarzewski 2007a). It is worth noting that the most important factor which influenced the direction and dynamics of owner- ship changes in insider-dominated companies was economic performance, which favored concentration and “outsiderization” of ownership when performance was very poor or very good. In the former case, this can be seen as a trade-off between the power of insiders and the firm’s chances for continued existence. In the latter case, it reflected the opportunity of insiders to reap significant gains by selling their shares to outside investors (Kozarzewski and Woodward 2003).
Poland significantly lags behind other CEEB countries in quantitative progress of priva- tization with still large state-controlled sector which produces about 1/4 of the country’s GDP. During the 17 years of transition, Polish government failed to privatize almost 1/4 of state- owned entities: in 2006, there were still 965 SOEs (only about 1/4 of them functioning, though; the rest was subject to rehabilitation and liquidation procedures) and 985 companies controlled by the state, including 407 companies where privatization had started, but was halted at the stage of commercialization (Błaszczyk and Nawrot 2007). At the beginning, the main cause for this were problems with entering the next stage of privatization: technical dif-
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ficulties related to restructuring and preparing a privatization deal, lack of appropriate buyers, etc. Later on, however, strong lobbies emerged which were interested in keeping enterprises in this intermediate stage. At the enterprise and branch levels, these included trade unions and other organized groups of employees who were not interested in privatization because it would lead to deep restructuring followed by shutdowns of loss-making enterprises, lay-offs, and liquidation of branch privileges.
On the other hand, there are two features that positively distinguish Poland comparing to analyzed CIS countries: higher role of foreign investments and de novo private enter- prises. Exact statistical data for the whole enterprise sector are absent, but there is informa- tion on 1300 largest (in terms of sales) Polish enterprises which together constitute 67% of the total sales of the enterprise sector. In this sample, 84% of companies are private. In the private part of the sample, de novo private firms dominate in every respect: number of com- panies, total sales, and employment. It can be regarded as a success, given limited devel- opment capabilities of the former state-owned sector. Foreign capital controls exactly one half of private enterprises, but its role in Polish private sector is significantly higher: foreign- owned companies obtain almost 2/3 of sales and employ nearly 2/3 of the workforce (Ta- ble 5). There are no quantitative differences between engagement of foreign capital in privat- ized and de novo private sector.
Table 5
Private sector structure
Number of companies
Sales
Employment
Type of enterprise
N
%
bln zlotys
%
thousand
%
Privatized
336
30.7
207.0
40.7
392.9
46.9
De novo private
759
69.3
300.9
59.3
444.8
53.1
Controlled by domestic investors
547
50.0
180.4
35.5
309.5
36.9
Controlled by foreign investors
548
50.0
327.5
64.5
528.2
63.1
TOTAL
1095
507.9
837.6
Source: Bałtowski and Miszewski (2007: 251).
4. Corporate governance goals, problems, and practices
A condition sine qua non of introduction of corporate governance mechanisms in transi- tion economies is understanding of the main actors what are the goals of corporate govern- ance, what can be achieved with introducing corporate governance principles, and what are the most sensitive corporate governance problems in national economies.
Managers’ replies in all the three surveyed countries were quite similar and showed the widespread understanding of the importance of corporate governance in successful running 33
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of a company (Table 6). Only 8% of respondents in Russia and Ukraine and 11% in Kyr- gyzstan were of the opinion that corporate governance is irrelevant for their companies. The most important goal, mentioned by about 2/3 of the respondents, was raising the effective- ness of the decision-making process. In Russian and Kyrgyz companies, the second goal was raising the company’s reputation. The third most often mentioned reason was law obe- dience, but deeper analysis showed that it was very seldom the sole reason for introduction of corporate governance practices, so it rather did not mean just a necessity that would be avoided if not required by law. So, a significant number of companies perceived corporate governance goals as complex ones that combine improvements in internal functioning of companies, their image for outsiders, and the need to comply with the legal requirements. At the same time, the role of corporate governance in resolving corporate conflicts seems to be undervalued. It is hard to say, what is the reason for this – whether corporate conflicts are not so numerous to be a serious problem for many companies, or many corporate conflicts are resolved without the use of corporate governance mechanisms. One should also pay at- tention to the fact, that the need of introducing corporate governance practices for prestigious reasons is important for only 1/4 of the Ukrainian enterprises comparing to 44% of Russian and 51% of Kyrgyz companies.
Table 6
The goals corporate governance serves in companies according to managers’ opinions (in %)
Country
Goal
Russia
Ukraine
Kyrgyzstan
Raising the effectiveness of the decision making process
66
66
62
Facilitating access to domestic and international capital markets
10
10
32
Raising company’s reputation
44
25
51
Prevention and (or) resolution of corporate conflicts
14
11
16
Conducting business in compliance with the law
41
42
38
Other
2
1
2
Corporate governance does not serve achieving any goals in our company
8
8
11
The sum of percents is more than 100 because a respondent could choose up to three goals.
Source: Survey data (from the 2006 round) obtained in the “Corporate Governance Practices and Pros- pects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project (see footnote 2); own calcu- lations.
The most sensitive corporate governance problem for managers in all the three sur- veyed countries is inadequate current legislation (laws on companies, on bankruptcy, etc.). This problem is most often mentioned by the Ukrainian respondents which corroborates the widespread in the literature poor assessment of corporate legislation in this country. Kyrgyz and especially Russian legislation is usually assessed as more adequate, and this is also reflected in the respondents’ answers. Weak small shareholders’ protection and inadequate judicial system are the second and the third most important problems mentioned by the re-
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spondents. Cross-country analysis showed two peculiarities. First, for the Ukrainian compa- nies only two problems really count: inadequate legislation and weak protection of small shareholders, most other problems mentioned only sporadically. Second, more than 2/3 of Russian and Ukrainian managers are of the opinion that the main problems of their national industries go beyond corporate governance, comparing to a mere 9% of Kyrgyz managers (Table 7). This question needs further analysis, because we can only guess what these other, most important problems are. Terms of trade? Geopolitical position? Richness in natu- ral resources? Something else? At this moment, we don’t know.
Table 7
The most sensitive corporate governance problems in national industry accord- ing to managers’ opinions (in %)
Country
Problem
Russia
Ukraine
Kyrgyzstan
Weak protection of small shareholders
37
30
41
Weak protection of large shareholders
10
4
17
Insufficient control over managers’ operation
19
4
16
Failure by companies to meet information disclosure requirements
9
2
9
Inadequate competence of the members of the board of directors
14
3
15
Inadequate protection of creditor rights
8
6
10
Inadequacy of current legislation (laws on companies, on bankrupt- cies, etc.)
39
58
48
Weakness of the judicial system in settling corporate disputes
25
14
26
Other corporate governance problems
6
9
8
Main problems go beyond corporate governance
39
35
9
The sum of percents is more than 100 because a respondent could choose more than one problem.
Source: Survey data (from the 2006 round) obtained in the “Corporate Governance Practices and Pros- pects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project (see footnote 2); own calcu- lations.
As best practice codes in Russia and Ukraine are not compulsory and generally apply only to listed companies, and the Kyrgyz Manual on Corporate Governance has a status of a recommendation, for the majority of the surveyed companies (93% of the surveyed compa- nies in Russia and 86% in Ukraine are not listed) introducing efficient practices of corporate governance is a question of a good will and understanding of the role of good corporate gov- ernance mechanisms in the company’s success.
What is acceptable and what is not acceptable for managers from the basic principles of good corporate governance? It should be noted that this proved to be the most difficult question for the respondents, because up to 45% of them were not able to express their opinions on some corporate governance rules. Strangely enough, the most difficult in this respect was the question on insider information control. If we assume that the managers un- derstood the question correctly, it may reflect broad use of insider information by the main companies’ actors.
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36. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
Among the 7 rules listed, the vast majority of respondents accepted information disclo- sure to all the shareholders of the company. Additionally, the use of independent evaluators and auditors was equally popular in Russia. With the notable exception of Kyrgyz managers, more respondents were in favor of each rule than against it. The Russian managers seem to be the most supportive for their companies’ openness. The opposite pole is represented by the Kyrgyz companies, where the majority of managers are against information disclosure for broad public, election of independent directors on the board, and introduction of insider in- formation control (Table 8). Maybe it can be explained with the fact that the majority of Kyr- gyz enterprises are rather small with insider-dominated ownership structure and the main actors do not see the need for more openness, or even may regard it as a threat for their po- sitions.
However, the picture becomes somewhat different when we turn to the reality, i.e., in- vestigate what corporate governance rules have been introduced in practice. Formally, the Ukrainian companies become the most transparent and compliant to good corporate govern- ance practices (table 9). It should be noted that the level of openness and compliance de- pends not only on a good will of companies, but also on legal requirements, and that may at least partially explain some of the major differences between countries. At the same time, there are two rules, neglected by the majority of companies in all the three countries: formal committees on the board of directors and shareholders departments.
Table 8
Acceptability for a company of selected corporate governance rules in the opin- ion of managers (in %)
Country
Russia
Ukraine
Kyrgyzstan
Rule
acceptable
not accept- able
difficult to answer
acceptable
not accept- able
difficult to answer
acceptable
not accept- able
difficult to answer
Full, equal and timely information disclosure on the company for all its shareholders
71
10
17
76
6
17
71
17
12
Information disclosure for broad public
48
24
26
47
23
25
30
51
19
Insider information control, refraining from use of in- sider information for personal benefit
38
16
44
30
13
45
25
43
32
Election of independent directors on the Board
38
32
28
44
23
25
33
49
17
Special minority shareholders rights (e.g., preemptive right)
38
26
34
36
28
28
42
38
20
Use of independent evaluator and independent auditor
72
8
18
59
14
20
51
34
15
Strict procedure of dividend payments
65
13
20
58
7
26
60
28
11
Source: Survey data (from the 2006 round) obtained in the “Corporate Governance Practices and Pros- pects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project (see footnote 2); own calcu- lations.
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37. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
Table 9
Corporate governance practices in the surveyed companies (in %)
Country
Practice
Russia
Ukraine
Kyrgyzstan
Company has a shareholders department
35
33
23
Agenda of general meetings of shareholders is supplied to all of shareholders
81
96
77
Shareholders’ register maintained by an independent registrar
74
90
63
There are independent directors on the board of directors of your company
43
55
25
There are representatives of minority shareholders on the board of directors
24
60
43
There are formal committees (audit, remuneration, nomination) on the board of directors
7
18
6
Company uses international accounting standards (US GAAP/ IAS)
9
30
61
Annual reports are audited by an independent auditor
91
99
75
Source: Survey data (from the 2006 round) obtained in the “Corporate Governance Practices and Pros- pects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project (see footnote 2); own calcu- lations.
Inspired by Guriev et al. (2003), we created a Corporate Governance Index (CGI) which gives a stylized picture of corporate governance practices in surveyed companies.5 It takes into account 6 rules: (1) use of international accounting standards, (2) existence of shareholders department, (3) agenda of general meetings of shareholders should be sup- plied to all of shareholders, (4) shareholders’ register should be maintained by an independ- ent registrar, (5) there should be independent directors on the board, and (6) there should be representatives of minority shareholders on the board of directors. An introduced rule was scored as 1; the CGI was calculated as a sum of scores received by a company. In order to make the index comparable between various groups of companies, it was calculated only for firms where a board of directors had been created.
The difference in legal requirements makes direct cross-country comparison difficult. Nevertheless one should appreciate the score for Kyrgyz companies which is much higher than could be expected after the analysis of managers’ opinions and introduced rules of cor- porate governance (Table 10). It means that the level of corporate governance development in this country to a large extent depends on whether a company has a board of directors or not.
Table 10
Corporate Governance Index (CGI) in the surveyed companies (which have board of directors)
Country
Groups of companies
Russia
Ukraine
Kyrgyzstan
The largest shareholder
Managers
2.8
3.7
3.3
Domestic outsiders
2.8
3.6
3.8
5 The role of Sergey Stepanov from CEFIR in experiments with the CGI is should be also appreciated.
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38. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
Groups of companies Country Russia Ukraine Kyrgyzstan
Foreign outsiders
3.3
3.6
3.8
State
3.1
3.5
3.0
Profitability
Profits
2.8
3.6
3.7
No profits, no losses
2.6
3.7
3.2
Losses
2.8
3.6
3.3
Employment
1-200
2.5
3.4
3.4
201-1000
2.7
3.6
3.3
1000+
3.2
4.0
3.7
Total
2.8
3.6
3.5
Source: Survey data (from the 2006 round) obtained in the “Corporate Governance Practices and Pros- pects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project (see footnote 2); own calcu- lations.
Formally, Ukrainian companies are characterized by the best average CGI, Kyrgyz ones are only slightly lagging behind, and Russian companies have relatively the worst score. In all the three countries, large firms are more likely to adopt the norms of good corpo- rate governance than the smaller ones, the largest Ukrainian companies having the highest CGI in the whole sample. Among Russian companies, the best CGI score, apart from the largest firms, have companies controlled by foreign investors. In Kyrgyzstan, the best are the companies that belong to outsiders – both domestic and foreign. Additionally, in this country profitable companies gain higher CGI scores than those bearing losses. All this shows a complex nature of adoption of best corporate governance practices which needs further re- search.
As it was mentioned above, in Poland too best practices code is compulsory (according to the “comply or explain” principle) only for listed companies. Unfortunately, during the last years no research on adopting these practices in non-listed companies has been conducted. The Warsaw Stock Exchange, however, publishes detailed statistical data on best practices compliance of all the listed companies6. By 2006, all these companies agreed to follow the code, and only 2% of them haven’t introduced any of the 53 best practices principles. An av- erage company has introduced 44 principles. Good practices of supervisory boards function- ing proved to be the most difficult to follow: average compliance level equals 86%. Two prin- ciples appeared to be extremely difficult: introduction of independent board members (only 29% of companies did that) and elaboration of the publicly available supervisory board stat- ute that creates two committees: on audit and remunerations (32%). The third difficult to im- plement principle (51% of compliant companies) stated that an auditor should be chosen by the auditing committee of the supervisory board. All other principles have been adopted by the vast majority of the companies; 38 of them by more than 90% of firms and 4 by all the
6 Available at http://www.gpw.pl.
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39. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
firms (dealing with goals of the company, independent evaluations, accessibility of general meetings of shareholders, and mentioning compliance with the best practices code in a com- pany’s annual statement).
5. Actors of corporate governance
One of the factors that affect the quality of corporate governance in companies is the system of roles that various actors play in decision-making processes due to different formal competencies and informal place in the company’s hierarchy of influence. Unfortunately, here we have little opportunity of making use of hard data. Instead, we have to rely on opin- ions of people who are directly involved in the decision-making, which naturally brings into question the objectiveness of the information obtained this way. Nevertheless, it seems that despite the use of non-precise, subjective tools of assessing objective facts and processes, we still are able to identify certain most important features, especially being aware of the character of bias which may have been introduced by respondents’ answers.
Table 11
Influence on decision-making (average from 1 = very weak to 5 = very strong)
Actors
Decisions
CEO, manag- ing board
Board of di- rectors (if exists)
General meet- ing of share- holders
Largest shareholders
Russia
Main directions of development
4.3
3.9
2.3
4.1
Production, day-to-day management
4.8
2.8
1.5
2.7
Finances, investments
4.4
3.9
2.1
3.9
Hiring managers
4.6
3.4
1.7
3.6
Observance of shareholders' interests
3.9
4.0
3.2
4.0
Average
4.4
3.6
2.1
3.4
Kyrgyzstan
Main directions of development
4.5
3.9
3.4
3.4
Production, day-to-day management
4.7
3.6
2.6
2.8
Finances, investments
4.5
3.7
3.0
3.2
Hiring managers
4.6
3.8
2.8
2.8
Observance of shareholders' interests
4.2
4.0
3.8
3.2
Average
4.5
3.9
3.3
3.2
Source: Survey data (from the 2005 round) obtained in the “Corporate Governance Practices and Pros- pects in Transition Countries: The Case of Russia, Ukraine, and Kyrgyzstan” project (see footnote 2); own calcu- lations.
Table 11 shows rather typical picture for transition countries which can be described as “managers rule in the company.” To some extent, it may be the result of the above- mentioned bias, but in fact it rather shows that corporate governance in the analyzed com-
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40. Studies & Analyses CASE No. 347 - Corporate Governance Formation in Poland, Kyrgyz…
panies basically stays within the Continental corporate governance model, where all the de- cisions, including strategic ones, are taken (or at least prepared) by the executive branch, while board of directors rather play the role of a “classical” supervisory board with its pre- dominantly control and permissive functions. In Kyrgyz companies, boards of directors are also significantly engaged in day-to-day management of companies and hiring of managers which is rather outside the scope of their typical responsibilities. In turn, in Russian compa- nies, we see high role of largest shareholders, especially in the field of defining main direc- tions of development; they seem to some extent to “bypass” the existing bodies, exerting di- rect influence on running the company. This is especially seen in the very weak role of gen- eral meeting of shareholders whose almost sole function is looking after shareholders’ inter- ests. Unfortunately, we do not have data for Ukrainian companies.
A question arises how existence or absence of a board of directors influences the divi- sion of powers in a company. We were able to check it only on Kyrgyzstan data, because only in this sample there were enough companies without a board of directors. A general pat- tern was found according to which in the latter group of firms, board of directors’ functions were taken over by a CEO/managing board and the largest shareholders. It is worth noting that the role of general meeting remains almost intact, even in the question of looking after shareholders interests – this function is mainly taken over by top managers. This could hap- pen due mainly to highly insiderized ownership pattern of companies without board of direc- tors, where managers are at the same time the core owners.
Table 12
Influence on decision-making in groups of companies with different characteristics (average from 1 = very weak to 5 = very strong)
Actors
Groups of companies
CEO, managing board
Board of direc- tors (if exists)
General meeting of shareholders
Largest share- holders
Russia
Largest shareholder
Managers
4.6
3.5
2.2
3.6
Domestic outside
4.3
3.6
2.1
3.8
Foreign
4.4
3.7
2.0
3.9
State
4.4
3.5
2.0
3.2
Profitability
Profits
4.4
3.7
2.2
3.7
No profits, no losses
4.4
3.6
2.3
3.7
Losses
4.3
3.5
2.0
3.5
Employment
1-200
4.5
3.5
2.1
3.5
201-1000
4.4
3.6
2.1
3.6
1000+
4.4
3.7
2.2
3.8
Kyrgyzstan
Largest shareholder
Managers
4.6
3.8
3.2
2.9
40