What is corporate governance?

Corporate governance is a complex of processes, laws, regulations and practices that guide the relations between the executive management, statutory bodies, shareholders and other concerned parties of a company. In a market economy, corporate governance is an indivisible part of management of every private company orientated on long-term development. The importance of corporate governance has increased in connection with the accounting scandals of big American and European corporations, as well as the worldwide economic crisis that has revealed flaws in corporate management and administration. Notwithstanding the fact that a majority of Slovak companies have so far withstood said turbulences, the need for continuous improvements in efficiency and quality of their management results primarily from their relatively short experience with operation in a market environment.

Historical development of corporate governance in Slovakia

A common national code named “the Unified Code of Corporate Governance” was created in September 2002 under the Stock Exchange’s initiative, with the support of FIRST Initiative Management Unit, London, and with participation of the (then) Financial Market Authority, economy institute INEKO and representatives of professional associations. In April 2003, the Unified Code was incorporated into the then-effective Stock Exchange Rules for Shares Admission to the Listed Market.

The BSSE subsequently initiated the founding of an association with a mission to monitor worldwide developments in corporate governance, to encourage public, professional and political discussions on this subject in the society, to foster professional growth of both current and future members of the boards of directors/supervisory boards, and to create a professional background enabling to gain the most recent information from the area of corporate governance. With the support of twenty founding members, the Central European Corporate Governance Association (CECGA) was founded in October 2004. The members of CECGA actively participated in a revision of the Unified Code from 2002, which reflected the revised corporate governance principles adopted in response to the period of crisis by several institutions of all-European importance (e.g. OECD, European Commission). In the course of the year 2007, a new “Corporate Governance Code for Slovakia” was created (effective from 1 January 2008) which replaced the Code from the year 2003 and became part of the then-effective Stock Exchange Rules of the BSSE. Due to the fact that the Stock Exchange’s regulated market now includes the securities of companies which are part of supranational groups, or their majority shareholder is a foreign entity, or they are foreign issuers, the Stock Exchange decided (effective from 1 January 2012) to leave out from the Stock Exchange Rules the issuers’ obligation to accede solely to the Corporate Governance Code created by CECGA. This decision is intended to enable issuers to accede to, and abide by, any accepted Corporate Governance Code in compliance with the legislation in effect. Those issuers who acceded to the Corporate Governance Code for Slovakia can continue to follow it; new issuers are also allowed to sign up.

The current Corporate Governance Code for Slovakia

In connection with the release of the new G20/OECD Corporate Governance Principles 2015, CECGA decided to revise the Code effective from 1 January 2008. The new “Corporate Governance Code for Slovakia“ (.pdf) is effective from 1 January 2017. However, companies are only obligated to prepare a statement according to the new Code for the year 2017, i.e. starting from 1 January 2018. Helpful to companies in complying with the principles of the Code is the new template of the “Statement of Compliance with the Principles of the Corporate Governance Code for Slovakia” (.doc).

Application of the Corporate Governance Code for Slovakia

When preparing a statement of compliance with the Code of its managing body, a company adheres to the “comply or explain” principle. Following this principle, the company will state to what extent it has complied with the principles of good corporate governance. If a company has yet to apply one of the principles, the company will specify reasons in its Annual Report.

Related links: SLOVAK ASSOCIATION OF CORPORATE GOVERNANCE