Contents
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. Shareholders’ Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Equitable Treatment of All Shareholders . . . . . . . . . . . . . . . 10
4. Disclosure, Transparency and Responsibilities
of Company Boads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
, Studies & Analyses No. 268 – The legal Framework for Effective Corporate ...
Abstract
The development of market economies in Central and Eastern Europe, and the
imminent accession of some of these countries to EU membership, has only strengthened
the view that corporate governance is of fundamental importance to the process of
transition and to the economic regeneration and growth of former socialist countries.
The paper identifies the differences between the systems of corporate governance
existing in various transition countries. It aims at comparing the legal framework for
corporate governance in selected transition economies in order to highlight the progress
made so far as well as the shortcomings of the existing framework.
5
, Studies & Analyses No. 268 – I. Hashi
1. Introduction1
We define “corporate governance” as the set of rules and mechanisms
governing the behaviour of a firm which ensures that shareholders, investors and
creditors are protected from abuse by managers and large stakeholders and
have sufficient incentive to supply the firm with finance and credit. The
development of market economies in Central and Eastern Europe, and the
imminent accession of some of these countries to EU membership, has only
strengthened the view that “corporate governance” is of fundamental
importance to the process of transition and to the economic regeneration and
growth of former socialist countries. Indeed, fourteen years of “post-socialist”
development has shown that as the institutions of the new market system
develop, more advanced, complex and intricate mechanisms of corporate
governance are needed to ensure the protection of shareholders, investors and
creditors who are the vital agents of a dynamic economy. The “needed
mechanisms of corporate governance”, initially highlighted by Frydman, et al.
(1993) are even more important now that these countries have established a
market system and, at least some of them, are nearing the end of the transition
phase.
Shleifer and Vishny (1997) argued that effective corporate governance is
established either through a well developed legal framework and an active
capital market, or through concentrated ownership. In an extension of this
argument, La Porta, et al. (1997 and 1998) argued that in countries with better
legal protection of shareholders, financial markets are more developed and firms
have greater access to external finance and better opportunities for growth.2
This analysis was extended to transition economies by Pistor, et al. (2000) by
highlighting the effectiveness and impact of legal institutions on external finance.
While La Porta et al.’s work was concerned with the analysis of “anti-director”
1 I am grateful to colleagues and friends in many transition economies who helped with the preparation of
questionnaires, to Mrs. Jenny Herbert who provided assistance with collection and compilation of the data and
sifting through the legal matters, and to Ms. Zorica Kalezic for her help as a research assistant.
2 Similarly, in a comparison of the regulations governing the Polish and Czech stock exchanges, Gleaser,
et al. (2001) showed that because of the regulations protecting the interests of investors and minority
shareholders, it was possible to raise over a billion dollars of finance for new and existing firms in Poland and
launch 138 IPOs (until 1998) while none of this was possible on the Prague Stock Exchange.
6
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. Shareholders’ Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Equitable Treatment of All Shareholders . . . . . . . . . . . . . . . 10
4. Disclosure, Transparency and Responsibilities
of Company Boads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
, Studies & Analyses No. 268 – The legal Framework for Effective Corporate ...
Abstract
The development of market economies in Central and Eastern Europe, and the
imminent accession of some of these countries to EU membership, has only strengthened
the view that corporate governance is of fundamental importance to the process of
transition and to the economic regeneration and growth of former socialist countries.
The paper identifies the differences between the systems of corporate governance
existing in various transition countries. It aims at comparing the legal framework for
corporate governance in selected transition economies in order to highlight the progress
made so far as well as the shortcomings of the existing framework.
5
, Studies & Analyses No. 268 – I. Hashi
1. Introduction1
We define “corporate governance” as the set of rules and mechanisms
governing the behaviour of a firm which ensures that shareholders, investors and
creditors are protected from abuse by managers and large stakeholders and
have sufficient incentive to supply the firm with finance and credit. The
development of market economies in Central and Eastern Europe, and the
imminent accession of some of these countries to EU membership, has only
strengthened the view that “corporate governance” is of fundamental
importance to the process of transition and to the economic regeneration and
growth of former socialist countries. Indeed, fourteen years of “post-socialist”
development has shown that as the institutions of the new market system
develop, more advanced, complex and intricate mechanisms of corporate
governance are needed to ensure the protection of shareholders, investors and
creditors who are the vital agents of a dynamic economy. The “needed
mechanisms of corporate governance”, initially highlighted by Frydman, et al.
(1993) are even more important now that these countries have established a
market system and, at least some of them, are nearing the end of the transition
phase.
Shleifer and Vishny (1997) argued that effective corporate governance is
established either through a well developed legal framework and an active
capital market, or through concentrated ownership. In an extension of this
argument, La Porta, et al. (1997 and 1998) argued that in countries with better
legal protection of shareholders, financial markets are more developed and firms
have greater access to external finance and better opportunities for growth.2
This analysis was extended to transition economies by Pistor, et al. (2000) by
highlighting the effectiveness and impact of legal institutions on external finance.
While La Porta et al.’s work was concerned with the analysis of “anti-director”
1 I am grateful to colleagues and friends in many transition economies who helped with the preparation of
questionnaires, to Mrs. Jenny Herbert who provided assistance with collection and compilation of the data and
sifting through the legal matters, and to Ms. Zorica Kalezic for her help as a research assistant.
2 Similarly, in a comparison of the regulations governing the Polish and Czech stock exchanges, Gleaser,
et al. (2001) showed that because of the regulations protecting the interests of investors and minority
shareholders, it was possible to raise over a billion dollars of finance for new and existing firms in Poland and
launch 138 IPOs (until 1998) while none of this was possible on the Prague Stock Exchange.
6
