The present action plan contains practical measures
and proposals for the improvement of the corporate governance in Bulgaria. It
was prepared by the expert group, working on projects within the Corporate Governance
Initiative in Bulgaria. A substantial part of the proposals were induced by
the results and analyses presented in the Corporate Governance Assessment Report:2000,
other expert opinions have also been used for the regulatory changes and improvement
of the practice in that aspect.
The practical steps are grouped in the following problematic
fields, in which the attention of the professional community should be focused
in order the corporate governance in Bulgaria to improve considerably and get
closer to the global standards.
1 Equitable treatment of the shareholders and protection
of the minority shareholders rights
1.1. "Issue 200,000" - the possibility projected
with the LPOS for delisting of the companies from the registrar of the publicly
traded companies ("delisting"), in case their registered capital is less than
BGN 200,000 upon a resolution of the general meeting - in the second wave of
the mass privatization only, there were 400 companies with registered capital
below BGN 200,000, over 30 out of them have been delisted already and the process
continues its acceleration, and according to the data of the SSC around 300
companies have filed applications for delisting, two former privatization funds
have also been delisted - a fraud against the participants of the second wave
of the mass privatization (which are already over 1.1 million) and a danger
of the process discrediting, lack of protection of their interests, inadequate
liquidity for the shares acquired, limitation of the pension funds participation
in the process.
Proposal: To prepare a list of: all quoted
companies with registered capital below BGN 200,000; all already delisted companies,
and all companies that have filed an application for delisting, and that list
to be made widely available to the public with the cooperation of the Centre
for Mass Privatisation and BSE-Sofia.
1.2. The persisting possibility under the LPOS
(§10, para.3) for increase of the authorized capital in divergence of the pro-rata
rule, in the cases when such action is envisaged in the privatization agreements.
In addition, it is a common practice not follow the requirement to submit a
notification to the SSE and BSE-Sofia for the availability of such an agreement
within fourteen days of the LPOS coming into effect.
Proposal: To explore the possibilities the
buyers to apply a pro-rata increase in the registered capital, allowing the
remaining shareholders also to participate in execution of the investment plan,
while the controlling shareholder still follows the privatization arrangements
for investment amounts on his/her behalf and expense. To allow the buyers when
interested to sign supplementary arrangements with the privatisation authorities
with which the definition "on behalf of the buyer and at the expense of the
buyer" to be discarded. The SSC to sanction the companies that failed to meet
the 14-day notification period, and to prepare in cooperation with BSE-Sofia
and the Centre for Mass Privatisation a list of those companies for wide dissemination.
1.3. The Sopharma AD case and the lack of legal
regulation for determining the share subscription date for new issues, which
practically hindered the sale of the residuary stake held by the state. Placing
the shareholders into an inequitable position as for the procedure for subscription
of the remaining shares by non-admission of a certain part of them to the building
hosting the subscription before its opening.
Proposal: A legal regulation of the method
for determining the shareholder membership as at a particular date in relation
to the right of subscribing shares from a new issue while exercising the preferential
rights granted to the shareholders under the Commercial Act, as well as the
equitable treatment of the shareholders during the process.
1.4. With the LPOS important steps have been taken
in limiting the possibility for changes of the listed companies' authorized
capital in dilution of the minority stakes by the controlling shareholders.
Despite the amendments the practice of minority stakes dilution in capital increases
persisted. The practice reveals, that within the underdeveloped corporate environment
and culture, this right /and not obligation/ is not able to perform its regulatory
The interest on behalf of the public in individual
investing is still very suppressed as a result of the poor efficiency of the
protection of their rights in the environment of a very limited solvency.
Proposal: Legislative provision for the right
of the shareholders under Art. 194, para. 1 and 2. of the Commercial Act granting
advantage in subscription of new issue shares to be separable from the shares
themselves and to be available for trading.
1.5. One of the core shareholder rights - the right
of vote in the general meeting is not exericised in an adequate extent by
the minority shareholders. The compulsory physical presence is an obstacle for
a large part of the minority shareholders to give their vote at resolving over
some of the most important for the company issues. Without the exercising of
this right the election of minority shareholders representatives in the managing
or supervisory bodies may not be expected.
The practical minority shareholders participation
in the decision-taking process of the general meeting should be facilitated,
which should facilitate also the election and participation of minority shareholders
representatives in the managing bodies.
Proposal: To introduce the cumulative right
in voting for the general meetings of the listed companies.
To prepare proposals for legislative amendments in
relation to the minimum of a mandatory information /standardized form/ to be
sent to all shareholders for proxy voting /example USA/.
2. Responsibilities and motivation of the board
The board of the public limited (joint stock) companies
is responsible and should be therefore motivated to ensure the strategic guidance
of the company in the best interest of the company and its shareholders and
to monitor the executive management performance. However, as a result of the
dramatic changes in the ownership structure and the institutional environment
of Bulgaria's economy, the efficient work of these bodies is often limited by
poor organization, obscure authority and responsibilities, lack of information
and experience in the new environment. In that relation it is recommended the
interested institutions to stimulate the preparation of a Best Practice Code,
considering the particular conditions and environment in the country. This code
should include, but not necessarily limited only to, the following principles:
2.1. Division and specification of the responsibilities
of the board members
Particular scope of competence, authority and responsibilities
of the listed companies' board members should be determined. These responsibilities
should be binding for each board member (whether entitled with representative
authority or not) and to include at least:
- An obligation to declare before the other board members
the possible existence of a conflict of interest;
- A restriction from voting in taking a decision for transactions
in which a conflict of interest might arise;
- An obligation to provide guidance for the business in
a way to minimize the investors' risk of loss /e.g. to determine the parameters
of the definitions "management on best efforts basis" and "loyalty".
2.2. Conditions for appropriate board motivation
The code should validate the practice of creating
a modern system for remuneration of the listed companies' board members, which
to be applied by a remunerations committee in consideration of strict and clear
criteria for evaluation of the contribution of each of the board members. The
system should bind the board remuneration with the direct results of the company's
activities and provide incentives for efficient use of the company's resources
in the best interest of its shareholders.
2.3. Presonal requirements for the board members
The code should provide firm and clearly defined basic
requirements for the qualification, knowledge and experience of the internal
and outside /independent/ board members.
Specialized training programmes to be held communicating
basic knowledge in the filed of law (commercial, civil, penal), finance and
accounting, marketing for the members of managing and executive bodies. Minimum
educational requirements (as type and level) should be introduced for the candidates
for the two groups of positions mentioned, and a testing system for evaluation
of their knowledge and expertise might be developed.
2.4. Establishment of specialized internal committees
The good corporate governance practice should involve
the creation of specialized supporting committees at the managing bodies. Such
committees could substantially assist the functioning of the managing bodies
or, alternatively, be used as an instrument for the monitoring of their activities.
The global practice confirms the benefit from the existence of an auditing committee
and of a technical committee.
2.5. Collaboration with outside experts
The present tendency reveals that Bulgarian companies
collaborate with outside experts to a small extent. In many cases this leads
to unfounded resolutions by the managing bodies. Along with that the collaboration
with outside experts cannot be imposed as a requirement, as it depends on the
specifics of each company. But the Code can recommend that under specific circumstances
the managing bodies should consult outside experts.
2.6. Division of responsibilities
The Code should recommend the division of responsibilities
of the executive members of the managing body and the board chairman. Along
with that there should be a clear division of the authorities and responsibilities
between the managing body's members, including the statute of inside and outside
2.7 Regulated procedures for approving resolutions
An important part of the Code should be attributed
to the resolution approval procedures. They should be clear, unambiguous, easily
applicable in the practice and should include at least:
- Meetings scheduling and quorum checks procedure
- Procedure for informational and organizational assurance
- Voting procedure
- Protocol preparation and archive storing procedure
3. Disclosure and transparency
3.1. The quality of the disclosed financial and
accounting information is still very low which results in the subdued attractiveness
of the listed stock both for the local and foreign portfolio investors.
Proposal: Introduction of mandatory application
of the international accounting standards by the listed companies and independent
auditing of their activities.
3.2. It is necessary to improve the quality of
the information disclosed by the Bulgarian listed companies and overcome
Proposal: The Best Practice Code to prescribe
the listed companies' managing bodies to discuss with shareholders at the general
meetings the annual and semi-annual reports for the company's activities. This
will contribute for increasing the interest and better understanding of the
reports by the shareholders. This will also provide an impetus for a feedback
to managing bodies.