CORPORATE GOVERNANCE IN ROMANIA OECD 2001 TABLE OF CONTENTS PREFACE................................................................................................................................................................6 RECOMMENDATIONS.........................................................................................................................................8 PART I: THE CORPORATE GOVERNANCE ENVIRONMENT IN ROMANIA.............................................20 1.1. THE GENERAL ECONOMIC CONTEXT ...............................................................................................20 1.2. THE STRUCTURE OF THE CORPORATE SECTOR AND THE FINANCIAL SECTOR IN ROMANIA ........................................................................................................................................................24 1.2.1. THE CORPORATE SECTOR.............................................................................................................24 1.2.2. THE STRUCTURE OF THE FINANCIAL SECTOR........................................................................26 1.2.3. PATTERNS OF CORPORATE OWNERSHIP ..................................................................................32 1.2.4. INSTITUTIONAL INVESTORS ........................................................................................................35 1.2.5. SHAREHOLDER ACTIVISM............................................................................................................39 1.3 CORPORATE GOVERNANCE AND THE PROCESS OF TRANSITION..............................................42 1.3.1. ECONOMIC REFORM AND THE TRANSITION TO A MARKET ECONOMY...........................42 1.3.2 THE PRIVATISATION PROCESS .....................................................................................................47 1.3.3. THE ROLE OF FOREIGN INVESTMENT........................................................................................52 1.4. CONCLUSION: CORPORATE BEHAVIOUR, FINANCE AND RESTRUCTURING..........................56 PART II: THE REGULATORY FRAMEWORK AND THE ROLE OF POLICY..............................................58 2.1. THE LEGAL AND REGULATORY FRAMEWORK ..............................................................................58 2.1.1. THE COMPANY LAW.......................................................................................................................58 2.1.2. THE LAW ON SECURITIES AND STOCK EXCHANGES.............................................................66 2.1.3. OTHER SPECIFIC REGULATIONS .................................................................................................67 2.1.4. THE NATIONAL SECURITIES COMMISSION ..............................................................................69 2.2. THE RIGHTS AND EQUITABLE TREATMENT OF SHAREHOLDERS.............................................72 2 2.2.1. THE LEGAL RIGHTS OF SHAREHOLDERS..................................................................................72 2.2.2. ABUSES OF SHAREHOLDERS RIGHTS’.......................................................................................74 2.2.3. INITIATIVES TO PROTECT MINORITY SHAREHOLDERS........................................................75 2.2.4. INSIDER TRADING AND MARKET MANIPULATION................................................................78 2.2.5. THE STATE AS SHAREHOLDER....................................................................................................79 2.3. THE ROLE OF STAKEHOLDERS IN CORPORATE GOVERNANCE.................................................82 2.4. THE BOARD OF DIRECTORS AND THE OVERSIGHT OF MANAGEMENT ...................................85 2.4.1. BOARD NOMINATION AND STRUCTURES.................................................................................85 2.4.2. BOARD FUNCTIONS ........................................................................................................................89 2.4.3. MANAGERIAL ENTRENCHMENT .................................................................................................90 2.4.5. THE ROLE OF THE CENSORS.........................................................................................................91 2.5. TRANSPARENCY AND DISCLOSURE..................................................................................................93 2.5.1. CORPORATE FINANCIAL AND OPERATIONAL DISCLOSURE ...............................................93 2.5.2. ACCOUNTING PROCEDURES AND AUDITING REQUIREMENTS...........................................96 2.5.3. INFORMATION ON SHARE OWNERSHIP...............................................................................99 2.5.4. DIRECTORS, MANAGERS AND RELATED PARTIES DISCLOSURES....................................100 ANNEX: CAPITAL MARKETS IN ROMANIA ...............................................................................................101 APPENDIX 1 Companies listed on the Bucharest Stock Exchange....................................................................120 APPENDIX 2 MAIN ECONOMIC INDICATORS FOR THE FIVE SIFS........................................................125 APPENDIX 3 THE TOP 100 COMPANIES LISTED ON THE RASDAQ .......................................................127 APPENDIX 4 Main Legislation Relevant to Corporate Governance ..................................................................134 3 Boxes What is Corporate Governance? ................................................................................................................ 18 How Does Romania Rank in Terms Of Corporate Governance? .............................................................. 19 Holding Companies in Romania................................................................................................................ 34 Mutual Funds in Romania: A Turbulent History....................................................................................... 38 Why are Shareholders so Passive?............................................................................................................. 39 Privatisation and Labor Conflict in Romania ............................................................................................ 84 Main Differences between Romanian and International Accounting Standards........................................ 98 General requirements for listing on the second (base) tier of the Bucharest Stock Exchange................. 102 The Registry, Depository and Compensation System.............................................................................. 110 Figures Foreign capital in Romania by region of origin.....................................................................................................53 FDI breakdown by sector as at October 2000........................................................................................................55 Lending in Romania...............................................................................................................................................56 Romanian Share Indices through Time................................................................................................................105 Value And Market Capitalization of The RASDAQ through Time, and Breakdown of Listed Companies and Trades by Sector. .................................................................................................................................................114 Tables Table A: Regional Rankings of Corporate Governance based on overall scores...................................................19 Table B: Breakdown of Corporate Governance results for the CEE Region.........................................................19 Table 1 – Romania - Macroeconomic indicators ...................................................................................................21 Table 2: Distribution of economic entities registered at 31 December 2000, by legal form of organization.........24 Table 3: Distribution of active companies by size and sector of activity in 1998: ................................................24 Table 4: Main economic indicators by company* size and ownership in 1998.....................................................25 Table 5: The Financial Investment Companies’ holdings......................................................................................30 4 Table 6: The Financial Investment Companies’ holdings – end of 2000...............................................................35 Table 7: The venture capital funds active in Romania...........................................................................................36 Table 8: The mutual funds’ industry evolution......................................................................................................38 Table 9: Evolution of the privatisation process......................................................................................................50 Table 10: Evolution of foreign direct investment ..................................................................................................52 Table 11: Some major foreign investments via privatisation.................................................................................54 Table A1: Bucharest Stock Exchange trading statistics.......................................................................................104 Table A2: Bucharest Stock Exchange performance indicators............................................................................105 Table