Quality of corporate governance reports of publicly traded companies needs to be enhanced
The Financial Supervision Authority deems the information available on the management of publicly traded companies to be of good quality, but limited. This may leave gaps in investors’ knowledge of the management of the issuer.
Publicly traded companies are expected to present up-to-date, accurate and sufficiently detailed information in their corporate governance reports, along with comparative information on previous periods so as to provide investors with the best possible overview of the corporate management practice.
Alongside the inspection of financial reporting, the Financial Supervision Authority uses the corporate governance reports as the basis for the preparation and presentation of regular overviews on the sufficiency and quality of the information available on the issuer.
The corporate governance code establishes a set of rules designed for publicly traded companies for the purpose of enhancing transparency of their management and reinforcing the rights of shareholders. The corporate governance code is advisory by nature – issuers are not obliged to adhere to the principles described therein; however, any refusal to abide by the rules must be thoroughly explained, with the explanations published. From 1 July 2009, the obligation to prepare a good governance report is established in the Accounting Act.
“Publicly traded companies are obliged to ensure consistent publication of the information on the management of the company. We urge companies to drop the formal tone, and to provide both major investors and small investors with equally substantial and detailed management information. Similarly, we aim to avoid situations where major investors are much more informed of the company’s position than small investors,” said Kilvar Kessler, a member of the Management Board of the Financial Supervision Authority.
The last reports of several issuers provided insufficient explanations as to their refusal to adhere to the corporate governance code, or failed to provide any reason whatsoever, including with regard to remuneration and the obligation to assign independent supervisory board members. The Financial Supervision Authority thus sees a need to further analyse and update the legal and regulatory framework, where necessary.
To ensure transparency of the management practice among publicly traded companies, the Financial Supervision Authority conducted an analysis of the corporate governance reports of issuers in 2010 and 2011. The Financial Supervision Authority deems the corporate governance reports prepared by publicly traded companies in 2010 and 2011 to be satisfactory. At the same time, the Financial Supervision Authority is convinced that publicly traded companies could do a much better job of preparing the corporate governance reports or explaining their refusal to abide by the corporate governance code, so as to provide shareholders with a comprehensive overview.