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PAL-228/16

Ljubljanska borza, d. d., Ljubljana

A New Corporate Governance Code Signed

Ljubljana, 7 November 2016 – the authors of the Corporate Governance Code (Code), the Ljubljana Stock Exchange and the Slovenian Directors' Association, adopted the new Code after a public debate. The basic purpose of the renovation of the Code was to harmonise it according to the changes in legislation and the development of guidelines on good practice of corporate governance, as well as to take into account findings from monitoring compliance with the Code. The new Code will enter into effect on 1 January 2017.

Since the last amendment to the Code as of 8 December 2009 there have been many changes in the field of commercial law, European recommendations and other recommendations on good practice, which have had an effect on the corporate governance in companies. The purpose of the Code has remained the same. The Code lays down guidelines for management, supervision and leadership of public joint-stock companies, whose shares are listed on the organised market in Slovenia. Also other companies can follow the guidelines for purposes of establishing a transparent and comprehensible governance system, which raises the level of trust of domestic as well as international investors, employees, other company stakeholders (regulators, banks, suppliers, etc.) and the general public.

There are three reasons for this renovation:

  • In seven years since adopting the previous version of the Code the regulatory environment in the field of corporate governance has changed. The key changes in the legislature during this period have been included in the five amending acts to the Companies Act (ZGD-1), which influenced the field of the companies' corporate governance, reporting and public disclosures of governance.
  • Additionally, also the international as well as Slovenian recommended practice of corporate governance has changed in this period. In 2015 OECD adopted new Principles of Corporate Governance and throughout this period many other European countries have adopted new Codes (i.e. Austria, Germany, Finland, Sweden, United Kingdom, Romania, Baltic countries). New recommended practice of corporate governance also developed in the form of autonomous sources in Slovenia (i.e. Corporate Governance Code for Companies with Capital Assets of the State, 2014; Corporate Governance Code for Unlisted Companies, 2016; Recommendations for Audit Committees, 2016; Practical Guidelines for Quality Explanations and Corporate Governance Statements, 2015; Guidelines for Selection and Recommendations for the work of Supervisory Board Chairmen, 2014; Guidelines for the Selection and Work of the Secretaries of the Supervisory Boards and Boards of Directors, 2014; Code of Professional Ethics of Slovenian Directors' Association, 2014; Recommendations for Reporting to Supervisory Board, 2014; Slovenian Guidelines for Corporate Integrity, 2014; Communication Guidelines for Supervisory Board Members at Companies they Supervise, 2014; Guidelines for the Functioning of Boards of Directors, 2013; Practical Guidance for Members of Management Board Recruitment, 2012; Supervisory Board Assessment Manual 2011; Supervisory Board Self-assessment Matrix). In addition to important development of good practice guidelines, it is imperative to stress the European commission recommendations on the quality of corporate governance reporting from 2014, which direct the EU member states to monitor and supervise the compliance with the codes.
  • Third reason for the change of the Code are analyses of the use and compliance with the Code, which are presented in the form of the Report on the Analysis of ‘Comply or Explain Statements’ with respect to Deviations from the Corporate Governance Code for the period 2010 – 2014, which were prepared by the Ljubljana Stock Exchange and the Slovenian Directors’ Association. The change was also influenced by feedback provided by issuers as the users of the Code. On the basis of the analysis of compliance with the Code and issuers’ feedback it became clear which provisions of the Code the companies comply with and which disclosures of deviations from the Code are the most frequent. Moreover, it also became clear which provisions were not written clearly enough and thus complying with them and disclosing deviations from them in practice presented unneeded problems. 

Most amendments to the Code with respect to the previous version are editorial and nomotechnical; however, the Code also contains some important substantive changes:

  • In chapter 1 titled Corporate Governance Framework a new institute is added – Diversity Policy, which is already defined in Article 70 of the Companies Act. The main purpose of this institute is a clearer definition of recommendations in the field of diversity and gender balance in management and supervisory bodies. The companies are encouraged to seriously approach the provision of diversity without imposing the same solution to different companies. Furthermore, recommendations regarding the formation of the Corporate Governance Statement and the supervision of the compliance with the Code are supplemented. A multiannual analysis of Corporate Governance Statement showed that some companies still do not understand the institute of “Comply or Explain” and that the quality of explanations of deviations from the Code is inadequate, which is not good either for the companies or for their stakeholders. In accordance with European commission recommendations on the quality of corporate governance reporting from 2014, the Code introduces a recommendation regarding an external assessment of the adequacy of the Corporate Governance Statement.
  • In chapter 2 titled Relations with Shareholders the recommendations regarding equal treatment of shareholders were supplemented. It has namely been established that the independence of supervisory boards and management boards from an individual shareholder and works council still remains a challenge and that previous provisions of the Code were not always correctly understood and respected.
  • In chapter 3 titled Supervisory Board recommendations on self-assessment of supervisory boards are updated; recommendations for the president of the supervisory board and secretary to the supervisory board are supplemented; in the field of committees predominantly the audit committees are harmonised to the new provisions of the European Directives and Companies Act; recommendations for additional training of supervisory board members are added. Everything mentioned has an important effect on the efficiency of the work of supervisory boards.
  • In chapter 4 titled Management Board among others the recommendations regarding the management board succession planning are supplemented. In addition, the recommended tasks of the management board regarding the company’s system of leadership are the following: the system needs to be transparent with regards to responsibility and competence, needs to be connected to the risk management system and needs to be such as it ensures ethical and responsible behaviour of all authorised persons in the company.
  • Important supplements are added also to chapter 5 titled Independence and Loyalty. The definition of independence is changed, and is now more clearly demarcated from the conflict of interest. The criteria for the conflict of interest are updated and written more clearly. The meaning of independence is thus narrowed only to relationships which permanently prevent objective assessment of the body’s members in the interest of the company. Not every conflict of interests is automatically also a dependent relationship. Therefore, the recommendation regarding the independence of the members of a supervisory board is extended to all members of the supervisory board and not only half of the members.
  • Finally, also changes of chapter titled Transparency of Operations are important. They are harmonised with the changes in legislature and the Ljubljana Stock Exchange Rules and enable better comparability among companies as well as transparency for their stakeholders. An example of this is a proposal for unified tables about the composition and salaries of the managing and supervisory bodies in Attachment C of the Code.

The new Code represents an appropriate framework for Slovenian listed companies for the introduction of the highest international standards of corporate governance.

The new CG Code enters into effect on 1 January 2017. The substantive changes of the Code and the Report on the Analysis of “Comply or Explain Statements” with respect to the Corporate Governance Code for 2015 will be publicly presented on the Corporate Governance Conference 2016, which will be held on 11 November 2016 in Ljubljana.

Ljubljana Stock Exchange

Slovenian Directors’ Association
Date: 07.11.2016