On Monday, a panel titled ‘How to Improve Corporate Governance in Croatia’ was held at the Faculty of Economics in Zagreb, where a stimulating and interesting discussion developed about the obstacles and challenges of corporate governance development and the importance of supervisory boards. The panel was held on the occasion of the presentation of the book ‘Supervisory Board: Corporate Governance and Group Dynamics’, authored by Dr. Lana Cindrić, senior assistant at EFZG, and Prof. Darko Tipurić, head of the Department of Organization and Management at EFZG.
In the discussion, alongside the authors as moderators, participated Vedrana Jelušić Kašić, member of the Management Board of PBZ, Neven Vranković, member of the Management Board of Atlantic Group, Miodrag Šajatović, editor-in-chief of Lider, and Prof. Marina Klačmer Čalopa, dean of the Faculty of Organization and Informatics from Varaždin.
Numerous scandals and frauds
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– Given that we have a very strong and concentrated ownership structure and a relatively long-term Management Board, our success should certainly be attributed to the role of the Supervisory Board characterized by its independence. The majority of the members of the Supervisory Board must be independent, and all of ours are independent. This means that they perform their mandate, which is not binding, at their own risk and have no interest connections with Atlantic Group. Members of the Supervisory Board are not paid based on the company’s success, but based on their independent position. Another thing is their competence. This is best illustrated by the fact that members of our Supervisory Board have led companies that are up to 10 times larger than Atlantic Group, said Vranković.
Explaining the important role that supervisory boards play in companies like Atlantic, he added that based on the great diversity of knowledge and experience they contribute, the supervisory board cannot be anything but a strategic partner of the Management Board. Otherwise, Atlantic Group presented its corporate governance code to the Supervisory Board back in 2005, and the reason for this was the inclusion of the German Development Bank (KfW) in the ownership structure due to the then acquisition of Cedevita. With Atlantic, as a pioneer of quality corporate governance, they were patient and respected the fact that at that time one of the largest domestic producers and distributors was a small company that had not yet encountered such practices.
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There is a significant problem with corporate governance, believes Tipurić, referring to the fact that numerous scandals and corporate frauds show that even development is not enough for positive practice. Large multinational companies, far beyond the borders of Croatia, have been facing the same challenges for decades. So what qualities should supervisors have?
– First of all, they must have pronounced professional characteristics. A member of the Supervisory Board must absolutely know how to perform financial analysis, read financial reports, and there are also personal characteristics. Above all, what makes a good supervisor is to be moral and ethical in what they do. We mentioned independence and responsibility several times today in the discussion; without these characteristics, no one can be a member of the Supervisory Board, believes Klačmer Čalopa.
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Šajatović recalled the beginnings of corporate governance and its development over the years, stating that in the 1990s, when the transition occurred, few people knew about this concept and learned on the go. However, much has changed since then.
‘A multilayered, conflicted, fragile, and unstable personality’
– The level of corporate governance as we perceive it in the editorial office has significantly shifted in the last 15 to 20 years. We have often witnessed scenarios where founders create great companies, and then it happens that those who did not recognize the necessity of the corporate governance process in time are no longer owners of their firms. On the other hand, we have Atlantic, which started in this direction very early, and this is evident in their results. Another thing I will add is the increase in quality, or the adoption of global corporate governance practices. This is contributed to by a trend that I am personally not very satisfied with, which is that more and more companies in Croatia are owned by foreign parent companies that have developed corporate governance processes. At Lider, we have been working on a list of the 1000 largest companies for several years, and last year’s results show that about 40 percent of that list is predominantly or completely owned by foreigners. On one hand, this is good because domestic experts can learn about modern corporate governance practices and implement them in domestic companies, but on the other hand, we have a large part of the import component instead of the export one, commented Šajatović.
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Regarding the role of the media, supervisory boards are often bypassed, both due to the lack of experience of young journalists who still need to learn what corporate governance essentially is and how its effectiveness is measured, as well as due to PR agencies that often prevent journalists from reaching relevant interlocutors and take on the role of ‘guardians of companies’.
Speaking about supervisory boards, Tipurić emphasized that one of the biggest challenges for corporate governance remains human greed. People often view the economy only through numbers, analyses, and graphs, but ‘a multilayered, conflicted, fragile, and unstable personality has always been the focus of our profession’.
– Regarding the challenges of corporate governance in Croatia, I would say that it primarily relates to the level of awareness of the people who are nominated to the Supervisory Board. Namely, they are often not aware of what legal responsibilities they have and what is expected of them. On the other hand, the companies themselves do not do enough thorough preparation for the entry of members into the Supervisory Board. This happens even in multinationals; the neighbor’s grass is not always greener. It is crucial to understand the complexity of the role and responsibilities because members of the Supervisory Board are liable with all their property, says Jelušić Kašić.
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At the end, the panelists touched on the topic of the role of supervisory boards in state-owned enterprises, their efficiency, and the necessary improvements for better corporate governance in the future.
– It is possible to have successful supervisory boards in state-owned enterprises. There needs to be a very clear political will to regulate this. Many years ago, the government clearly decided that state officials would not receive compensation in supervisory boards. At that moment, the interest in participating in them ceased. A very simple act of political will could regulate this in a large segment. In Croatia, there are companies that have a share of state ownership, are extremely well-organized, and corporate governance is an important segment of their business. However, as soon as the public discourse speaks about sharing corporate spoils, and if someone at the level of the current political authority does not immediately interrupt this, I believe we will find it very difficult to move forward, believes Vranković.
