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Business and Politics

A Benign Statement from the Auditor on Profitability Ignites Shareholders of the Zagreb Stock Exchange

Author: Tomislav Pili

June 13, 2024

A small, benign statement from the auditor’s report of the Zagreb Stock Exchange caused consternation among a small group of shareholders at the general assembly held on Tuesday, but also sparked a broader debate about what should be the main purpose of the company in today’s circumstances. A debate developed on social media about how it is possible that the leaders of the Zagreb Stock Exchange claim at the shareholders’ meeting that the primary purpose of the company is not to generate profit, but to serve the public interest.

It is worth noting that the Zagreb Stock Exchange is predominantly privately owned, although one of the leading individual shareholders is the Financial Agency, with a 10 percent stake. In response to a query from Lider for clarification on what exactly was said and happened at the shareholders’ meeting, CEO Ivana Gažić claims that at the general assembly, the Management Board responded to a shareholder’s question about whether they agree with part of the auditor’s report which states: ‘(We chose net assets as a benchmark) because the Company is a provider of public services, and in its operations, it adheres to the principles of protecting the public interest and the stability of the capital market, rather than profitability.’

Without Free Price Formation

– In response to the aforementioned question, the Management Board stated that the Exchange indeed has a specific role since it cannot freely set its prices like other companies because they are subject to regulatory approval, and that it often has to invest or incurs increased costs due to frequent changes in regulations related to the operation of a regulated market, and that the law stipulates that the Exchange is responsible for ensuring fair, orderly, and effective trading based on special regulatory approval. After the response to this question, there was no further discussion – Gažić notes.

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In her explanation, Gažić stated that the Zagreb Stock Exchange also conducts other activities of public interest such as listings, trade supervision, education aimed at increasing financial literacy, or sanctioning. – In doing so, it certainly takes into account the sustainability of the Exchange’s operations, but also cares about profitability – emphasized the head of the domestic exchange. If we are already talking about the profitability of the exchange, last year it recorded a profit of 136,203 euros, seven percent more than the previous year.

Of that amount, just under 116 thousand euros is intended for the payment of a dividend of five cents per share. It is worth noting that this is the first dividend of the Zagreb Stock Exchange after 16 years. Ivana Gažić claims that shareholders did not question the proposed amount of the dividend and that this proposal was adopted with one hundred percent valid votes.

Generations of economists have been educated on the thesis that the existence of a company aims to perform a certain activity and generate profit. This thesis was particularly loudly advocated by Milton Friedman, a Nobel Prize winner in Economics. The role of companies understood in the ‘old’ way has somewhat been called into question in today’s era of rising sustainable business principles, or has expanded the company’s responsibility towards the broader community in which it operates.

The Financial System is a Public Interest

Luka Brkić, a professor of international economic relations at Libertas University, claims that Friedman’s ideas on this matter are still relevant today. – The primary goal of a company is to generate profit as long as there is a relationship between the private and public spheres. Why do shareholders unite if not to achieve profit – says Brkić.

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In a democratic order, citizens have the right to their particular interest which they can articulate in democracy. On the other hand, the general interest is a public good from which no one can be excluded, adds Brkić. In this context, it is necessary to observe the role of exchanges where private companies are listed, whose goal is to care for the interests of their shareholders. – If we view the exchange in the context of its role in the development and stabilization of the financial system – which is a public good – then it could be adorned with the attribute of public interest – emphasizes Brkić.