These are the main provisions of a government emergency ordinance that came into force at the end of last year, which sets clear transparency rules for state-run companies and is intended to help render them more efficient.
The ordinance went almost unnoticed and, right after it was passed, the Economy Ministry appointed Emil Boc’s personal advisor, Adrian-Victor Vevera, as chairman of power grid operator Transelectrica (TEL.RO raising doubts about how the authorities plan to enforce the provisions of this ordinance, which analysts deem essential for the development of state-owned companies.
“The emergency ordinance is an extremely important step towards making state-run companies transparent; it makes managers of these companies, as well as the government responsible. The civil society will have control over the decisions made in these companies,” says economic analyst Dragos Cabat.
The companies that posted more than one billion lei (some EUR230 million) in turnover in 2010 are required to start the procedure to select their new chief executives right away, and Transelectrica is the first to have called a shareholders’ meeting to do it.
The rules introduced by the ordinance, which also specifies that no state-run company may have more than two public servants elected to its board of directors, along with the campaign to recruit private CEOs for state-owned companies are a step towards improving efficiency of these companies, analysts say.
Mark Mobius, executive chairman for emerging markets with Templeton Asset Management, says his company is working with the government and the International Monetary Fund to enforce the corporate governance rules across state-run companies. As such, the company welcomes the adoption of the ordinance on corporate governance, which will make the operations of the state-run companies transparent and have tremendous implications for Romania in the future. Franklin Templeton, the manager of Fondul Proprietatea (FP.RO), is among the main supporters of the introduction of corporate governance in state-owned companies considering the fund owns significant stakes in Hidroelectrica, Romgaz and the Romanian postal company.
Fondul Proprietatea officials say that transparency rules forcing state-run companies to put their yearly and six-month financials on their websites, as well as every decision to be debated by the general meeting of shareholders will make it easier for the fund to supervise the companies, because the general public will have access to information previously available only to the members of the board and the representatives of the government in these companies.
“State-owned companies used to have most of their important contracts approved by the general meeting of shareholders, with no one knowing anything about them. The board members would avoid taking responsibility for it and pass them to the line ministry via the meeting. Now that everything debated during the meeting will be put up on the companies’ websites, managers will be much more careful about the contracts they sign,” people familiar with the matter explained to ZF.
The new rules to select CEOs also stipulate that the authorities controlling the state-owned companies will have to turn to specialized recruitment firms to select suitable candidates, who have to have working experience in the company’s line of business or in management. The boards of directors of these companies also have to present a management strategy before the general meeting of shareholders.
The companies will have to publish their yearly and six-month results, which will allow the general public to review their business. Very few state-run companies used to do that, and when they did they did it more than six months after the end of the fiscal year or half-year.
Moreover, the financial reports will also include detailed information on the pay the executives and boards of directors get, which listed companies do not reveal.
Even though the enforcement of this ordinance does not guarantee those to which it applies will comply, the law gives minority shareholder grounds to go to court over potentially abusive decisions.
(English version by Loredana Fratila-Cristescu)