Corporate Governance in Poland - Essay Example

Corporate Governance in Poland Introduction The concept of corporate governance, i.e. the system by which organisations are directed and controlled, is not a new one in the global business environment, given the massive shifts that have redefined the global business environment in the recent decades. These changes have necessitated the establishment of formalised governance structures to define the intricate relationships between the different entities in the organization while specifying the rules and guidelines to be used in the corporate decision-making processes (Vintila & Gherghina, 2012). Self-regulation in the global business markets has resulted in the establishment and standardisation of corporate governance policies and codes (Maassen, Bosch and Volberda, 2004). This paper will explore the concept of corporate governance in Poland drawing from the privatisation movement of the 1990s, which resulted in massive changes in the corporate structure and organization, thereby prompting the practice of corporate governance in the country. Corporate Governance Redefined In the business context, the concept of corporate governance refers to the system through which management teams direct and control their organisations in pursuit of the organizational goals and objectives (Rossouw, 2008). Organisations have a set of goals and objectives, which they pursue following premeditated strategies, with the intention of maximizing outcomes; in that respect, governance provides the fundamental framework that organisations follow in setting up objectives and achieving them (Pucko, 2005). In other words, corporate governance is the mechanism through which the management is able to monitor the actions, policies, and decisions of corporations while ensuring that the partisan interests among the different organizational stakeholders are properly aligned for effective operations (Witherell, 2000). Corporate governance has emerged to be a crucial aspect of the corporate world today (Rossouw, 2009), following the global demand for accountability in corporations, which has been prompted by the succession of numerous cases of malpractices in global corporations (Todorovic & Todorovic, 2012). Generally, corporate governance is a very fundamental concept in the corporate management practice especially in today’s highly dynamic and complex global business environment that requires formal organizational structures for operational effectiveness (Sreejesh, 2012). Poland’s Experience Corporate governance in Poland was introduced in the 1990s following the privatization of numerous State Owned Enterprises through the issuance of a decree, which also aligned the entire corporate system to a free market economy rather than the conventional central system with its rigid premeditated economic structure (Mortimer, 2009). The privatization of the state owned corporations was accompanied with the birth of numerous corporate policies, and the establishment of a supervisory board whose aim was to oversee the state owned entities. The 90s provided a sound basis for the establishment of corporate governance especially because a vast proportion of corporate governance policies emerged not only in Poland alone, but also across the whole of Eastern and Central Europe (Regulska, 2009). However, the hasty privatization movement to the market economy was extremely chaotic since the country was not adequately prepared for the rapid changes that took place; for instance, there was a serious dearth of professions and experienced managers to take charge of the new privatised enterprises in the country. Similarly, the institutional frameworks that were in existence were not sufficiently equipped to provide a firm foundational base for the corporate governance, thereby leading to resistance. Poland’s Corporate Governance Trajectory After the transformational reforms had been initiated and completed with the establishment of a financial system alongside a market economy in the country, the state owned companies were transformed into sole-shareholder companies. Firstly, 512 state-owned corporations were privatized in the wake of the 90s privatization movement, and nearly 60% of the equity stakes in these institutions were given to 25 National Investment Funds (NIFs), whose management was entrusted to commercial institutions including foreign and Polish investment banks and consulting firms (Hashi, 2000). The initial concentration of shares was later reorganized through mergers and acquisitions, which resulted to some single shareholders taking up nearly half of the equity shares in certain companies; the NFIs were classified as capital groups though their formation was rapid than usual. The country set up specific measures to safeguard the market as well as its investors from adverse economic windfalls; for instance, tough requirements were set up for the NFI managers and the stock exchange listing to ensure transparency while protecting the interests of minority investors accordingly. Governance Frameworks There was an urgent need for independent regulatory institutions to oversee the actions of companies in the free market, and this is what prompted the formation of the Securities Commission in 1991, which established guidelines to ensure a fair environment for competition and equal access to information regarding the securities market (Mortimer, 2009). Additionally, the new regulations enforced the protection of the rights of minority investors; the Warsaw Stock Exchange was set up as a model of best business practices and corporate governance in Poland. The Warsaw Stock Exchange imposed numerous obligations on the privatised enterprises that traded in the stock market including the requirement for the companies to submit their quarterly as well as annual reports or face numerous pre-set penalties for nonconformity. Moreover, other developments in the Polish corporate governance framework took place in 1993 with the introduction of two main acts, one dealing with the financial restructuring of enterprises and banks and the other with the national investment funds and their privatization. These two acts clearly transformed the Polish corporate governance framework with the introduction of new and more efficient supervisory functions, with a new focus on bad debts; with these new policies, the banks’ role changed from that of a lender to an owner because debts were exchanged into shares of capital stakes. Key Challenges One of the major challenges that beleaguered the Polish corporate governance in the 90s, like in most economies, was the problem of the minority and majority investors since the two groups often have divergent goals, which result to complex problems in the corporate governance structure (Mortimer, 2009). For instance, the majority shareholders have always clamoured for more shares to influence the organization’s managers while pushing for their own vested interests, or to diversify their portfolios to reduce risk of business. In this respect, the minority shareholders in the Polish corporations have been prone to abuse and mistreatment despite the numerous corporate governance policies aimed at protecting this group. Nonetheless, the corporate governance laws in Poland have transformed with time thereby aligning with the free market requirement with the establishment of more effective supervisory mechanisms (Aggestam, 2004). The Polish supervisory board institutions play three key roles including an information function, a review function, and a reporting function; in these functions, the boards have been granted extensive powers by the Polish laws, thereby leading to the establishment of a hybrid corporate governance model (Yeoh, 2007). Ultimately, the Polish government has indeed made significant steps towards the implementation of effective corporate governance policies particularly because the ownership concentration, regulation of market securities, foreign investment levels, as well as overall organizational structures are fast moving towards alignment with the European standards. However, the government still owns huge stakes in the state-owned enterprises thereby still has a significant influence in the Polish corporate governance. The privatization movement of the 1990s resulted to massive changes in the Polish corporate structure and organization, thereby consequently prompting the establishment of best practices of corporate governance in Poland. Overall, the 1990s provided a crucial foundation for the Polish corporate governance policies thereby completely altering the manner in which organisations are controlled to date. References Mortimer, T. (2009). Corporate governance in Poland. 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Corporate governance: A basic foundation for the global economy. Organisation for Economic Cooperation and Development.the OECD Observer, (221), 24-26.  Read More