A compliance system is an important business tool to avoid the risks and consequences of breaching the law, or failing to observe standards ensuring the continuity of business operations. It is also important in preserving a company’s good name and competitiveness. Compliance rules have become more important in recent years due to more regulations and sanctions being imposed by the legislator in this respect. However, apart from public companies of a special kind such as financial institutions, public companies in Poland are not formally obliged to implement compliance systems within their internal organisation.
An important step towards the functioning of a compliance system was the introduction of the “Best Practice 2021” package. This is a new edition of the code of corporate governance applicable to public companies listed on the Warsaw Stock Exchange (GPW) in Poland, reflecting the recent corporate governance trends in this sphere. Drafted by experts on the GPW Corporate Governance Committee and introduced on 1 July 2021, “Best Practice 2021” contains the following sections: (1) disclosure policy and investor communications, (2) management board and supervisory board, (3) internal systems and functions, (4) general meetings and shareholder relations, (5) conflict of interest and related party transactions, and (6) remuneration.
According to these guidelines, publicly listed companies must provide reliable information about their affairs, make their financial statements and data public, maintain steady communication with shareholders, and act upon investors’ requests without undue delay. To ensure high-quality communications with stakeholders, as a part of the business strategy, companies publish on their website information concerning the framework of the strategy, measurable goals, including in particular long-term goals, and planned activities and their status, defined by measures, both financial and non-financial.
“Compliance rules have become more important in recent years due to more regulations and sanctions.”
Members of the management board and supervisory board must act in the interest of the company and be independent in their decisionmaking process and judgements. Furthermore, listed companies maintain efficient internal control, risk management, and compliance systems and an efficient internal audit function adequate to their size and the type and scale of their activity. Regarding holding the general meeting, board members are required to encourage and promote an active role of shareholders in such meetings. Since the Covid-19 pandemic, companies have also been required to enable their shareholders to participate in a general meeting by means of electronic communication if justified, and to equip them with the technical infrastructure necessary for the general meeting to proceed.
To avoid any conflict of interest, members of the management board and members of the supervisory board shall notify each other about the lack of their impartiality. In addition, companies may buy back their own shares only in a procedure which respects the rights of all shareholders. If a transaction concluded by a company with an affiliate requires the consent of the supervisory board, before giving its consent, the supervisory board assesses whether to consult a third party for a valuation of the transaction and an assessment of its economic impact.
“Since the Covid-19 pandemic, companies have also been required to enable their shareholders to participate in a general meeting by means of electronic communication .”
The company’s remuneration policy is also important. The remuneration of members of the management board and members of the supervisory board and key managers should be sufficient to attract, retain, and motivate persons with the skills necessary. The level of remuneration should be adequate for the tasks and responsibilities delegated to individuals and their resulting accountability. Incentive schemes should be structured in a way necessary, among other things, to tie the level of remuneration of members of the company’s management board and key managers to the actual long-term standing of the company, measured by its financial and non-financial results as well as long-term shareholder value creation, sustainable development and the company’s stability.
If companies’ incentive schemes include a stock option program for managers, the implementation of the stock option program should depend on the beneficiaries’ achievement, over a period of at least three years, of pre-defined, realistic, financial and non-financial targets, and sustainable development goals adequate to the company. The share price or option exercise price for the beneficiaries cannot differ.
“Best Practice 2021” is an element of soft law, and is non-binding. It is rather a form of self-regulation of the market participants, and fills the gap between the statutory law and the capital market. In line with the recommendations of the European Commission, within the limits of the EC’s powers, companies are monitored with respect to compliance with the corporate governance principles with a special emphasis on the quality of explanations published according to the comply-or-explain approach. Issuers listed on the GPW are required to cooperate in this respect and provide on request any information necessary to verify their explanations and the status of their compliance with the principles of “Best Practice 2021”. Companies’ commitment to quality corporate governance will benefit their reputation and relations with stakeholders as well. Bearing this in mind, publicly listed companies need to apply “Best Practice 2021” as broadly as possible, as this has implications for their image and standing.
