Action Plan

CONTENTS

Introduction
Action Line 1.
Guaranteeing Equal Treatment of All Shareholders
Action Line 2.
Protection of Minority Shareholders' Rights 
     Action Line 2.1.
Protection of Minority Shareholders' Rights to Convene a General Meeting 
and Determine Its Agenda 
     Action Line 2.2.
Protection of Shareholders' Right to Self-Organization 
     Action Line 2.3.
Expanding the Minority Shareholders' Possibility to Nominate Their 
Representatives in the Boards of Publicly Held Companies 
     Action Line 2.4.
Obligatory Offer for Buyout by Majority Shareholders 
     Action Line 2.5.
Protection of Minority Shareholders from Dilution of Value of Their Shares 
     Action Line 2.6.
Providing for Real Possibilities for Shareholders to Attend General Meetings 
     Action Line 2.7.
Strengthening the Responsibility of the Audit before Shareholders 
     Action Line 2.8.
Establishing an Institution for Intermediation and Nonjudicial Settlement of Disputes 
Action Line 3.
Disclosure of Information and Transparency 
     Action Line 3.1.
Disclosure of Information and Transparency
     Action Line 3.2.
Providing for Observance of Legal Requirements for Disclosure of Information 
by Publicly Held Companies 
     Action Line 3.3.
Providing for Access to Information Disclosed 
Action Line 4.
Responsibilities and Motivation of Boards 
     Action Line 4.1.
Differentiating and Specifying the Responsibilities of Boards 
     Action Line 4.2.
Implementing the Responsibility of Boards 
     Action Line 4.3.
Creating Conditions for Better Motivation of Boards and Remuneration Policy 
     Action Line 4.4.
Personal Requirements to Boards 
Action Line 5.
Significance of Judicial System and Improvement of Judicial Practice 
Action Line 6.
Significance of Capital Market 
     Action Line 6.1.
Creating Possibilities for Stock Buyout by Potential Investors 
     Action Line 6.2.
Establishing a Regulatory Framework for Capital Market - Corporate Governance Interaction 
     Action Line 6.3.
Elucidating the Significance of Capital Market for Efficient Functioning of Publicly Held Companies 
Action Line 7.
Management of Residual Share of State Ownership and Conduct of State in its Capacity of a Shareholder 
     Action Line 7.1.
Liquidating State Participation to a Maximum Extent 
     Action Line 7.2.
Clear Regulation of State Policy With Regard to State Participation in Stock Companies 
     Action Line 7.3.
Equal Treatment of State in Its Capacity of a Shareholder 
     Action Line 7.4.
Providing for Fresh Resources for Restructuring the Companies 
     Action Line 7.5.
Activating the Participation of State Authorities Representatives in Enterprise Restructuring and Introducing the Principles of Contemporary Corporate Governance
Action Line 8.
Nonregulatory Mechanisms for Improving Corporate Governance
 
 

POLICY FOR CORPORATE GOVERNANCE DEVELOPMENT IN JOINT-STOCK COMPANIES IN BULGARIA

Policy Recommendation Paper

Introduction

The Policy Paper is aimed to assist the efforts of state institutions and market participants to analyze and improve the economic and legal conditions for development of corporate governance in Bulgaria. It proposes guidelines and specific recommendations for investors, joint-stock companies, stock exchange and all other organizations concerned with corporate governance.

Corporate governance is an attribute inherent in market economies with developed capital markets. This is governance implemented on behalf of shareholders through governing, supervisory and operational managing bodies elected by shareholders with a view of guaranteeing profits of shareholders. investment. In the present situation it is taken as a guarantee for efficient functioning of publicly held companies and a measure for the competitiveness of the national economic system. The strategic purpose and role of corporate governance determine the special attention paid to it by the state. From a national and international point of view, conditions are created by the legislative, executive and judicial power for implementing the principles and objectives of corporate governance.

Corporate governance is manifested in relationships between shareholders, governing and supervisory bodies and operational management, on the one hand, and interaction with economic, social and political environment, on the other one. It relies upon the principles of equal treatment of shareholders regardless of the amount of their ownership, upon representative nature and teamwork of management. It follows the requirements for transparency and responsibility of boards. It rests on the balance of interaction between inside and outside directors. Independence and impartiality provided by outside directors guarantee operational management and behavior of inside directors oriented to satisfying shareholders. requirements and expectations. Corporate governance introduces conditions and mechanisms both for the efficient utilization of stock capital in the company and efficient functioning of national economies. The unanimous opinion is that the Asian crisis was caused by inefficient corporate governance as well. Its social dimension is an indisputable fact.

The structural reform of the Bulgarian economy and stock ownership presented in publicly held and close companies require the gradual approval of corporate governance. The democratic nature and equal treatment of business entities at the time of transition towards market economy are inconceivable without a proper managerial scheme. At the same time, corporate governance should be perceived as an element of Bulgarian economy attractiveness to the foreign strategic and portfolio investor. Transparency of economic activity, efficient use of stock ownership and guaranteeing of profit for the shareholders as well as rational structure of governance are only part of the requirements and expectations of this individual or institutional investor towards the economy. Reintegration of the national economic system into the world economic structures calls for adequate corporate governance. The international significance of corporate governance is also supported by the attention paid by OECD and the International Organization of Securities Commissions (IOSCO) to the approval of its format.

The very significance and possibilities of corporate governance are the factors mandating the undertaking of measures to foster its approval. Under the conditions of today in Bulgaria it could be developed successfully through combined and one-way efforts of the state and business as well as of associations of interested parties. The Policy Paper is materializing these efforts. It is based on the achievements in economic practice and regulatory mechanisms within the country. The specific guidelines are compared to the corporate governance format in the countries with developed market economies and capital markets. The plan is targeted at corporate governance that will be approved gradually in the public companies. The specific place and role of state ownership and the existence of mixed, state and private ownership necessitate the undertaking of specific action lines.

The Policy Paper contains formulations of recommendations for both legislative and information and educational amendments. The interdisciplinary nature of corporate governance and understanding of necessity of systematic and not only one-sided measures related to its gradual introduction into the Bulgarian publicly held companies are determining the approach followed up. 

Action Line 1.

Guaranteeing Equal Treatment of All Shareholders

The issue of the balance of interests of majority and minority shareholders is of a very delicate nature since "staggers" to the two extremes are continuously observed. On the one hand, the majority shareholder takes much greater responsibilities so it is in order to be granted more rights. On the other hand, there are a number of occasions where he imposes actions to the company, protecting his/her own interests only but not the interests of the remaining shareholders, and even, not the interests of the company itself.

Background
The Bulgarian legislation does not stipulate in details the principle of equal treatment of shareholders in individual companies. The Comercial Law contains provisions targeted at guaranteeing equal treatment of all shareholders, which, however, are not sufficiently clear and specific. A typical example is the protection of shareholders. property rights both immediately upon the incorporation of the company and on increase of its capital. Art. 72, para 2 of the Comercial Law stipulates that by the time of incorporating a company the rights in the form of a non-monetary contribution into the capital shall be assessed by three experts appointed by the court of company. s registration.

Objectives
Prevent the evasion of regulations concerning the assessment of non-monetary contributions by concluding deals with related parties at a time following the incorporation, and protecting the shareholders. property rights.

Recommendations
It is reasonable to introduce into the Comercial Law a regulation stipulating the so-called "re-incorporation" of company, based on the model of Directive No. 1 of the European Community in the field of company law. Such a regulation should rule that in the cases where a joint-stock company acquires, within two years from its incorporation, rights at a price exceeding 10 per cent of the capital, from a person who subscribed shares upon company. s incorporation, assigned rights shall be governed by Art. 72, para 2 of the Comercial Law, and acquisition is to be approved by the general meeting of shareholders.
The Comercial Law should also provide for a boards. obligation to convene a general meeting of shareholders, in case the losses exceed ? of capital, not later than three months from ascertaining the losses.
The issue of buying back ownership shares by the company should be improved and regulated in details.
Amendments in the Comercial Law concerning the capital increase should be effected as well. It is inadmissible for the managing body to increase the capital without being empowered to this purpose by the general meeting as well as to take decisions for increasing the capital before the company registered capital is entirely subscribed. It is also mandatory to enter amendments in the Comercial Law stipulating that in the case of capital increase by the Managing Board, the Board of Directors respectively, where the bylaws allow this, it is obligatory to enforce the regulations concerning the right of each shareholder to acquire a portion of the new shares, that corresponds to his/her share in the capital prior to the increase. It should be provided for that the Managing Board, the Board of Directors respectively, may exclude or limit this shareholders. right only in case it is empowered by the bylaws or a resolution of the general meeting taken by the relevant majority of votes. In this case only the capital increase should be effected provided that the shares are to be purchased by certain persons at a certain price or against a non-monetary contribution.
These recommendations concern all joint-stock companies, both publicly held and close ones, as far as the principle of equal treatment should be enforced for any joint-stock company regardless of the structure and method of raising its capital.

Action Line 2.

Protection of Minority Shareholders. Rights

Ensuring the regulatory and practical possibilities for the free exercise of shareholders. rights will bring forth the improvement of social and economic relations in this sphere and establishment of efficiently operating practices for turning the shareholders into active agents for system monitoring, control, sanctioning and evaluation of corporate governance. The shareholders shall, by directly exercising their rights and indirectly by "voting by their feet", turn into a natural mobilizing environment for efficient corporate governance.

Action Line 2.1

Protection of Minority Shareholders. Rights to Convene a General Meeting and Determine Its Agenda

Background
At present, a general meeting of a joint-stock company may be convened by a request of shareholders holding at least 10 per cent of capital (Art. 223, para 1 of the Comercial Law). This regulation provides for equal treatment of all joint-stock companies regardless of whether publicly held or not. Particularly for the publicly held companies this gives an advantage to the major shareholders and impedes the possibility for minority shareholders to protect their rights. This regulation would impede the possibility for protection of rights not only of individual shareholders but also of institutional shareholders, such as investment companies, pension and insurance companies which, in principle, are portfolio investors and possess comparatively small holdings. 

Objectives
Guarantee the possibility for minority shareholders to participate in taking decisions being significant for the company and, control its governance.

Recommendations
Discuss the expediency of introducing proper legislative amendments regulating the possibility for shareholders holding a minor share of capital in publicly held companies to convene a general meeting and determine its agenda. It is possible to specify a 5 per cent share, as in Germany and Austria, or even a smaller percentage in the case of very big companies with many shareholders.
Contribute to the adoption of the legal possibility proposed into the draft of a Law on Securities, for persons holding 5 per cent and more of a publicly held company capital to raise company. s claims before the court against third parties in case of inaction of boards, as well as of the proposed permission for such persons to raise a claim before the district court for indemnification of substantial damages caused deliberately to the company by action or inaction of members of the boards.

Action Line 2.2.

Protection of Shareholders. Right to Self-Organization

Background
In accordance with Regulation 19 dt. August 12,1996 issued by the Minister of Finance and BNB for the Central Securities Depository, each investor is granted access to the Central Depository registry concerning information only related to the securities held by himself/herself. At the same time, no regulation obliges the management of a publicly held company to submit information about the list of its shareholders. In view of that one or several shareholders of a publicly held company, willing to discuss with the remaining shareholders on problems of company business or governance have no possibility to do this in practice, since they are not in a position to organize a meeting with the remaining shareholders. Most often, this is not a problem for the majority shareholders since they are usually represented in the boards. This is, however, a real impediment for the minority shareholders. possibility to have influence on the processes running at the company.

Objectives
Create a wide range of prerequisites and possibilities for the shareholders to self-organize when necessary. Thus, they will be able to protect their rights themselves, to have more information and control to a greater extent the company governance.

Recommendations
Foster and support educational measures among the shareholders with a view of their awareness concerning the possibilities for self-organization, incl. by making use of mass communication media services. The gradual approval of the role and significance of institutional investors (e.g. the pension funds) will bring forth a higher degree of good organization among minority shareholders. 

Action Line 2.3

Expanding the Minority Shareholders. Possibility to Nominate Their Representatives in the Boards of Publicly Held Companies

Background
The present regulatory enactments concerning the voting rights allow for a shareholder holding 50 per cent of capital (or even less) to dominate in fact over the election of the boards by the joint-stock company General Meeting. Thus, such a majority shareholder may pass through a type of governance that is for his/her benefit and that might do harm to the other shareholders.

Objectives
Strengthening the influence of minority shareholders on the election of public company boards. This will provide a better protection of their rights and avoid the eventual possibilities for abuses by the majority shareholders for the account of minority shareholders. 

Recommendations
Adopt amendments in the legislation, e.g. in the draft of a Law on Securities, regulating the possibility for cumulative voting when electing the public company boards.

Action Line 2.4

Obligatory Offer for Buyout by Majority Shareholders

Background
Where a shareholder buys out a significant share of capital of a public company, he will have the possibility to dominate over the remaining shareholders. Thus, he/she might eventually make benefits for himself/herself in prejudice of the remaining shareholders. Therefore, it is necessary for a shareholder (or a group of related shareholders) acquiring a critically great share of capital (e.g. over 66% or over 75%) of a publicly held company, to be obligated to make an offer for buying out the remaining shares. The share of capital should be determined depending on economic arguments for expediency.

Objectives
Provide for a possibility for shareholders who do not agree with the majority shareholder and do not approve his/her policy for development of the company to liquidate their investment under fair market conditions. Thus, the minority shareholders will have the exit right where the control on the company passes effectively into the hands of a single shareholder or a group of related shareholders. This will provide for a better protection of minority shareholders.

Recommendations
Streamline the adoption of the legislative amendments regulating the obligation of a shareholder who has acquired a share of a public company capital over a specified limit, to duly announce the fact and make an official offer to the remaining shareholders for buying out their shares at a price corresponding to the usual market conditions. Such amendments would be in conformity with the present practice of the EU member countries.
On the other hand, it is desirable to streamline the adoption of a regulation stipulating the "closing" of a public company. Thus, Art. 149 of the draft of the Law on Securities provides for a person who has acquired, either directly or through related persons, over 95 per cent of the votes cast at the publicly held company general meeting, to be entitled to publish a tender offer to the remaining shareholders to acquire their shares against reimbursement. The expediency of decreasing this percentage to 75%, for example, might be discussed with a view of relieving the ownership consolidation process.

Action Line 2.5.

Protection of Minority Shareholders from Dilution of Value of Their Shares

Background
The eventual increase of capital at an issue price which does not correspond to the value of shares might cause damage to minority shareholders through dilution of value of their shareholding. The effective Law on Securities, Stock Exchanges and Investment Companies (Art. 83, c) makes a provision for preventing this possibility by ruling a determined qualified majority for taking decisions for increase of public company capital. This majority equals ? of the capital represented, and it is required that the meeting has to be attended by at least ? of the capital, or at least ? of the capital if the meeting is held under the provisions of Art. 227 of the Comercial Law. The quorum requirements are impeding to some extent the possibility for dilution of value of minority shares but do not eliminate it entirely. With the present-day prevailing ownership structure in the Bulgarian publicly held companies and the established practice of convening and holding general meetings, a single or several majority shareholders could make the required quorum comparatively easy.

Objectives
Protection of minority shareholders from dilution of value of their shares. This will ensure better protection of minority shareholders rights, the risk of their investment will be reduced and the confidence in capital market will be increased.

Recommendations
Streamline the adoption of legislative amendments in the sense that the public company shareholders. right to participate pro rata in capital increase cannot be waived (Art. 112 of the draft of the Law on Securities). When taking a decision for capital increase, all shareholders should be duly notified and given a possibility to redeem their rights. Thus, a legal prerequisite is established for preventing unfair actions by majority shareholders.
Further, it is necessary to make a provision in the Comercial Law that in cases where shares of various classes are present, the shareholders. right to participate pro rata in the capital increase is valid for the shareholders of the corresponding class. The remaining shareholders should exercise their privilege after the shareholders of the class of the newly issued shares.
Besides, it is reasonable to, with a view of preventing the possibility for dilution of value of existing shareholders. shares, pass a regulation into the Comercial Law stipulating that it is necessary to pay the difference between the nominal and issue value of the new shares in order to enter the capital increase into the commercial register.
This proposal should concern both the publicly held companies and closed companies.

Action Line 2.6

Providing for Real Possibilities for Shareholders to Attend General Meetings

Background
The effective regulatory enactments do not explicitly regulate the place and time of holding general meetings of shareholders. The result is that they are appointed by the boards. This creates a possibility for the boards to appoint a place and time of holding the general meetings, which impede the attendance of part of shareholders. As a result of such actions the boards may manipulate the resolutions of general meetings. This hypothesis is not valid just in theory. There are occurrences of general meetings held at places where public transportation even is not available.

Objectives
Provide for holding the general meetings of publicly held companies at places of real access for all shareholders. This is to ensure in practice the right of all shareholders to attend the general meetings, make proposals and cast their votes on the agenda resolutions.

Recommendations
The legislative amendments provided for in the draft of the Law on Securities (Art. 115, para 1), regulating the holding of shareholders. general meetings of publicly held company will allow to avoid the irregularities as ascertained above.

Action Line 2.7.

Strengthening the Responsibility of the Audit before Shareholders

Background
The issue of the role and responsibility of the auditors of a publicly held company before its shareholders is both significant and not regulated at the same time. The auditors. reports are the most important source of independent and specific information, and, hence, of evaluation of the company. s state. The shareholders elect the auditors with a view of obtaining an independent expertise. At the same time, the responsibility of auditors before the shareholders concerning the audits performed and evaluations presented as well as the guarantees that they are performing their liabilities in due diligence, are insufficiently well regulated. This might result in incomplete or inaccurate information for the shareholders and lead to weak control of shareholders on the boards. Thus, conditions for abuses might be generated. Weak points are ascertained in the performance of individual auditors.

Objectives
Provide for accurate, complete and independent information for the shareholders through the auditing procedure. Thus, corporate governance will be improved as a result of strengthening the shareholders. control on the boards. Transparency of company. s activity is the other measure for qualitative and impartial audit.

Recommendations
Creation of adequate regulatory enactments allowing the shareholders to obtain guarantees for performance of auditors. liabilities in due diligence and allowing the shareholders to practically pursue their rights in cases where the auditors are consciously or unconsciously misleading the shareholders. Extending the shareholders. possibilities to control the process of appointing an auditor. With this regard, it should be recommended to structure internal auditors. committees. In their capacity of a group giving assistance to the supervisory boards and boards of directors of the publicly held company, they will boost the shareholders. participation in corporate governance.
Strengthen the role of professional associations in the sphere of audit, and reevaluate, if necessary, the national auditors. standards related to quality and their comparability to international practice.

Action Line 2.8.

Establishing an Institution for Intermediation and Nonjudicial Settlement of Disputes

Background
Transformation of legal and by-law rules into an efficient regulator of relationships depends on the good knowledge and exercise by all interested parties. The unequal treatment of various participants in capital market relative to investment culture and possibilities for making use of qualified legal assistance raises a number of problems related to consummation of rights of different groups of shareholders, stipulated by law:
minority shareholders are lacking sufficient funds to bring actions before the court and a possibility to make use of qualified legal remedy; another real danger is the eventual abuse of rights by professional institutional minority investors that will impede the public company governance. Objectives
Assist the transformation of legal rules regulating the relations of capital market in well functioning practices. Provide for a possibility for the shareholders through efficient consummation of their rights to perform their role of a corrective agent of corporate governance and control.

Recommendations
Establish an institution for intermediation and nonjudicial settlement of disputes with representatives of all interested parties that should ensure confidentiality, free access, speed, quality and economies of the process.

Action Line 3.

Disclosure of Information and Transparency

The institutional and legal framework of corporate governance and control should guarantee the timely and accurate disclosure of information concerning the ownership structure, governance principles, financial status and operational results from the joint-stock company activity. These issues are significant for the possibility for the shareholders to exercise their rights and taking correct investment decisions, for attracting capital and maintaining the confidence in the capital market.

Action Line 3.1.

Disclosure of Information and Transparency 

Background
The effective Comercial Law stipulates that the resolutions of the general meeting of shareholders for amendment and addition of the bylaws should be entered into the commercial register and published with a view of giving rise to a legal act. On the other hand, there is no requirement for deposition of updated bylaws containing all approved amendments and additions into the commercial register after any proper amendment of the bylaws. The Comercial Law provides for specified rules for the balance sheets of companies related to the approval and publication of the annual report in the State Gazette.

Objectives
Guaranteeing and adhering to the principle of transparency not only in the sphere of publicly held companies and securities market but for the common or "close" companies in the sense of the Comercial Law.

Recommendations
Transparency is obtained through adequate regulations for the commercial register functioning and announcing of data by entering into the commercial register. The judicial practice in the country is oriented to the requirement to deposit the updated bylaws into the commercial register after any proper amendment of the company. s bylaws, but this should be ruled on a regulatory level as well. This provides for transparency of the company. s fundamental document, thus eliminating the necessity for the interested persons to achieve alone its actual contents and compare the previous versions with the regulations for amendment and addition adopted by a resolution of the general meeting of shareholders.
With a view of providing for wider transparency, it is reasonable to enter a regulation into the Comercial Law for mandatory submission in the commercial register, upon incorporation of a joint-stock company, of the Memorandum of Association and a list of persons who subscribed shares upon the incorporation, certified by the company. s managing body.
It is necessary to make an amendment in the Comercial Law, requiring that the report certified by a chartered public accountant should be also deposited into the commercial register at the company. s registered office. Thus, the report will be accessible to any interested person.
The recommendations concern both the publicly held and "nonpublic", close companies.

Action Line 3.2.

Providing for Observance of Legal Requirements for Disclosure of Information by Publicly Held Companies

Background
The Law on Securities, Stock Exchanges and Investment Companies (Chapter seven) and particularly the draft of the Law on Securities contain formal requirements for disclosure of information by publicly held companies before the Securities and Exchanges Commission and the stock exchange. It is provided that information shall be disclosed in the form of annual reports, six-months reports and reports to be presented in shorter terms in case the Securities and Stock Exchange Commission requires so. In spite of that most of the publicly held companies do not observe these requirements in practice. The necessity and significance of disclosure of information and its timely disseminating to shareholders, potential investors, etc. are still not perceived to a full extent.
The effective legislation does not regulate sufficiently clear and explicitly the scope of information included in the reports. contents. Apart from accounting and financial data, the reports should contain information about the current commercial activity and related risks, about the major shareholders in the company, the members of the managing body, their remuneration, their shareholding in the company capital, the availability of interconnection with other companies running similar activity, etc.

Objectives
Observance of legal requirements for disclosure of information. As a result of that the shareholders and potential investors in the publicly held companies will be granted guaranteed access to credible information about the companies. state. Access will be independent on companies. boards.

Recommendations
With a view of improving the disclosure of information mechanisms, proceed to timely adoption of the bill on securities, stipulating in section 4 the order and method of disclosure of information by publicly held companies, incl. ad hoc information concerning price-level sensitive changes in the company activity. Along these lines, it is recommended to undertake steps for systematizing and publishing an order with detailed conditions for disclosure of ad hoc information with a purpose of preventing the possibilities for price manipulation.
Undertaking specific steps by the Securities and Stock Exchanges Commission, aiming at regular performance of legal obligations for disclosure of information on the part of publicly held companies. These steps should comprise two activities. On the one hand, the administrative means and sanctions for nonsubmission of information according to the requirements or submission after the terms set. At the same time, it is necessary to continue the information and training activity among the boards of publicly held companies about the role and significance of disclosure of information.
The Securities and Stock Exchanges Commission needs to proceed with the steps undertaken in facilitating the access to information by extending its operation with representatives of publicly held companies or with investment intermediaries authorized by the companies.
Of significance is the issue of the responsibility of members of the managing body where the reports contain misinformation, incomplete or misleading information and cause harm to investors and shareholders. Such losses are extremely difficult to be ascertained and proved.
Nongovernmental organizations should cooperate with the state institutions and market participants in undertaking systematic actions for clarifying among publicly held companies and investors the necessity, potential advantages and benefits related to disclosure of information.

Action Line 3.3.

Providing for Access to Information Disclosed

Background
Disclosure of information is exerting disciplining effect on corporate governance provided that the information disclosed is available to investors in a fast, easy and inexpensive way. At present, access to the available information at the Securities and Stock Exchanges Commission and the Bulgarian Stock Exchange, Sofia does not fully meet these requirements. Access is rendered difficult due to a number of reasons:
information is not unified; the most part of information is not submitted on electronic media; there are still technical difficulties in using the information because of its incomplete electronic processing; the shareholders themselves and the potential investors are not aware of the institutionalized capabilities for access to public information; as a whole, the wide public is not informed about the free access to public information. This has a negative impact on professional institutional investors and has a particularly unfavorable impact on nonprofessional, small investors.

Objectives
Providing for a fast, easy and inexpensive access to information disclosed. This is the only way to make the disclosure of information play its significant role as one of the mechanisms for control on the management and optimum allocation of capital market resources.

Recommendations
The information disclosed should be stored and accessible on electronic media in standard form allowing its processing by standard software products. The Securities and Stock Exchanges Commission should expand the activity of its documentation center and submit the available information on media being suitable for both professional investors and small investors. The Commission should proceed with its efforts for rendering a wide access to the available public information, incl. via Internet. This will guarantee the possibility for the institutional and small investors to follow and be aware of the activity of individual companies. The improved conditions for transparency realization will have a reverse disciplining effect on the companies themselves.
Foster publicly held companies and the major ones, in particular, through proper information and elucidation measures, to maintain in Internet standardized and updated information about their financial results, general meeting resolutions, reports on management, auditors. reports, etc. Thus, the shareholders, potential investors and regulating authorities will have a maximum fast access to public information. The present-day advancement of communications technologies makes a similar approach feasible, convenient and inexpensive both for publicly held companies and information users.
It is reasonable to regulate the information that is considered to be "public". It is very important that the Securities and Stock Exchanges Commission has clear criteria about the information - which of the information gathered by or submitted to it is public; otherwise, the establishment and maintenance of public registers would not be feasible. Analogous liabilities should be put forward to the Bulgarian Stock Exchange, the Central Depository and self-regulating organizations. A compromise version is to recommend a legal obligation for the concerned institutions and organizations to adopt their in-house criteria for transparency of information possessed by them, and render it to the general public. These institutions and organizations should be legally bound to, immediately or within specified short terms, submit the public information possessed by them (either gathered or obtained through the obligatory accountability) to all parties interested.
Undertake information and elucidation measures for using the information by nonprofessional investors with a view of taking adequate decisions by the latter. 

Action Line 4.

Responsibilities and Motivation of Boards

The boards of joint-stock companies should be responsible and properly motivated to take the most important strategic decisions in the interest of the company and its shareholders as well as to follow the performance of operational management liabilities.
The practice experienced two examples of bad governance. In the first case, managers manifest behaviorof sole owners, and in the other one, the director is closely tied with one of the shareholders only.

Action Line 4.1.

Differentiating and Specifying the Responsibilities of Boards

Background
In case the responsibility is not of a punishable nature, i.e. it is within the framework of the Comercial Law, it should be treated from a point of view of the efficient business management and protection of investors. interests. This aspect of responsibility is underdeveloped in the effective Comercial Law. In accordance with Art. 240, para 2 of the Comercial Law the board members are jointly responsible for damages caused to the company. Besides, it is required that the board members should be obliged to submit a guarantee for their activity amounting to a sum specified by the general meeting, but not less that their 3-month gross remuneration. In practice, this guarantee is a small sum that could not reimburse the eventual damages caused by bad governance. It is necessarily to adopt detailed regulations on managers. responsibility with regard to the efficient business management in the interest of all shareholders.
The Bulgarian legal framework does not regulate in details the fundamental rights and responsibilities of boards (one-tier and two-tier system) with regard to the management of publicly held companies. Corporate governance in the person of Board of Directors or Supervisory and Managing Board is implemented not in its well known Western models. Often the experience and errors are the factors passing through the public companies governance. Lacking are explicit rules and criteria to the individuals participating in corporate governance. There are no explicit regulations with regard to the balance inherent to corporate governance: inside-outside directors. The Bulgarian practice is not familiar with the inside auxiliary groups: committees on remuneration, election, finance, etc. Lacking are well-chosen incentives that are dependent on management contribution to implementation of the target "shareholder. s value". The announcement of inside and outside directors. remunerations is belittled. 

Objectives
Issue regulations for explicit and specific responsibilities of publicly held companies. management with regard to efficient business management in interest of all shareholders. Thus, the responsibility of members of boards will acquire practical measures, and the degree of shareholders. control on boards will increase, that will bring forth more efficient governance.

Recommendations
Amendment in the Comercial Law regulating specific competence, rights and responsibilities of members of public companies. boards as well as sanctions to be imposed upon their nonobservance. These responsibilities should be mandatory for any member of boards (either representing the company or not) and include at least:
an obligation to declare an eventual conflict of interests before the other members of boards; an obligation not to vote on decisions for deals where conflict of interest might exist; an obligation to manage the business with a view of minimizing the loss-of-investors risks. Streamline the adoption of the bill on securities, that sets forth certain requirements towards the members of boards with regard to disclosure of shareholding and trade with inside information.

Action Line 4.2.

Implementing the Responsibility of Boards

Background
The legal liability of boards is implemented through mechanisms of their liability towards the company and penalties that should be imposed by court upon nonobservance of requirements for announcing certain circumstances to be entered into the commercial register. Provided is administrative liability for the public companies. boards upon nonobservance of certain regulatory requirements, that is realized as a rule by the Securities and Stock Exchanges Commission by means of penalty and compulsory measures.

Objectives
Create an environment of higher requirements to the members of the joint-stock companies. boards and efficient implementation of their legal liability.

Recommendations
Amend the legal framework of possibilities for implementing the boards. liability on the part of the companies. It is necessary to make a clear distinction of legal powers among the individual boards - chief executive officer, Board of Directors, Supervisory Board, General Meeting of Shareholders.
The entire change in the business climate will affect the managers behavior as well. However, the possibilities for pressure on managers on the part of shareholders should not be pushed too far, and the lack of sufficiently trained staff and some shareholders. aptitude for abuses with the rights granted to them should not be neglected. Initially, the decisions should be sought through education and information activity related to the allocation of liabilities in a company.

Action Line 4.3.

Creating Conditions for Better Motivation of Boards and Remuneration Policy

Background
In a number of publicly held companies, a lack of binding of direct results of company. s performance with the management remunerations is ascertained. Data evidences of another manifestation of this "unbinding": a number of members of Boards of Directors, Managing and Supervisory Boards do not hold stock in the companies managed by them. There are a number of evidences of unpopularity of the concept "shareholder. s value" being inherent to corporate governance. The amount of management remuneration is not disclosed as well. Restricted are the possibilities for control on the part of shareholders.

Objectives
Create an up-to-date system of remuneration of public companies. management, guaranteeing efficient resource utilization being also to shareholders. benefit. Generate conditions for public disclosure and control on remunerations of members of Boards of Directors, Managing and Supervisory Boards.

Recommendations
The associations of interested parties should undertake information and education measures for shareholders. rights to exercise control on directors. remunerations and requirements for public disclosure of their remunerations. Approve the practice of creating remuneration committees at the public company boards.

Action Line 4.4.

Personal Requirements to Boards

Background
The contemporary world practice of corporate governance comprises a system of principal requirements to the qualification, experience and skills of members of public company boards. They are materialized in codes of corporate governance, adopted on national and international level. The established standards are also recommended by the professional associations. The shareholders and managerial market (corporate control market) exercise on the observance of these standards. The Bulgarian business practice suffers from deficiency with regard to the personal requirements to boards. This leads inevitably to diminishing the effect from the boards activity. The shareholders do not have at their disposal clear and exact criteria for evaluating the contribution of individual managers.

Objectives
The increase of corporate governance quality requires high qualification level of the members of company management bodies. Approval of clearly and exactly formulated requirements on the part of shareholders and professional associations towards knowledge, experience and skills of inside and outside directors is part of the line for establishing up-to-date corporate governance. This will allow to restrict the possibilities for incompetent and subjective actions of the public company managers.

Recommendations
The associations of concerned parties as well as the public authorities should foster the formulation of a system of requirements to public company boards. They should be disclosed to shareholders and potential investors through information and elucidation undertakings. Conducting qualification initiatives for company directors. Give an incentive for undertaking an initiative for elaboration and establishment of a corporate governance code including the personal requirements to public company boards.

Action Line 5.

Significance of Judicial System and Improvement of Judicial Practice

The role of judicial system with regard to joint-stock company functioning is mainly displayed on the occasion of entries of circumstances into the commercial register.

Background
A common emerging problem for transitional economies is the lack of an adequate judicial infrastructure for sufficiently efficient settlement of complicated business disputes. The problems of corporate governance make no exception. Entries into court registers, protection of shareholders. rights, management responsibilities are only part of the issues that experience rather contradictory judicial practice.

Objectives
Clear regulation of circumstances subject to entry and exact formulation of the grounds for executing an entry.

Recommendations
The abovemade proposals with regard to the prerequisites for incorporation and entering the joint-stock company incorporation, for increase of its capital, for evaluation of nonmonetary contributions as well as for deposition of documents into the commercial register are related to the issue of precisely outlining the scope of control exercised by the judicial system, and hence, for clarifying its role. 
Elaboration by the Ministry of Justice of an ad hoc program of work with the courts on problems related to corporate governance. This plan should focus on problems being of court competence in this field, propose possible solutions of these problems, unify opinions and approaches, consider cases that have really occurred in practice.

Action Line 6.

Significance of Capital Market

Regardless of the type of corporate governance (either market or bank-controlled) the influence and interaction with the capital market is a significant element of corporate governance problems. Capital market is a source of financial resource and important disciplining factor for publicly held companies and, more generally, for corporate governance.
Present is a feedback whose manifestation will be realized in the Bulgarian practice from now on. Good corporate governance and control contributes to the development of capital market and its liquidity.

Action Line 6.1.

Creating Possibilities for Stock Buyout by Potential Investors

Background
Capital market should be one of the important outside mechanisms for efficient corporate governance. It may perform this function if a takeover of a company, i.e. buyout of considerable share holdings with subsequent change of management, is effected through its operation. A similar threat is in force in case of realistic possibilities for its realization. The present framework of tender offer for stock buyout and substitution has proved to be very clumsy and bureaucratic and could not find practical application.

Objectives
Providing a possibility for potential investors to place a tender offer to shareholders of a publicly held company for buying out their shares. This would bring forth a real possibility for substituting inefficient management with a more efficient one upon change of the ownership structure.

Recommendations
Amendments and additions should be made in the existing legal framework, especially in the field of stock tender offer. Adequate mechanisms should be introduced for guaranteeing the real adherence to the requirement laid down in the Law on Securities, Stock Exchanges and Investment Companies, stating that where a person wishes to acquire above 25% (perhaps, it should be amended to 33%) of a public company stock through a series of deals for small shareholding acquisition, such a person should submit a tender offer to all shareholders for buying out their shares at an equal and fair price within a specified period. Thus, the importance of forms for protection of shareholders will be perceived, which will contribute to the entire improvement of shareholders. and investors. capability to make use of the existing mechanisms of corporate governance.

Action Line 6.2.

Establishing a Regulatory Framework for Capital Market - Corporate Governance Interaction

Background
The significance of capital market for improving the corporate governance style is also manifested through deep concern about investors. interest. The effective enforcement of the lawful forms of investors. protection granted also by means of investment intermediaries requirements, will contribute to the entire improvement of shareholders. and investors. capability to make use of the existing mechanisms of corporate governance.

Objectives
Guarantee by law the possibility for interaction and introduction of contemporary corporate governance standards into the Bulgarian practice.

Recommendations
Streamline the adoption of the bill on securities.