Transforming Business Practice through Corporate Governance
2001 Highlights
I.
Corporate Governance Reform
Capacity for
Corporate Governance Reform in Bulgaria In year 2001 CSD continued to serve as
the Secretariat of the Corporate Governance Initiative which also includes the
Association of Industrial Capital, the Association of Voluntary Pension Funds,
the Center for Economic Development, the Investors' Union and the Securities
Holders Association, all working together to change corporate governance
practices and introduce standards and procedures ensuring transparency and
accountability (CGI).
1. Transforming
Business Practices through Corporate Governance (CGI)
The specific
context of the business environment in Bulgaria and the need for comprehensive
measures toward acceptance of the principles of corporate governance in
Bulgarian companies have determined the approach followed by the CGI team on
this project, completed in April 2001. The main activities included: a)
monitoring the state of corporate governance in the country and the impact of
the activities undertaken within CGI; b) consensus and coalition building; c)
cooperation with partners from other countries facing similar challenges; and
d) dissemination and advocacy for further reform. A task Force of experts held
12 meetings aiming at elaborating the corporate governance indicators in
Bulgaria for the purpose of improving the quality of national corporate sector
data. The Task Force developed a set of indices to measure the progress in
reforming the legal framework for corporate governance, the efficiency of the
relevant institutions and the corporate governance practices in Bulgaria. A
pilot monitoring survey of Bulgarian publicly traded companies was carried out,
designed together with experts from the National Securities Commission, the
Bulgarian Stock Exchange - Sofia and the Association of Industrial Capital in
Bulgaria and conducted with the help of Vitosha Research.
Corporate
Governance Assessment Report
On the basis
of the survey results CGI experts drafted a Corporate Governance Assessment Report 2000
which was discussed at a Policy Workshop held at CSD on April 18. The
report provided an overview of the general framework and particular dimensions
of the corporate governance in the country; it contained information unavailable
up to that time to the professional community and the media. With regard
to the legal and institutional framework the index of corporate
governance was assessed at 3.26 (on a scale of 1 to 5) covering the role
of the judicial system, capital market development and efficiency of its
institutions, and above all the extent in which the existing legislative
framework facilitated or constrained proper governance. The internal
factors of corporate governance as well as company practices received
a lower rating - the value of the index was 3.11 as a whole, including
2.42 on protection of minority shareholders' rights, 3.47 on composition
of boards and boardroom practices, and 3.43 on disclosure of information.
The Corporate
Governance Assessment Report is an effective advocacy tool for better
understanding of the issues by the public, which can also serve as an important
resource for the international business community. CGI intends to replicate it
in order to track the changes and trends in the course of corporate governance
reform in the Bulgaria.
Corporate
Governance Guidelines for Bulgaria
Building on the
work already done and in line with the 1999 CGI a Policy Recommendation
Paper entitled Corporate
Governance Guidelines for Bulgaria was drafted; it focuses on
the following issues:
- responsibilities and
motivation of boards;
- role of the judiciary and
improvement of judicial practice;
- promotion of capital market
development and role of institutional investors;
- residual state shareholding.
The Guidelines
include practical measures for the promotion of a culture of compliance with
the existing regulations and appropriate disclosure of information. The set of
policy instruments which need to be developed or elaborated should focus on
regulation and enforcement along with dissemination and education.
Corporate
Governance Policy Workshop-April 18, 2001
The Policy
Workshop was the main public event in the project. It brought together more
than 30 experts - representatives of government agencies (ministries.
Privatization Agency, Center for Mass Privatization, Foreign Investment
Agency), business associations (Bulgarian Chamber of Trade and Industry,
Bulgarian Industrial Association, Association of Industrial Capital in
Bulgaria, Association of Private Pension Funds), development organizations
(World Bank and USAID), academics and journalists from the mass media. The
workshop provided a practical framework for consensus building among all
parties involved in the implementation of modern corporate governance
principles in Bulgaria. All the participants agreed on the role to be played by
key actors in this process - the government. Stock Exchange, the business
community, the shareholders' associations and the media. The discussions which
took place helped prepare the final version of the Corporate Governance
Guidelines for Bulgaria.
Dissemination
and Advocacy
In the period
under review CSD paid a special attention to dissemination and advocacy of the
need for corporate governance reform and used all available means for this
purpose. The (web site of CGI )
was regularly updated to cover current activities and events - it contains the
final version of the Policy Recommendation Paper, legal and other documents,
publications of CSD and CGI, such as summary reports, draft documents, press
releases, etc.; in addition, it provides links to the websites of partner
organizations to facilitate access to relevant information.
The CGI
activities received broad coverage in the specialized economic and financial
press. Articles on the project outputs were published in specialized daily and
weekly newspapers with national distribution, namely Dnevnik Daily,
Demokratzia Daily, Pari Weekly, Pari/Capital Market Weekly, Kapital Weekly,
etc.
2. Corporate
Governance Reform and the Mass Media: Building Critical Advocacy Capacity
CSD's work in
year 2001 aimed at launching a network of corporate governance advocates in the
mass media, giving publicity to the efforts undertaken so far in the course of
the reform and creating a wide constituency and public opinion in favor of
implementation of corporate governance principles in business. For this purpose
CSD's efforts focused in particular on:
- assessment of the capacity
of the Bulgarian mass media to advocate corporate governance reform;
- training a significant
number of journalists to cover developments in corporate governance and
disseminate the ideas and the know-how formulated in the course of
previous projects within CEI;
- providing these journalists
with tools necessary for conveying their message to the public.
A preliminary
assissment of the coverage of corporate governance reform was instrumental for
the success of the project. A survey of about 100 print and electronic media
was conducted to assess the capacity for corporate governance advocacy,
including journalists responsible for editorial policies as well as reporters.
This study helped formulate the major issues for discussion and the forms and
methods of training. A set of materials on corporate governance for the seminar
is available on the CSD website.
The central
element of this project was a training
seminar organized by CSD for representatives of the national and
regional print and electronic media and held in Sofia on November 20-21,
2001. It had five sessions, each of which devoted to a major issue area
of corporate governance (corporate governance and the relationship between
shareholders and management, corporate governance and capital markets,
corporate governance and governing bodies, corporate governance and disclosure
of information, etc.). Experts who participated in previous projects on
corporate governance and representatives of the relevant state bodies
(Professor Bistra Boeva, Chair of the Department of International Economic
Relations at the University of National and World Economy, Professor Stefan
Petranov of Sofia University who is also Chairman of the Board of Directors
of the Zlaten Lev Investment Fund, Mr. Manu Moravenov, Director of Trading
Surveillance at the Bulgarian Stock Exchange, Professor Plamen Chipev
of the Economic Institute of the Bulgarian Academy of Science, Ms. Ralitsa
Again, Chair of the Parliamentary Subcommittee on Capital Markets and
Securities and Professor Margarita Alexandrova, Member of the State Securities
and Exchanges Commission) made presentations or moderated the discussions.
The participating journalists had the opportunity to share their ideas
about how the issues under consideration could be brought to the attention
of a larger audience.
The final phase
of the project included publication of a series of articles in a number
of print media, namely the national papers Zastrahovatel Weekly, Pari
Daily, Pari Weekly, Ikonomicheski Zhivot Weekly, the regional Nov Zhivot
Daily and Cherno More Daily, broadcasts of the Bulgarian News Agency,
Bulgarian National Radio, etc. As a whole, the involvement of the representatives
of the media in the project should contribute toward a greater clarity
of the language of corporate governance and lead to better understanding,
creating a constituency for corporate governance reform and bringing life
to the principle of transparency and disclosure of information.
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II. Enhancing the Business Environment
for Foreign Direct Investment
CSD has an
established track record in promoting foreign direct investment since the
beginning of the 1990s. In year 2001 it was involved in two projects on this
subject in which it worked with partners from such countries as France, Greece,
Albania and Macedonia.
1. The
Impact of European Union Enterprise Relocation on Inter-Firm Relations
in Bulgaria
This project has
had the following objectives: a) to explore the impact of cross-border capital
flows on inter-firm relations in Bulgaria; and b) to outline the increasing
role of FDI from EU member-states in helping accession countries meet the
Copenhagen criteria for EU enlargement. To accomplish these objective the
project team, led by Dr. Vesselin Minchev of the Bulgarian Academy of Science
and Petkan Iliev of the University of National and World Economy, studied the
structure and motives of foreign investors in the country, the characteristics
and evolution of trans-European equity cross-border activities in Bulgaria
parallel to the negotiations for EU accession and the characteristics and
evolution of trans-European non equity cross-border activities in Bulgaria
(including subcontracting, licensing, franchising, management and turnkey
projects). The following tasks were undertaken:
- macroeconomic, geographical
and branch structure statistical analysis of outward FDI flows from EU to
o Bulgaria;
- analysis of the policies for
attracting FDI flows to Bulgaria;
- econometric analysis of the
determinants of the distribution of FDI entry;
- qualitative analysis and
identification of the types of European companies operating in Bulgaria
(companies-leaders and companies-followers);
- qualitative analysis and
identification of the company strategies in the different regions of
Bulgaria ("resource seeking", "market seeking" and
"efficiency seeking" strategies).
As the available
information and analysis of the motives and strategies of the foreign
cross-border initiatives in the country are still insufficient, a survey of 100
EU-based investors in Bulgaria was carried out to explore equity and nonequity
cross-border ventures as well as different types of non-equity contractual
arrangements and the preferred forms and networks of the inter-organi-zational
relationships between the EU-based MNCs and local enterprises.
The findings of
the field research and their initial analysis were reported at a workshop, held
in Sofia on April 25, 2001, to policy makers, academics, representatives of
NGOs, consultants, local private enterprises and foreign companies doing
business in Bulgaria. The discussion at the workshop provided significant
material for further analysis was which further done in the research papers by
the project team.
The dissemination
of the research findings included a presentation at the annual conference of
the Center for Economics Research and
Graduate Education - Economic Institute (CERGE -El) grant recipients in
Prague, held on July 22 and 23, 2001, and publication of the research papers on
the web site of CSD. The project received coverage in the mass media in Bulgaria;
its outputs will be used in the preparation of teaching materials in economics,
business administration and European studies.
2. Foreign
Direct Investment in Balkan Countries: Alternatives to Reduce Existing
Barriers
This was an
on-going sub-regional project with Applied Research and Communications Fund's
participation in which CSD provided expertise and which was completed in the
spring of year 2001. Following up on the project activities for year 2000 which
included a planning and coordination meeting in Sofia, design of the
macroeconomic indicators for FDI, analysis of the legal framework and a survey
of the large and medium-size foreign companies doing business in Bulgaria, the
project team undertook a number of case studies and analyzed the environment
for FDI.
The project team carried out an analysis of the survey results which served
as a basis for the Bulgarian
Country Report on Foreign Direct Investment. At a workshop,
held on March 9, 2001, business, government, media experts and academics
discussed a draft of this report and proposed policy measures aimed at
reduction of the existing barriers and attracting foreign capital.
On the basis of
the country reports prepared by the institutions participating in the
project (Institute for Development Research and Alternatives and Institute
for Contemporary Studies, Albania, ARC Fund, Bulgaria and Forum-Center
for Strategic Research and Alternatives, Macedonia) a comparative study
of the barriers to FDI in the Balkan countries was prepared by the project
coordinator (IDRA) and reported to a Balkan Conference on Foreign Direct
Investment, held in Tirana on October 22 and 23, 2001.
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III. Exploring the Frontiers of "The
New Economy" and E-Development through the Bulgarian Development
Gateway (BDG)
The Bulgarian
Development Gateway represents the Bulgarian contribution to the World Bank initiative of creating
a Global Development Gateway as a network of country development gateways. The
goals of this initiative are: a) to facilitate the establishment of a virtual
community of government, civil society and private sector organizations with
common interest in promoting competitive markets and democracy in a
business-friendly environment; b) to empower the local development community to
use the internet as a low-cost tool for knowledge-sharing, networking and
collaboration; c) to assist this community by providing links to ideas and good
practices, information about development activities and trends, funding and
commercial opportunities; and d) to increase global access to locally-generated
development knowledge.
In the year under
review the preparatory stage of the BDG was completed. Its goal
was to assess the potential for development of such a gateway in Bulgaria as
well as its likelihood of success and potential impact on social and economic
development. CSD provided the overall management of the project in which a
number of interested parties (donor organizations, foreign and local
businesses, government agencies and NGOs) formed a coalition in pursuit of
common developmental goals.
The work included
assessment of the needs for a Bulgarian
Development Gateway (a study of what the stakeholders expect from it as
well as what they could contribute to it), drafting a business plan for
launching and sustaining the BDG (defining the potential user communities,
their key characteristics and information needs, suggest country specific
content/services and possible content suppliers, proposing an implementation
strategy, organizational structure and financial plan) and creating a special
demo site to be tested and evaluated by users. The project team solicited broad
feedback on all the preliminary elements of the strategy, the potential gateway
objectives and content components.
Partnership Building
A major element
of the preparatory stage was forging a partnership which would be able
and willing, one the one hand, to contribute to the BDG and, on the other
hand, to take advantage of the opportunities presented by the Gateway
for furthering the goals of the individual participating partners. The
work in this respect began with two coordination meetings of the BDG Steering
Committee, devoted to the broad issue of IT for Development and co-organized
with UNDP - one with representatives of the government, NGOs and the donor
community held on February 15, 2001 (see
more) and one with representatives of the private sector and business
associations, held on March 8, 2001 (see
more). The participants in these meetings gave their support to the
idea of a BDG and expressed their willingness to contribute in their respective
fields of activity.
To guarantee the
success of the initiative CSD worked with individual Gateway partners,
including foreign and international donor organizations (the World Bank, UNDP,
the European Commission, the US Agency for International Development, etc.),
private sector entities and business associations (Bulgarian Association of
Information Technologies, Bulgarian American Enterprise Fund, Bulgarian Chamber
of Commerce and Industry, Bulgarian Industrial Association, Bulgarian
Telecommunications Company, Microsoft, Cisco, Hewlett Packard, etc.), NGOs
whose activities are related to the issues of development (CED, EPI, Open
Society Fund, etc.) and relevant government agencies (Ministry of the Economy,
Ministry of Transport and Communications, Ministry of Education, etc.).
Partnership agreements (Memoranda of Understanding) were signed with dozens of
potential Gateway stakeholders. The BDG management team benefited from the help
of the consulting missions of World Bank experts (Dr. George Sadowski in February-March
and Professor Elias Karayanis in July 2001) as well as the visits of
representatives of the Global Development Gateway team (Mr. Oleg Petrov in
February and Ms. Denisa Popescu in August 2001).
CSD paid a
special attention to partnership building with other countries' development
gateways. It hosted a workshop for the country development gateway teams from
Southeast Europe on July 6-7, 2001 in Sofia. Experts from Romania, Moldova,
Croatia, Poland, Azerbaidjan, Georgia and Bulgaria shared their experience on
planning and implementation of the preparatory phase of the Gateway; they
discussed major challenges and possible common strategies concerning not just
this phase but also the next stage of the implementation per se of the
Country Development Gateway.
Conceptualization
of the Country Development Gateway for Bulgaria
The BDG Task
Force prepared a Needs Assessment Report which analyzed the need
for a country gateway among Bulgarian development stakeholders. After
holding in-depth interviews with representatives of the relevant government
agencies, private business, NGOs and donor organizations the Task Force
came to the conclusion that a BDG was both needed and feasible; the work
on this report also highlighted the expectations of the Gateway partners
and their potential contributions.
The Task Force
also drafted a Business Plan for the BDG after extensive consultations
with the individual Gateway partners. Upon its implementation the Gateway
is expected to become a point of association of development stakeholders
in Bulgaria, a forum for cooperation among the most active civil society
institutions, private sector interests, public figures and government
and international agencies in Bulgaria, a permanent framework under which
different organizations and individuals can promote developmental programs
or projects in the field of development. The BDG should help overcome
the digital divide and existing knowledge gaps as well as introduce good
governance based on public-private partnership within the development
community.
The
implementation of a CDG in Bulgaria will be based on an already existing
structure - the Internet Alliance for Economic Development (www.online.bg/iaed/). This coalition was
established in mid-1999 to promote the use of the internet as a tool for
accelerated economic development. It provides an excellent platform for
combining the interests of various stakeholders. Based on a distributed content
model, the BDG will consist of two fully functional parts (mirror sites) in
Bulgarian and English, hosted respectively on a local server and on the central
GDG server. The BDG will be built upon two parallel taxonomy trees and divided
into three main components: background content, development issues and interactive
part.
Prototype
Development
A technical team of the BDG worked on developing a prototype on the basis
of which the implementation of the Gateway could be based. In close cooperation
with the Global Development
Gateway technical team it provided a solution to the complex problems
involved in design, template building and web hosting - two parallel servers
(one nationally based at Bulgaria Online and one at the World Bank) are
to be used. With regard to content design the possible architecture of
the BDG was agreed upon in May 2001. Updates of the topics resources on
the main gateway server were regularly carried out. In order to accomplish
these tasks the technical team held two workshops -one portal site building
involving experts on building portal sites, database management, e-security,
server management, etc. (June 25, 2001) and one on the content strategy
involving experts and content provider partners for the Gateway (June
29, 2001).
On July 31, 2001 a public presentation of the Bulgarian
Development Gateway prototype took place. The Gateway partners expressed
their approval for the parameters of its design and for the implementation
strategy chosen by the BDG team. |
