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Legal insights on corporate governance – Czech Republic, Poland and Romania

Czech Republic

What are the current topical issues, developments, trends and challenges in corporate governance?

There are a number of issues relating to the amendment to the Business Corporations Act, which are as follows:

  • One-tier Board structure

The powers of the Board of Directors were redefined with respect to the difficulties with division of powers between the Board of Directors and statutory director. The authorised representative of the company is now the Board of Directors, which is also responsible for the business management and supervision of the activities of the company. The concept that the Board of Directors may have only one member, if so determined by the company’s Articles of Association, has been maintained.

  • De facto and shadow directors (corporation-elected body member)

The provision of inadmissibility of competition and the obligation to act with the due diligence of a proper manager (duty of due care) and consequences of the breach, are also applicable to a person who is effectively in a position of a member of the elected body, even if in fact he/she/it is not a member of this body, and without regard to the relationship of this person to the commercial corporation. The provisions on conflict of interest shall apply with some exceptions.

  • Restriction on “chaining” of legal entities

If a member of an elected body of a capital company or cooperative is a legal entity, it must, without undue delay, empower a single natural person (“representative”) who will represent the legal entity within the body (empowering another legal entity is not allowed).
If the legal entity fails to appoint a representative and if this representative is not registered in the Commercial Register within a period of three months from the day that the post of this legal entity commenced, the post will cease to exist.

  • Extension of the notification obligation in case of a conflict of interest

The notification obligation was also established for a commercial corporation that intends to enter into a contract with an influential or controlling person or with a person controlled by the same controlling person. In such a case, the supervisory body (if established, or otherwise the General Meeting) must be informed without undue delay by a member of the Board of Directors. This does not, however, apply for contracts entered into with a person managing the group of companies (“dominant person”) or with any other person forming such a group.

  • Pre-emption right to a business share in a limited-liability company

If the company transfers its own business share, the shareholders have a pre-emption right. If multiple shareholders exercise a pre-emption right, the transferred business share will be distributed among those shareholders according to the ratio of their business shares (this provision does not apply to JSCs).

  • Per rollam voting

If the law requires the adoption of the General Meeting’s decision to be certified by a public document, the draft decision per rollam must take a form of a public document (its copy shall be sent to shareholders). The shareholders’ signature on its statement must then be officially certified.

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What are the current topical issues, developments, trends and challenges in corporate governance?

The emergency COVID-19 legislation introduced in 2020 allowed all Polish companies to hold virtual or hybrid meetings of their Management and Supervisory Boards and facilitated the adoption of circular resolutions by these bodies. In addition, all shareholders of Polish companies are now allowed to participate electronically in Shareholders’ Meetings.

The digitalisation of corporate governance brings much needed flexibility to the rules on corporate administration, of which companies can take advantage. However, it also brings new legal and operational challenges, such as ensuring confidentiality of discussions and of decisions taken during a virtual board or Shareholders’ Meeting, as well as implementing proper identification of shareholders and their entitlement to vote.

In addition, new legislation is being developed, aimed at regulating groups of companies under the Commercial Companies Code. The proposed legislation will introduce a definition of a group of companies understood as a common economic strategy and common interest of the parent company and its subsidiaries, where the parent company exercises uniform management of its subsidiaries.

The proposed legislation is intended to allow the parent company to issue binding instructions to a subsidiary regarding the conduct of its affairs. A member of the Management Board, Supervisory Board, Audit Committee, Proxy and Liquidator of a company belonging to a group of companies may refer to the specific interest of a group when performing an act or omission. The project is currently the subject of heavy discussion and has faced criticism.

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What are the current topical issues, developments, trends and challenges in corporate governance?

Except as regards public entities, corporate governance does not appear to be a “hot topic” that could potentially be included on the agenda of regulators or the Romanian Parliament in the near future, especially given the current COVID-19 outbreak and the challenges that this unprecedented situation has brought to the market.

What are the current perspectives regarding the risks of short-termism and the importance of promoting sustainable value creation over the long-term?

As of July 2019, Romania has implemented Directive 2007/36/ EC on the exercise of certain rights of shareholders in listed companies, as well as further amendments introduced through Directive 2017/828/EC. There have been no additional steps taken to prevent short-termism or to ensure the promotion of sustainable value creation over the long term.

What are the expectations in this jurisdiction regarding ESG- and sustainability-related reporting and transparency?

As a general note, the major business players in Romania have started to consider ESG aspects, being aware that these can play a major role in the long-term success of their organisation. Larger multinational corporations, such as banks, have already implemented ESG metrics for their future financial reporting and have started to raise awareness through various media and investor channels.

We therefore believe that local companies are already encouraged within the business environment to align their business strategies with ESG practices, which have witnessed a spectacular growth globally in recent years.

Furthermore, the Bucharest Stock Exchange has launched the first ESG-focused initiative on the Romanian capital market, which aims to provide high-level ESG insights for BVB-listed companies. As per a media announcement, utilising Sustainalytics’ flagship ESG Risk Ratings, BVB’s goal is to make available top-line ESG research and ratings for the majority of companies listed on its exchange, to promote responsible investing and highlight the importance of ESG standards among Romanian market participants.

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These texts were first published in the ICLG – Corporate Governance.