The Bank of Lithuania: issuers adhere to the Corporate Governance Code but there is room for improvement

2020-10-21

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According to the Bank of Lithuania, the companies whose shares are admitted to trading on Nasdaq Vilnius, AB stock exchange comply with most of the provisions of the Corporate Governance Code but there is room for improvement, including legislation.

'Confidence of investors and shareholders in the company itself and even in the value of the company depends on the quality of corporate governance. The essential aspects of corporate governance entail that all shareholders must have equal rights and access to all information which would enable them to make informed decisions. The analysis revealed that the situation is good enough and the companies are heading towards better governance, but there is still room for improvement and we will be initiating certain changes,' says Vaidas Cibas, Head of the Regulated Market Supervision Division of the Bank of Lithuania.

The Republic of Lithuania Law on Securities establishes the obligation of the issuers to specify, in their annual reports, how they comply with the Corporate Governance Code for the Companies Listed on Nasdaq Vilnius. This is also a good practice of the Organisation of Economic Cooperation and Development (OECD). The Bank of Lithuania analysed the information disclosed by 26 companies whose shares are admitted to trading on Nasdaq Vilnius, AB stock exchange based on 10 principles of the Corporate Governance Code.

The analysis of the data for the end of 2019 demonstrates that it is the state-owned enterprises that comply with the requirements in the most diligent manner as a result of a more comprehensive legal regulation of their activity. Generally, the issuers tend to adhere to the principles and recommendations which relate to the mandatory regulation contained in laws. Meanwhile, the principles related to the committees formed within the company and activities thereof as well as the remuneration policy are complied with less diligently. Nevertheless, last year the Republic of Lithuania Law on Companies established that the general meeting of shareholders shall approve the remuneration policy at least once in 4 years, which led to a significantly improved compliance with this principle and the average compliance with such recommendations will be much higher in the reports for 2020. Currently, 88% of the companies have approved the remuneration policy, whereas the rest of the companies are planning to do so in the near future. Nearly one third of the companies have formed more than one committee, in addition to the mandatory Audit Committee.

Currently, the supervisory boards and the boards have been formed by 8 companies out of 26, i.e. these companies have a two-tier governance system. Seven companies out of 26 have the board with the supervisory function, i.e. a one-tier governance system. Nine companies have the boards without the supervisory function, whereas 2 companies do not have any collegial bodies. Taking account of the provisions of the Republic of Lithuania Law on Companies, such companies will need to ensure the implementation of the supervisory function within them and choose a one- or two-tier governance system in the upcoming years. When assessing the composition of collegial bodies (both the supervisory boards and the boards), it has been observed that, on average, women and foreign nationals represent around one fifth of the total number of board members.

Having assessed the collected information, the Bank of Lithuania will initiate the discussion with Nasdaq Vilnius, AB over the need to clarify the form of the Corporate Governance Code report and supplement the requirements for the disclosure of the compliance with the recommendations. The discussions with public institutions are planned over amendments to legal acts related to the assignment of approval of critical transactions (transfer of assets) to the competence of the general meeting of shareholders, regulation in connection with collective investment undertakings whose management has been transferred to the management company, as well as specification of the process of organisation of the general meeting of shareholders by electronic means.

Overview of compliance with the Corporate Governance Code for the Companies Listed on Nasdaq Vilnius

Supervision of financial market participants, Issuers