Setting Standards of Corporate Governance: The Polish Experience of Drafting Governance Codes

Abstract

Corporate governance codes have recently been adopted by most of the European markets. Stock markets in Eastern Central Europe, with their weak governance mechanisms and practices, are trying to follow suit. However, drafting such codes may be a much more challenging task in this part of Europe than elsewhere, due to the existence of powerful interest groups and an underdeveloped corporate environment (immature institutional investors, ineffective shareholder activism and a lack of government interest in corporate governance). This paper provides some insights into various governance problems related to the drafting of a ‘private’ corporate governance code for Polish listed corporations. In particular, it focuses on supervisory boards and explains how they should be structured to gain credibility without clashing with blockholder interests. This paper argues that the soft proposition (i.e. independent members should account for less than half the members of supervisory boards) can bring about more far-reaching result, as it takes account of real market conditions. Regrettably, the strong proposition, which is employed in the official code of the Warsaw Stock Exchange, may produce fewer benefits or even fail under the criticism of blockholders. Polish corporate governance dilemmas are common to most of Eastern Central Europe. The solutions presented in this paper may therefore also be useful to code drafters in other countries. This paper strongly advocates that there should be the establishment of an open market for codes that allows companies to choose the best and most suitable governance arrangements. NGOs could play an important role in such a market by stimulating competition, establishing benchmarks and enforcing mechanisms like ratings.