Author: Florentina Șușnea, Managing Partner, PKF Finconta
The 2008 crisis has drawn everyone's attention to the need to regulate and implement a rigorous set of rules and principles that govern or supervise companies. Business governance rules existed in the early 2000s, but the lax regulations and the inconsistency of internal audit on the top management’s activity led to non-compliant behaviors.
The forms thereof covered a broad spectrum, from conflicts of interest and incompatibilities to abuses of power and non-compliance with minimum criteria of transparency and risk management.
Who were those injured? Most of the times, shareholders, employees, consumers, business partners. Did we learn anything from this experience? It seems not, since recently many state-owned companies have been exempted from the effects of Government Emergency Ordinance 109/2011 on Corporate Governance.
What is the corporate governance good for? The main benefits that corporate governance brings to all stakeholders are the following:
1. Diminishes the risks that you face to business for shareholders
2. Develops performance by streamlining activities for managers
3. Opens the international markets for shareholders and managers
4. Increases transparency and social responsibility for customers
5. Makes the investment developments predictable for investors
6. Keeps the good reputation among investors
In countries with a tradition of corporate governance, there are two established models: the shareholder model and the stakeholder model. While the first concerns maximization of shareholder value, the second is to protect the interest of stakeholders (employees, business partners, shareholders, managers, etc.). The model chosen by the Romanian economy is the stakeholder model.
However, there is a lack of consistency in the implementation of corporate governance in Romania due to the following five main reasons:
1. Lack of control mechanisms for meaningful, intelligible, comparable and relevant financial information
2. Failure to implement an accounting system in line with international developments
3. No clear definition of relations between owners and managers
4. Centralizing decision-making and non-involvement of other participating parties
5. Absence of a conceptual framework about what an efficient market means
The lack of consistency in the implementation of corporate governance stems also from the optional character of its provisions in Romania, which only leads to compliance on a voluntary basis of companies.
Increasing economic performance, competitiveness and investment can be achieved over the long term through corporate governance. Because of specific (cultural, economic, social) factors in Romania, one cannot speak of an exhaustive application of the principle of good practice of corporate governance.
Even though the first corporate governance code emerged in 2001 and was then replaced in 2008 with a new one, it became a topic that received attention in the context of the economic crisis. The crisis of 2008/2009 has passed; macroeconomic figures show the Romania is a growing economy and the subject of corporate governance has faded. The transition from state institutions governed by all kinds of relationships, rules-based institutions is on hold. It seems that corporate governance concerns us only when the economy suffers.
For more than 22 years, PKF Finconta is one of the 10 leading professional services companies in Romania. Since 2006, we are a member of PKF International Limited. PKF International is a leading international business advisory organization. The company grew consistently over the years, forming a Group of four companies: PKF Finconta, PKF Finconta Consultanta, PKF Finconta HR and Finconta Consulting SPRL, members of national professional organizations CECCAR, CAFR, CCFR and UNPIR. We provide a wide range of business advisory and related specialist services. We have seven core areas of expertise and within these areas, we tailor our services to your business and your needs: audit, corporate finance, tax, bookkeeping and accounting advisory services, transfer pricing, payroll and personnel administration and insolvency.