Improving Corporate Governance in Southern Europe

Corporate governance has been gradually emerging as a key business concept in the countries of southern Europe, in particular as countries in the region seek foreign direct investment and are progressing on the EU path. Corporate governance refers to the direction, control and management of companies, and the relationships between managers, boards of directors, shareholders and other company stakeholders.

Corporate governance assists companies to meet the challenges of the modern business environment, enhance their performance, operations and competitiveness, expand in a sustainable manner, build their reputation and trust in the market, as well as attract investment.  

During the past six years, IFC implemented its Corporate Governance Project in Albania, Bosnia and Herzegovina, Kosovo (from 2010), FYR Macedonia, Montenegro and Serbia to support these countries, and their companies, in adopting sound corporate governance practices.      

The first phase of the Project (2005 – 2008) introduced corporate governance concepts to the market and representatives of market institutions and the private sector. The second phase (2009 to 2011) focused on working further with companies and public sector institutions that could play a role in promoting corporate governance.  

“The service provided by IFC was timely and professionally executed,” said Zoran Puljic, Chairman of the Board of Directors, EKOMozaik, Bosnia and Herzegovina. "As a result, we attracted new investors, expanded our production and created new jobs by building a greenhouse for lavender and vegetables cultivation."

During this second phase, IFC assisted 83 companies to implement improvements in their corporate governance practices through one-to-one advice and group training events. As a result, 69 companies reported improvements in their performance.

“Attributable in part to improved corporate governance practices, 21 companies in the region reported they had raised finance in a total amount of $253,000,000, which we believe points to the benefits that good corporate governance can bring,” said Oliver Orton, IFC’s project manager.

Examples of changes implemented by such companies include: establishing a well-composed board of directors and internal audit functions; preparing succession plans for key managers and directors; developing internal codes and rulebooks; defining compensation and remuneration practices; managing of risks; and improving transparency and disclosure practices.

“In addition to our company work, we have contributed to the corporate governance framework, including through our inputs on 11 adopted laws, regulations, and codes,” said Orton. “In delivering our work, we cooperated with a diverse range of local partners – consultancies, NGOs, chambers of commerce, institutes of directors, stock exchanges and regulatory agencies.”  

The Project provided training to stock exchanges, regulators and other market operators, supporting more open and transparent markets and improved regulation and oversight of corporate governance practices, and enhancing the integrity, and perceived integrity, of such markets.

“The support of IFC in the development and promotion of the Corporate Governance Code of the Belgrade Stock Exchange, as well as in the development and testing of the Scorecard and the creation of conditions for its implementation, contributed to significant improvements in the environment necessary for development of corporate governance practices in Serbia in line with international best practice standards,” said Gordana Dostanić, Director of the Belgrade Stock Exchange.

IFC also supported programs at eight universities across the region to introduce corporate governance into their curricula. The Project developed numerous publications, including corporate governance manuals for companies in Albania, Bosnia and Herzegovina, FYR Macedonia and Serbia, as well as a handbook on corporate governance for family businesses in Kosovo.

The Project was supported by the Swiss State Secretariat for Economic Affairs, SECO. IFC plans to continue supporting improvements in corporate governance in the wider Europe and Central Asia region in the years to come.

June 2012