Review of the Report on the Progress of Implementation of the White Paper on CG in Bulgaria and Comparison with Bosnia & Herzegovina 6-Dec-18 USAID Privatization Project

Hard to Compare Two countries different in many aspects; Complex structure and organization of the State of Bosnia and Herzegovina; Two countries are in different phases of transition; Unlike B&H, Bulgaria does not have two corporate governance systems; Bulgaria has made an effort to actually implement the White Paper recommendations or at least to analyze it. USAID Privatization Project 3

Similarities Legal framework that defines corporate governance system is relatively good and it is being continuously improved; Lack of implementation and enforcement of the existing legislation; Inefficient judicial system that needs to be reformed; Absence of involvement of private sector; USAID Privatization Project 3

Institutional Framework Regulatory institutions with broad powers to monitor, investigate, enforce and render fines; Weak investigative capacity of regulatory institutions; Securities Commission in Bulgaria took a leading role in creation of legal framework for sound corporate governance; Capital markets small and underdeveloped with little means to impose, monitor and enforce good corporate governance standards; Courts lack resources and expertise and not capable of ensuring efficient enforcement of laws and regulations and creation of appropriate environment for functional, efficient and reliable corporate governance system. USAID Privatization Project 3

Transparency and Disclosure International Accounting Standards (IAS) are being gradually introduced – Accounting Law in Bulgaria provides for full application of IAS; Accounting Law in FB&H in contradiction with Accounting Standards and other legislation – Situation in RS much better; No supervisory body that will set up quality standards and properly monitor accounting and auditing profession; Weak audit and accounting practices; USAID Privatization Project 3

Transparency and Disclosure II Bulgarian legal framework brought up to a satisfactory standard, but applicable only to one segment of companies; Indirect and beneficial ownership well defined but information about it difficult to obtain; Securities Commission has not done much to enforce provisions related to disclosure of information on the ownership structure; Legislation setting requirements for disclosure of significant events much better developed in Bulgaria. USAID Privatization Project 34

Transparency and Disclosure (B&H) III Information about the identity of large shareholders (over 5% or 10% of shares) is not disclosed. Information about management compensations is not available Financial reports are not easily available to shareholders and potential investors but one can access them on request and at a price Financial statements do not accurately and correctly represent companies’ financial positions and business performance. USAID Privatization Project 34

Instead of Conclusion Both countries faced with problems of law enforcement, efficiency and low capacities of regulatory and self-regulatory organizations and judiciary system; Capital markets are still in development phase and have questionable power (or lack of incentive) to impose, monitor and enforce standards of good corporate governance The new regulation imposed only to companies which shares are traded on capital markets and their number is not large. An effort should be made to impose these regulations to non-listed companies too. USAID Privatization Project 34

Instead of Conclusion Changes in legislation took place just recently and there was not enough time to see what consequences and what impact on improvement of corporate governance they will have in practice; Focus should be shifted to reform of judiciary system in order to improve implementation and law enforcement; Build capacities of all institutions that are of significant importance for functioning of corporate governance system; Focus on development of capital market, increase trust of general public and companies in its operations and make capital markets valuable source of financing for companies USAID Privatization Project 34

THANK YOU Davorin Pavelic ++387 61 201 187 dpavelic@3cg.ba USAID Privatization Project 34