2. Enforcement of Shareholders’ Rights: The Case of Bulgaria First South East Europe Corporate Governance Roundtable Bucharest, 20-21 September 2001 Enforcement of Shareholders’ Rights: The Case of Bulgaria Maria Prohaska, Ph.D. Senior Researcher Center for Economic Development Bulgaria

3. A coalition of Bulgarian non-governmental organizations established in 1999. Two projects sponsored by CIPE (Washington D.C.) and implemented in 1999—2001. Main objective: Main objective: To facilitate the adoption of relevant corporate governance standards and procedures that would ensure accountability and transparency in business operations in Bulgaria and Central and Eastern Europe. Corporate Governance Initiative for Bulgaria: Objectives and Achievements

4. Activities: 3. 3. To set up a framework for policy dialogue between private and public sector institutions aiming at introducing modern corporate governance structures and procedures in Central and eastern Europe. Corporate Governance Initiative for Bulgaria: Objectives and Achievements 1. 1. To assist the elaboration and the implementation of set of practical and policy instruments that would promote sound business practice in transition economies. 2. 2. To promote public awareness of best corporate governance standards and their importance for the economic growth and social progress of a country and international trade and investment.

5. Based on a Background Paper and OECD Principles in November 1999 the Corporate Governance Initiative adopted an Action Plan with recommendations for both legislative amendments and practical measures along the following action lines:   Equal Treatment of Shareholders and Protection of Shareholders’ Rights; Corporate Governance Initiative for Bulgaria: Objectives and Achievements   Disclosure of Information;   Board Responsibilities;   Capital Market and Corporate Governance;   Residual State Shareholding.

6. Objectives:   To track the progress of corporate governance reform in Bulgaria Corporate Governance Assessment Report   To serve as strong advocacy tool in promoting better understanding of the corporate governance issues and as information resource for the business community. The Corporate Governance Task Force developed a system of indicators that will measure corporate governance developments in Bulgaria and allow for international comparisons across transition economies. These indicators include indices measuring the progress in reforming the legal framework for corporate governance, the efficiency of the relevant institutions and the corporate governance practices in Bulgaria.

7. Objectives: Survey method – face-to-face interview with CEOs and members of managing bodies of Bulgaria public companies. Pilot Monitoring Survey – November 2000 Sampling plan - 268 Bulgarian public companies, response rate 60 percent Survey results – corporate governance indices for Bulgaria (values between 1 and 5 – the lowest value of 1 indicating unfavorable legal and institutional frame and internal factors of corporate governance, and the highest value of 5 – ideal conditions and good practice of corporate governance).

8. The Corporate Governance Assessment Report:2000 covers the following problem areas corresponding to the set of corporate governance indicators: I. I. Legal and economic framework for the development of corporate governance in Bulgaria (3,26) II.    II. Internal factors and company practices of corporate governance in Bulgaria (3,11)  protection of minority shareholders’ rights (2,42)  composition of boards and boardroom practices (3,47)  disclosure of information (3,43).

9. II. II. Internal factors and company practices of corporate governance in Bulgaria 3,11   protection of minority shareholders’ rights 2,42 The Corporate Governance Assessment Report:2000 covers the following problem areas corresponding to the set of corporate governance indicators:   disclosure of information 3,43 I. I. Legal and economic framework for the development of corporate governance in Bulgaria 3,26 Corporate Governance Indices – 3,18   composition of boards and boardroom practices 3,47

10. 3. 3. To introduce a legislative provision for the right of the shareholder under Art. 194, para 1 and 2 of the Commercial Act granting advantage in subscription of new shares to be separable from the shares themselves and to be available for trading. Recommendations for equal treatment of shareholders and protection of minority shareholders rights 4. 4. To introduce the cumulative right in voting and the proxy voting in a standardized form for the general meeting of the public companies. 1. 1. To better inform the public about all already delisted companies and all the companies that intend to delist from the registrar of the National Securities Commission (in cooperation with the Bulgarian Stock Exchange and the Centre for Mass Privatization). 2. 2. To apply strictly the pro-rata principle for the increase of registered capital. Corporate Governance Guidelines – An Action Plan with practical measures and proposals for the improvement of the corporate governance in Bulgaria.