|Modern Corporate Governance and Foreign Investment
I. Facilitating the Implementation of
Modern Corporate Governance Principles: Corporate Governance Initiative
The activities of the Corporate Governance Initiative (CGI), a coalition
of Bulgarian NGOs working together to facilitate the adoption of relevant
corporate governance standards and procedures ensuring transparency and
accountability in economy, focused in the year 2000
on the preparation of the Corporate Governance Assessment Report and the
public endorsement of the Corporate Governance Guidelines for Bulgaria.
Serving as a secretariat of the CGI, the Center for the Study of Democracy
has been among the core actors in this initiative along with such partners
as the Association of Industrial Capital, the Association of Voluntary
Pension Funds, the Center for Economic Development, the Investors' Union
and the Securities Holders Association.
1. Monitoring the Corporate Governance Reform in Bulgaria
In order to track the progress of reform measures and formulate relevant
policy agenda on promoting corporate governance, CGI engaged in a review
of the current practices in corporate governance and evaluation of the
impact of the activities undertaken so far. The first major issue in this
respect was to design and test policy-sensitive indicators for corporate
governance and to improve the quality of national corporate sector data.
A special task force, led by the member of the National Securities Commission
Bistra Boeva, Professor at the University of National and World Economy,
and including economists and representatives of private business came
up with a set of indicators on the progress in reforming the legal framework
for corporate governance, the efficiency of the relevant institutions
and the corporate governance practices in Bulgaria and proposed the structure
for the Corporate Governance Assessment Report to include analysis of
the following problem areas: voting'rights and equal treatment of all
shareholders; board structure and the role of managing bodies; and disclosure
and transparency. Together with a number of Bulgarian and foreign experts
the CGI Task Force designed the methodology for pilot monitoring which
was completed in November 2000.
2. Consensus and Coalition Building
CGI Steering Committee, composed of both NGOs-founding organizations and
government institutions, including representatives of the Bulgarian Stock
Exchange - Sofia, the Council of Ministers, the Ministry of Industry and
the Bulgarian National Securities Commission, provided co-ordination of
the project activities and prepared the working plan for these activities.
At the meeting on July 11, 2000 it adopted the CGI working program for
The drafting of the Corporate Governance Guidelines for Bulgaria started
in the second half of 2000 involving CGI Task force members and other
experts. In line with the 1999 CGI Policy Recommendation Paper, these
guidelines focus on the following major areas: a) responsibilities and
motivation of boards; b) role of the judiciary and improvement of judicial
practice; c) promotion of capital market development and role of institutional
investors; and d) residual state shareholding. The Guidelines also include
practical measures for the promotion of the culture compliance and disclosure
in the economy. The set of policy recommendations targets the regulatory
and enforcement levels; it also include advocacy and education activities
and involve experts from the Securities Holders Association and other
relevant business associations.
3. Dissemination and Advocacy
In 2000 the CGI web site actively contributed to promoting project goals. The site has been updated
on a regular basis to cover current activities and events - it contains
the final version of the Policy Recommendation Paper, legal and other
documents on corporate governance, CSD and CGI publications (summary reports,
draft documents, press releases, etc.). A subsection on the results of
the Regional Corporate Governance Forum has also been added to the site.
The CGI activities have received broad coverage in the specialized media
on business and finance. Both daily and weekly newspapers published a
number of articles on the Regional Corporate Governance Forum; TV and
radio stations broadcasted interviews with CGI Task Force members and
foreign participants in the conference. Dr. Maria Prohaska's article entitled
Corporate Governance in Bulgaria - the Core Issues was published in the
International Risk Management (Europe) Newsletter on corporate governance
(No. 6, August 2000).
Another successful effort in the dissem-ination of the recommendations
of the regional conference was the CSD Reports publication: Establishing
Corporate Governance in an Emerging Market: Bulgaria. It includes two
studies analyzing the trends in corporate governance in Bulgaria after
the first wave of mass privatization and the initial stages of concentration
of ownership focusing on the major principles of corporate governance
and control as well as the possible implications of corporate governance
reform in Bulgaria.
4. Regional Conference on Corporate Governance
CSD could hardly accomplish much in promoting corporate governance reform
in Bulgaria over the past years without the continuous support and active
involvement of the Center for International Private Enterprise (CIPE).
In the year 2000 it was CSD who helped CIPE organize a regional forum
on corporate governance for Southeast Europe entitled "Business Views
on Corporate Governance: Building New Structures in Emerging Markets"
and held on September 22-23 in Sofia. The main objective of the Forum
was to promote a creative dialogue in which representatives of the business
community, various market participants and think-tanks form their own
approaches to corporate governance. By focusing on building local demand
for corporate governance reform, the Forum also brought together a network
of practitioners from the region. Over 100 participants from 20 countries,
including representatives of the business community, international aid
donor organizations, Bulgarian policy makers and senior government officials,
attended the conference.
The major topics discussed included corporate governance as an antidote
to corruption, corporate ownership patterns in emerging democracies, transparency
of financial institutions and corporate infrastructure, local policy implementation
and defining corporate governance strategies. The participants shared
their experience and views and highlighted successful approaches to policy,
advocacy and implementation in three plenary sessions devoted to: a) creating
demand for corporate governance; b) market participants and supply side
links to corporate governance, and c) pillars of the reform -governance
institutions, corporate codes and institutional investors. Working in
four groups of 20 people the participants also discussed and identified
relevant corporate governance measures with debates focusing on the specific
implications for the region and the possible future paths for corporate
governance reform. At the conference CSD shared its own accomplishments
in the field and gained exposure to the experience of other institutions
from Central and Eastern Europe.
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II. Foreign Direct Investments in Balkan
Countries: Alternatives to Reduce Existing Barriers
Since the beginning of its existence CSD has had a solid track record
in promoting foreign investment in Bulgaria. In 1991 CSD initiated periodic
surveys of public opinion on foreign investments; in 1993 it came up with
a Policy Recommendation Paper on Privatization and Foreign Direct Investments
(FDI); in 1994 it carried out a series of case studies on success in foreign
investments. A Debt Conversion Program was proposed by CSD in 1995 aiming
at a transformation of certain holders of Bulgarian debt into equity investors
in the course of the coming process of privatization. Publications on
foreign investments in the mass media by CSD staff and associates made
a substantial contribution to raising the public awareness of the opportunities
and the existing problems in the course of the past decade. In 1997 CSD
participated in the public discussion on the new law on foreign investments.
CSD is currently involved in another foreign direct investment project,
this one having a regional dimension. It is assisting the Applied Research
and Communication Fund on a comparative study of foreign direct investments
in Albania, Bulgaria and Macedonia; the Fund is a partner of the Institute
for Development Research and Alternatives and the Institute for Comparative
Studies in Tirana and the Forum -Center for Strategic Research and Alternatives
in Skopje in this matter.
The project aims at proposing policy measures for reduction of the existing
barriers to foreign investments and initiating a process of standardizing
and benchmarking the measurement of foreign direct investments in Central
and Eastern Europe. At the initial stage of the project CSD provided support
for the research on the FDI inflows over the last decade and the review
of the legal, institutional and macroeconomic environment for FDI in Bulgaria.
A survey of Bulgarian companies with FDI was conducted by Vitosha Research/CSD
evaluating the existing barriers to foreign investment and the company
responses to them. A policy workshop and a regional conference on foreign
direct investments in Balkan countries to be convened in the year 2001
are expected to come up with policy recommendations for all actors involved,
aiming at a better understanding of the existing barriers and coordinating
of the measures for stimulation of foreign direct investment.
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III. International Business Club Meetings
The International Business Club, hosted by CSD, encourages business contacts
and aims at popularization of business opportunities and promotion of
trade and foreign investments in Bulgaria. It provides a valuable opportunity
for high-ranking public officials and policy makers met with senior foreign
diplomats, trade envoys and representatives of the international business
On April 11, 2000 Mr. Antoni Slavinski, Minister of Transport and
Communications, addressed the Business Club. He discussed the government's
policy in these fields, emphasizing the current priorities, namely, harmonization
of the national legislation with that of the European Union, further development
of the transport infrastructure, achieving partnership" between the
public and private sector, creating competitive environment and attracting
foreign investments. Mr. Thomas O'Brien, Resident Representative of the
World Bank, spoke of the need for the government to attract additional
foreign investments in the course of the divestiture of companies from
the public sector. He pointed out that these goals could be served by
improvement of the existing legislation, greater transparency of the procedures
and limiting corrupt practices. He also noted the importance of the introduction
of news forms of private ownership, the regulation of public/private interaction,
the partnership of local and foreign companies in financing projects in
Bulgaria for the success of the economic reforms in the country.
On July 7, 2000 Dr. llko Semerdzhiev, Minister of Health, spoke
the characteristics and perspectives of the healthcare reform in Bulgaria.
The discussion touched upon the financing of the healthcare sector, the
provision of emergency medical services, medical research and education.
A special emphasis was put on the new role of healthcare professionals,
especially that of physicians on general practice. Dr. Semerdzhiev also
noted the need for transformation of the currently state-owned hospitals
into corporate entities which could be privatized in the future.