Lack of ‘shareholder’ culture hampers investment in Balkans

ZAGREB (AFP) – Inheritors of collectivist economies, the former communist countries of southeastern Europe are rather slowly adopting «shareholder» culture, essential to attract much needed foreign investments. «Shareholder culture is a novelty» for the ex-communist countries in southeastern Europe, stressed Alyssa Machold, a World Bank economist, during a recent round table on corporate governance in the region held by the Organization for Economic Cooperation and Development (OECD) and the World Bank. The countries in the region, in the transition to capitalism, have achieved good results but are «far below» the performance of countries where the companies are better-governed, like the Czech Republic or Poland, said Rainer Geiger, deputy director of the OECD’s directorate for financial, fiscal and enterprise affairs. International financial institutions are thus pointing, among others, to Romania, Bulgaria, Croatia and Bosnia-Herzegovina, which suffer «lack of transparency» in both ownership and governance of shareholding companies. In Romania, «financial investment funds are composed of directors who are deputies and senators in the parliament,» warned Angela Ionita, also a member of a Romanian investment fund. She emphasized the need to exclude civil servants from the boards. «Step by step, the civil servants have to be excluded from serving as directors,» she said. According to Boyan Belev, Bulgarian investment holding companies «have turned out to be among the major abusers of shareholder rights.» «They are already entrenched in the status quo and are likely to strongly resist efforts to reform corporate governance,» stressed Belev, a Bulgarian economist. The organization of shareholder companies in Croatia was also criticized in a recent World Bank report. «Current levels of disclosure do not allow the ownership structure of Croatian companies to be clearly identified,» it said. «Croatia’s experience shows that companies which comply with good governance are in a better position,» Geiger said. «When investors have no confidence, there is no investment,» he emphasized. The OECD warned that recent accounting scandals unfolding in Europe and the United States illustrated the need to strengthen the checks and balances that ensure companies are managed in an honest and professional manner. «This is particularly true in regions like Eastern Europe, as they seek to attract foreign investors,» the OECD stressed. Investors are willing to pay a 30 percent price premium for shares of well-governed companies in the region, a recent survey by the US consultancy group McKinsey showed. International financial institutions are also stressing the need for southeast European countries to establish judicial structures in order to comply with corporate law. In Croatia, «the judicial system lacks experience in this field,» said Alex Barg, a World Bank expert. The problem is particularly serious in Bosnia-Herzegovina, which desperately lacks foreign investment, and where the international community’s top envoy, Paddy Ashdown, annnounced while taking over his post earlier this year that justice and the rule of law would top his agenda. The fight against corruption and for transparency of business would be of key importance in attracting foreign investors in Bosnia, says Kevin Sullivan, an economic adviser to Ashdown.

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