Best Practices for WSE Listed Companies 2021 Coming Soon
In response to current trends in corporate governance, changes in the market and regulatory environments, and the needs reported by capital market players, this month the WSE Corporate Governance Committee presented the first draft of a new set of corporate governance rules for listed companies: “Best Practices for WSE Listed Companies 2021” (Best Practices 2021).
The new Best Practices 2021 are rather general, so explanations of selected rules have been published along with the draft. The explanations are intended to be the basis for a related document, the so-called Guidance.
The Guidance can therefore be expected to be more detailed. They are to be updated and supplemented on an ongoing basis to enable a proper understanding of corporate governance rules.
Disclosure policy and communication with investors
The Best Practices 2021 update primarily the rules concerning management of the issuer’s website. They identify a set of market-relevant topics that should be included on the website.
An interesting change is the new obligation for issuers to publish an equal pay index and measures to reduce the gender pay gap.
As regards information policy, the rule of publication of preliminary estimated financial results by issuers has also been introduced. For the time being, the explanatory notes recommend that the information should include data on sales revenues, gross sales, EBITDA and net profit.
It is also planned that issuers will be required to organise, preferably once a quarter, but not less frequently than once a year, meetings for shareholders, analysts, industry experts and media representatives.
Management board and supervisory board
Particularly noteworthy is the introduction of the rule of diversity and versatility in the selection of members of the management board and the supervisory board, and the obligation to assess the adequacy of fulfilment of these criteria.
In response to the views of practitioners, the Best Practices 2021 draft provides that the chairman of the supervisory board should not simultaneously lead the work of the audit committee.
Internal systems and functions
The draft also stresses the importance and substance of the functioning of internal control, risk management, compliance supervision and internal audit systems.
Additional audit obligations are envisaged for issuers from the major stock market indices: WIG20, WIG40 and WIG80. Such public companies will be required to appoint an internal auditor to report annually to the supervisory board on the effectiveness of the internal compliance systems.
In response to market requirements, especially in the COVID-19 era, the draft Best Practices 2021 includes proposals to promote electronic General Meetings.
Moreover, for issuers from the WIG20, WIG40 and WIG80 indices, it is clearly stated that there is an obligation, and not only a recommendation, to enable online attendance of General Meetings.
Another important issue is the restriction of the possibility of issuing new shares without pre-emptive rights, while granting a priority right to selected shareholders or third parties.
In accordance with the Best Practices 2021, when making the division of profit, consideration should be given above all to the need to distribute rather than accumulate, profit. They provide for specific conditions for retaining profit in the company. The basic idea is, however, to encourage issuers to become “dividend-yielding companies”.
Conflict of interest and related party transactions
The draft also discusses the issue of conflicts of interest. In accordance with the Best Practices 2021, the issuer and its group should have transparent procedures for managing conflicts of interest and entering into transactions with related parties where there is a potential conflict of interest.
The procedures should provide for ways of identifying, disclosing and handling such situations.
Furthermore, company officers should avoid engaging in any professional or non-professional activity which might lead to a conflict of interest or affect their reputation as officers, and should such conflict of interest arise – disclose it immediately.
The Best Practices 2021 are scheduled to enter into force at the beginning of 2021, with a transitional period to allow listed companies to adapt to the new rules and prepare to meet their corporate governance disclosure obligations.
In its press release, the WSE announced that the process of reporting on the application of Best Practices 2021 will also change. Issuers will be required to provide comprehensive information and publish it using a dedicated form.
A public consultation on the draft is currently underway, but given the small time lag between its completion and the planned entry into force of the Best Practices 2021, only minor changes to the wording of the document can be expected. Further modifications, if any, may appear in the Guidance, which is to be updated on an ongoing basis.