Listed companies up in arms over new corporate governance rules

The Ministry of Finance is moving to protect the Greek stock market from Folli Follie-type phenomena, as highlighted by Deputy Minister Giorgos Zavvos, with a bill on corporate governance it has drawn up, but the planned changes are drawing opposition from listed companies who will be called on to implement changes which they doubt will improve company rules.

The bill has already been discussed in a parliamentary finance committee and is heading to the plenary session. Among other things, the bill increases the responsibility of members on the board of directors, turns independent non-executive members into "auditors" of executive members, creates two new committees consisting of independent members to check on the suitability of board members and fees they receive, gives the Hellenic Capital Market Commission broader oversight powers and provides for a large increase in fines for violations by certified auditors.

Stock market officials believe that it is a well-intentioned bill, which seeks to tighten rules on corporate governance and prevent mismanagement, but ends up being an over-the-top and bureaucratic system of rules that hands over excessive control to the Capital Market Commission, prompting fears that it may create more problems than it will solve. As argued by the officials, the bill creates costs that may result in listed companies leaving the Stock Exchange or prevent new ones from entering.

The corporate governance bill has provoked wider reactions in the stock market and, according to sources, even the Capital Market Commission has raised objections to parts of the bill.

Objections from listed companies

In talks held on the law, which took place amidst the general lockdown, the Union of Listed Companies (ENEISET) expressed through its legal counsel, A. Kouloridas, its objections to the proposed regulations, doubting their usefulness. As Kouloridas concluded:

"In our opinion, this legislation, as a whole, does not promote the reorganization of the Greek capital market and certainly not the competitiveness of Greek companies, nor is it capable of attracting investors from abroad because we will increase the independent members from 2 to 3 or introduce some committees" .

Listed companies disagree in principle with the philosophy governing the bill, emphasizing that it imposes rigid and general rules (rules of compulsory law) that are not in line with the relevant European legislation. In terms of the new obligations listed companies are facing, ENEISET stresses that "not all listed companies are the same and the uniform legislative approach to dissimilar situations causes impermissible administrative burden and has significant negative externalities."

The increase in liabilities by Greek law can simply lead to the exit of companies from the Greek stock market, ENEISET warns, explaining that smaller companies can be too small for separate committees, with a majority of independent members and separate presidents and a large number of board members this entails, separate risk management functions, internal control, and regulatory compliance.

ENEISET notes, “the majority of Greek listed companies are, by European standards, small or medium-capitalization companies. The European Association of listed companies - European Issuers, in whose board we participate, sets the limit of a small to the medium-sized listed company at a capitalization of 1 billion euros".

In contrast to the conclusions from the listed companies, the president of the Non Executive Directors’ Club in Greece NED CLUB, Lida Kontogianni, said in parliament that the legislative initiative "is a very positive intervention in the legislative framework of the country's corporate governance. It was necessary for the 2002 Law on corporate governance to be modernized so that we do not lag behind other European countries. "

As Kontogianni pointed out, the bill has "several important positive elements, as it incorporates best practices and internationally proven corporate governance standards", such as emphasizing non-executive members and in particular independent non-executive members, correctly records the different roles of the members of the board and helps better understand the distinction between the roles of the executive, non-executive members of the board and especially the independent ones.