Marko Simoneti

The Reflexive Properties of Corporate Governance Codes: The Reception of the ‘Comply‐or‐explain’ Approach in Slovenia

The Slovenian Corporate Governance Code for Public Joint-Stock Companies was adopted in March 2004. We examine how far the implementation of the Code has resulted in the ‘reflexive’ learning processes which the ‘comply-or-explain’ approach to corporate governance aims to bring about. We find that compliance strategies are strikingly uniform across firms in terms of the content of deviations as well as in types of disclosure and explanations for deviations. Moreover, the quality of corporate reporting is low, with effective explanations representing only a small minority of disclosures. Thus there is little evidence that the Code has stimulated organizational learning. We consider the implications of our findings for the development of corporate governance in transition systems and for the comply-or-explain approach more generally.

Ownership Structure and Post-Privatisation Performance and Restructuring of the Slovenian Non-Financial Corporate Sector

Abstract The aggregate analysis of company performance in Slovenian non-financial corporate sector in the period 1994-1998 shows that companies with concentrated ownership (foreign, personal and subsidiary) expand their activities through offensive restructuring (by new investment and employment) and thereby their advantages in terms of labour productivity and return on equity increase compared to other categories of companies. The companies which went through privatisation and have a dispersed ownership structure (public and non-public) are improving their performance, but very slowly and mostly by defensive restructuring (cuts in employment and assets). From the point of view of restructuring, public companies are a step ahead from non-public companies. Non-privatised companies remain in the red figures, although the operating losses are falling and labour productivity is rising, but mostly as a result of cutting of employment and disinvestment.

Slovenian CG Code and its Ammendments: Are Slovenian Financial Markets Better Off?

The article discusses Slovenian corporate governance practice in the prospect of the introduction and the further amendments of the Corporate Governance Code (Code) and its actual implementation in an environment otherwise characterized by big deficiencies in the enforcement of legal rules and poor functioning of the judiciary. Theoretically, when the institutions such as judiciary are not effective, any improvement in substantive law (law on books) makes very little sense. Hence, the financial markets are better off only to the extent that legal institutions became more effective and any improvement in the regulations produces no results when not accompanied by corresponding improvement in the enforcement of the legal rules. In this regard the article discusses the possible role of the Code as, to some extent, a substitute for inefficient legal institutions. The argument goes as follows. The markets should be to a certain extent capable to motivate the creation of separating equilibrium, namely separating “good” firms from “bad” firms. In this regard, the introduction of the non-mandatory Code of best governance practice should in our view provide the firms with a framework for signaling credible information about them and, consequently, allow the markets to differentiate between well and badly performing firms. As such, the Code potentially enhances the transparency and, consequently, the functioning of the capital markets without relying too much on the efficiency of legal institutions.

Slovenia: Ownership and Performance of Mass-Privatised Firms

After prolonged debates on the most adequate method for privatising companies in Slovenia, a combined model was adopted, which in principle allowed for paid and non-equivalent (i.e. mass) privatisation. The proponents of mass privatisation argued that its main advantages were the speed at which large parts of the economy would be transferred to the private sector and its contribution to starting of capital markets in countries in transition (Lipton and Sachs, 1990; Frydman et al., 1997). Mass privatisation indeed involved a large part of the corporate (nonfinancial) sector in Slovenia but was spread over five years. ’ Unlike in similar programmes implemented elsewhere, privatisation was decentralised on both the supply and demand sides, and in principle a wide spectrum of options was made available in the privatisation law. Nevertheless, in practice that model limited the selection of privatisation methods on both sides. The basic model of privatisation 1. Transfer of 20 per cent of shares to para-state funds: 10 per cent to the pension fund and 10 per cent to the restitution fund; 2. Transfer of 20 per cent of shares to privately managed privatisation funds in exchange for ownership certificates collected by them from citizens; 3. Exchange of 20 per cent of shares at favourable terms for ownership certificates ofinsider owners (managers, current and former employees);

Enterprise Sector Restructuring in a Small Economy: The Case of Slovenia

The enterprise sector in Slovenia entered the process of economic transition with the legacy of a specific quasi-market socialist economic system based on self-management and social ownership. Slovenia was, in a certain sense, the manufacturing platform of the former Yugoslavia. This resulted in a relatively broad and sophisticated industrial structure, different to that, which would have developed in a small open economy with an export-oriented development concept. Disintegration of the former Yugoslavia led to the loss of easy and well-protected markets. Slovenian companies were forced to turn to export markets. Accommodating to the pressures of more competitive markets has, as a rule, been achieved by short-term rationalisation measures (predominantly by reducing costs via lay-offs and an intensive process of early retirement, tolerated by the state) and only much less through long-term restructuring.