The main sources of Corporate Governance in the Republic of Serbia are the Law on Companies and the Law on Capital Market.
The Law on Companies recognizes four legal forms of companies: general partnership, limited partnership, limited liability company, and joint stock company. General partnerships and limited partnerships are colloquially called “personal companies,” as personal elements prevail. On the other hand, limited liability companies and joint stock companies are usually referred to as “capital companies,” as personal elements are less important (as in LLCs) or not important at all (as in JSCs – particularly public JSCs). This distinction is of great importance for corporate governance since corporate governance rules may be applied only to LLCs and JSCs (the rules are optional for LLCs and private JSCs and mandatory for public JSCs).
Corporate governance rules are usually collected and systematized in an instrument of self-regulation called a corporate governance code. Two such codes are particularly important in Serbia. The first is the Corporate Governance Code issued by the Belgrade Stock Exchange, which applies only to listed companies (public JSCs, in other words). The other is the Corporate Governance Code issued by the Chamber of Commerce and Industry of Serbia that is intended for all “capital companies,” (unlike the previous Corporate Governance Code from 2006, which contained rules applying only to public JSCs). The most important reason why these two codes stand out is the “comply or explain” rule which they contain, and which was institutionalized in Serbia in 2011 with the adoption of the Law on Companies. This very essence of the rule is reflected in these three words.
According to Article 368 of the Law on Companies, the statement of application of a corporate governance code is an integral part of each company’s annual report. This report shall be prepared by public JSCs and published in accordance with the Law on the Capital Market, and the statement of application shall include information regarding which corporate governance code the company is applying and an indication as to where it is publicly available. It must also contain all important information regarding the corporate governance practices exercised by the company, particularly those that are not expressly prescribed by the law, and identification about and explanation for all derogations from the rules of the corporate governance code which the company has selected, if any such derogations exist. More precisely, public JSCs shall provide a meaningful explanation as to why they have not complied with the rules contained in the code they chose to apply.
In order to foster good corporate governance, the most recent amendments to the Law on Companies included the introduction of Article 368a, which came into force on December 9, 2018, and which applies only to public JSCs. Under this article, JSCs are obliged to make the following accurate and up-to-date information about the members of a board of directors/supervisory board available on the company’s website: their profession and previous positions and information regarding current memberships they may hold in other boards and positions they may have in other companies.
However, even though Serbia does not lack corporate governance rules, as can be seen, corporate governance practice in the country seems to be very poor. The number of JSCs which have adopted their own corporate governance codes is quite modest and these companies are usually among the largest in Serbia (for example, Naftna Industra Srbije a.d. Novi Sad) and the majority of JSCs rely either on the Corporate Governance Code of the Belgrade Stock Exchange or the Corporate Governance Code issued by the Chamber of Commerce and Industry of Serbia. Also, despite its mandatory nature, there are still JSCs which have neither their own corporate governance codes nor a statement referring to others, and have not suffered any consequence as a result. This proves that Serbia is still far from reaching an acceptable level of corporate governance culture.
By Igor Zivkovski, Partner, Zivkovic Samardzic