CORPORATE GOVERNANCE IN TREASURY COMPANIES

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CORPORATE GOVERNANCE IN TREASURY COMPANIES
Paris, 26th June 2003
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Starting point - 12 years of Polish privatisation

• Year 1990
• approx. 8,500 state enterprises
• 31 of GDP generated by the private sector
• 40 employed in the private sector
• Foreign Direct Investment - USD 105 m

• Year 2002
• 1,800 Treasury companies and state enterprises
• 72 of GDP generated by the private sector
• 70 employed in the private sector
• Foreign Direct Investment - USD 56, 834 million
  USD

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Mission

• Completion, by 2006, of the Polish economys
  core transformation processes, resulting in the
  ownership structure similar to that of EU Member
  States, where the share of state assets remains
  at the level of between 10 and 20.

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State owned assets in numbers

• 606 State owned enterprises (SMEs)
• (in 113 privatisation advanced)
• 1704 State Treasury corporations
• 0-25 715
• 25-50 438
• 50-75 61
• 75-99 38
• 100 452

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Largest state-owned companies

• Company Employment Proceeds
  Profitability (in mln PLN)
• PKO BP 37667 9,05 15,9
• PGNiG 26351 9,36 4,7
• Katowicki Coal 24633 2,7 2,6
• Holding
• Jastrzebska Coal 20487 2,3 0,1
• Company
• KWB Belchatów 9758 1,3 4,8

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Largest state-owned companies

• Company Proceeds Employment
  Profitability (in mln PLN)
• PSE 15,12 517 0,3
• PGNiG 9,36 26351 4,7
• PKO BP 9,05 37667 15,9
• Weglokoks 3,95 24932 0,9
• RUCH 3,82 7254 0,5

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State owned enterprises and companies covered by
privatisation process by financial performance in
2002
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Economic indicators of state owned enterprises
and companies covered by privatisation process in
2002
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State in the economy

• The volume of state assets and their
  significance for the national economy define the
  weight of responsibility imposed on persons who
  are entrusted with management of those assets,
  as well as responsibility of the government
  administration representatives who appoint those
  persons.

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Corporate Governance Model

• The issues discussed in this presentation
  constitute contributing elements of the target
  corporate governance model for companies in which
  the Treasury holds shares.
• The presented solutions
• have already been implemented
• their implementation is at the preliminary stage
• will be implemented in the near future.

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Corporate governance objectives

• Increase of operational effectiveness, management
  efficiency and the value of Treasury companies
• Rational application of state assets in order to
  ensure proper functioning of the national
  economy
• Effective use of Treasury ownership rights to
  pursue economic policies of the state
• Conducting effective privatization in order to
  facilitate fast and efficient transition to the
  desirable ownership structure
• Achievement of transparency by Treasury companies
  comparable with that of listed companies (strict
  disclosure standards

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Corporate governance objectives continued

• Implementation of the above-mentioned objectives
  should be assisted by
• strengthening of the supervisory boards position
  through more comprehensive application of its
  rights, in accordance with the Polish commercial
  companies code
• ensuring professionalism of supervisory boards
  members
• adoption of new financial monitoring standards by
  companies
• intensification of co-operation with the auditor
  by companies bodies (General Assembly/General
  Meeting, Supervisory Board, Management Board)
• strengthening of the Ministry of the Treasury
  position and control effectiveness over companies.

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Supervisory Board as an ownership control body

• Appoints members of the Management Board in the
  company and defines their remuneration
  proportionally to their performance
• Analyzes and issues opinions concerning company
  development plans
• Monitors and controls MB decisions important for
  the company, evaluates the economic and financial
  situation of the company along with MB
  performance
• Enforces timely implementation of disclosure
  obligations towards the Ministry of the Treasury
• Promptly reacts to any discovered irregularities
• Grants the Management Board permission to make
  decisions of key importance for the company
• Co-operates with the auditor and monitors the
  auditing process

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Financial monitoring of companies

• The monitoring system for companies in which the
  Treasury holds shares must allow not only
  assessment of its statutory bodies performance
  but also the ability to react promptly to any
  negative developments, as well as the ability to
  launch recovery activities
• The monitoring system is to be based on
  questionnaires submitted by companies. The scope
  of disclosure will depend on the companys status
  (sole shareholder companies of the Treasury,
  companies with strategic investors, companies
  with Treasury majority stakes, companies in which
  the Treasury holds residual interest)
• The Ministry will elaborate detailed guidelines
  for each of those groups indicating main
  supervisory tasks

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Financial monitoring of companies continued

• The monitoring system is to enable fast
  elaboration of synthetic analyses and
  establishment of an early warning system
  protecting against potential irregularities
• Collective information concerning performance of
  public sector entities will be made available to
  the general public
• Uniform economic financial situation monitoring
  standards and mechanisms elaborated by the
  Ministry of the Treasury will be model solutions
  for all public sector entities, irrespectively of
  which state authority supervises a given entity.

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The auditors role in the supervision system of
Treasury companies

• The auditor should be independent and impartial.
  Audit and advisory services must be kept apart
• The whole auditor selection procedure will be
  conducted by the Supervisory Board
• The Supervisory Board submits its comments
  concerning issues important for the functioning
  of the company to the auditor and actively
  co-operates with him at all stages of the audit

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The auditors role in the supervision system of
Treasury companies - continued

• The Supervisory Board abides by the principle of
  compulsory auditor rotation
• The chartered accountant who audits the financial
  accounts of the company should be obliged to
  attend the General Assembly / General Meeting,
  providing the remaining attendees with relevant
  explanations and information
• Under the framework of the early warning
  system, the Supervisory Board should have the
  ability to take advantage of advisory services
  provided by an independent chartered accountant
  in the course of the accounting year.

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The role of the Ministry of the Treasury in the
supervisory system

• The key role is played by corporate supervision
  departments. They perform a number of
  organisation, administrative and, above all,
  supervisory tasks as regards Supervisory Boards
  in companies.
• The main task of the Ministry of the Treasury is
  thorough control and comprehensive evaluation of
  Supervisory Boards performance.
• An important issue is ensuring an optimum
  composition of Supervisory Boards. Selection of
  appropriate persons, knowledgeable and
  experienced, guarantees proper fulfilment of
  tasks by the boards.