Corporate Governance, the bridge between compliance and trust

4 June 2020

Corporate Governance evolves as the business culture does. In this regard, Romania has witnessed significant progress in the last decade. Driven by the need to build a strong relationship with all stakeholders and attract investors, forward-thinking companies have adopted sound Corporate Governance principles.

Building trust or compliance, or both

The main currency on the capital markets, TRUST, is as much valued as the companies communicate transparently adding value through investor relations, effectively managing risks and their internal controls, practice fair reward and motivation, or earmark responsibilities to support Corporate Governance. Having all these four components of Corporate Governance Framework in place helps companies to better face macroeconomic dynamics and ensures consistency across various jurisdictions.

Operating on the Romanian capital market, the listed companies comply with the rules encompassed within the BVB Corporate Governance Code. To the general principles, the local environment adds its unpredictable specifics of the economic and regulatory system exposing the companies to multiple risks.  Against this background, the Corporate Governance Framework becomes mandatory for the business performance.

Corporate Governance codes should avoid becoming a ‘tick-the-box’ exercise; they should encourage a longer-term view of business performance. Companies need to establish effective strategies and implement pragmatic internal controls, risk management and internal audit functions to sustain their corporate objectives. Considering how COVID-19 influenced the rules of the game, there is a need that companies take a refreshed approach towards Corporate Governance which should be perceived as a catalyst for organizational resilience and transformation.”, mentioned Răzvan Butucaru, Partner, Financial Services & Advisory Leader, Mazars Romania.

The globalized connected economy, of which Romania is an integral part, requires a customized four-pillar framework (Responsibilities, Risk Management & Internal Control, Fair reward & motivation, and Investor Relations) to help companies shaping controlled environments amid disruption and increased change.

Compliance is just the beginning

According to the Mazars study “Corporate Governance: Building trust or compliance burden[i], 23% of the 75 analyzed companies skipped justifying the negative answer in 2017. It is noteworthy to mention a decrease down to 14.6% in 2018 for the listed companies. Due to the fact that the Comply or Explain principle is part of the BVB Code requiring the non-compliant to justify their negative answers, some of the companies are not aware that this principle acts as a hinge between the open or close door to investors.

Although most of the companies are in line with more than 50% of the recommendations, in 2018, 28% of the respondents registered a compliance level below this one. Remarkably the four recommendations to which over 90% of the companies comply are the following:

  • Shareholders participation in the general meetings and exercise of their rights (99%)
  • Not granting preferential treatment to shareholders (96%)
  • Presentation of current and periodic reports within the section dedicated to the Investor Relationship (92%)
  • Presentation of the information regarding the general meetings of shareholders within the section dedicated to the Investor Relationship (91%)

Investor Relations and integrated communication

The highest level of compliance with the requirements of the Code is reached in Section D – Adding value through Investor Relationship, with an average compliance level of 75% in both 2017 and 2018 answers. However, 12% of the companies said that, although they have not organized at least two meetings/ conference calls with analysts and investors each year, they consider that they ensure transparency through the reports published on the website.

For companies adapting their operational approach to prepare for the new reality of a world still threatened by COVID-19 there are quite a few changes: some in the strategy and operating model, some in IT architecture and automation of processes, some in the interactions with customers and suppliers, and in the working environment.

Unfortunately, the forecasting policy marks one of the recommendations with the lowest implementation rate, as 61% of the companies responded that such a policy is in progress. Paving the way to the “new normal”, companies must build their resilience having an effective forecasting policy in place embedded through their Corporate Governance.

A proper Risk Management System and effective Internal Control

Corporate Governance is the framework from which effective risk management takes shape. In Romania, in 2018, only 4% of the analyzed companies achieved 100% compliance level. 20% registered a level above 80%, 52% of them between 50% and 79%, while 28% had a compliance level below 50%.

The companies listed for over 10 years on the Romanian market registered the lowest average compliance level (56% in 2018), compared to the most recently listed companies, but the compliance level increased with the capitalization value.

Regarding the 53 recommendations of the BVB Corporate Governance Code, 66% of the analyzed companies had an improved implementation rate with Section B – Risk management and internal control system – having the highest increase in compliance level of 8%, from 61% in 2017 to 69% in 2018. On the other hand, the criteria of Section C – Fair reward and motivation – registered the least number of affirmative answers, the level of compliance registering a decrease of 2% in 2018 compared to the previous year, settling for an average compliance level of 22%.

In a volatile, unpredictable, complex, and ambiguous environment, risks are at every step of the way. The insights and the assurance, companies provide to the Boards, Audit Committees, Investors, and other Stakeholders display their capacity to adapt their operational approach in addressing these risks. Taking action is mandatory as the range of risks encompasses various types from cybersecurity, fraud, supply chain, and customer loss to culture and human capital, health and safety, and reputational threats.

An effective Corporate Governance framework contributes to an organization building resilience – an imperative to adapt to the “new normal”. It helps companies understand, assess, and communicate the full range of immediate risks, assess crisis management and business continuity plans, adapt to remote-working, still delivering effective services, continue to monitor and update the organization’s needs, while communicating timely and useful information to all stakeholders: internal and external.

Corporate Governance as an antidote to crisis

There are many ways in which organizations can prepare for the “new normal” and operate after the pandemic recedes. These could be driven by changes in the strategy, but also in the customer and supplier interactions to adjust to the “low touch economy”, combined with the current working-from-home environment, all based on a new IT architecture with more automated processes.

The top executives have the main task of building trust between the organization and investors during both good and difficult times. With the help of a sound Corporate Governance, the top management can monitor the vulnerabilities which have the greatest potential to disrupt the business – and share its plans to mitigate those threats – to illustrate to investors the organization’s proactive approach to enterprise risk. In this way corporate governance becomes a bridge between compliance and trust.






Media Contact

Emilia Popa, Head of Marketing and Communication, Mazars Romania | +40741.111.042


About Mazars

Mazars is an internationally integrated partnership, specializing in audit, accountancy, advisory, tax, and legal services. Operating in 91 countries and territories around the world, we draw on the expertise of 40,400 professionals – 24,400 in the Mazars integrated partnership and 16,000 via the Mazars North America Alliance – to assist clients of all sizes at every stage in their development.

In Romania, Mazars has 25 years of experience in audit, tax advisory, financial advisory services, HR advisory, and accounting & payroll services. The local team has 230 professionals. |


[1] Where permitted under applicable country laws

[i] based on public data of 2017 and 2018