In its 2003 Corporate Governance Sector Assessment Project, the European Bank for Reconstruction and Development (EBRD) observed that corporate governance legislation in Poland is in "high compliance" with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. A World Bank assessment conducted in 2005 confirmed that the Polish corporate governance framework complied with many of the OECD Principles and observed that Poland had adopted new legislation, implemented a corporate governance code, and strengthened its regulatory and enforcement regime. Nonetheless, the World Bank assessment identified deficiencies in regulation of pension funds, weakness of the supervisory board, problems in delisting procedures, and inadequate approvals of related-party transactions. A 2006 EBRD assessment further stated that minority shareholder disclosure procedures were found to be "complex" and enforceability was problematic. Some of these issues have since been addressed. According to a 2007 EBRD report, under the Warsaw Stock Exchange (WSE) Council resolution of July 2007, the updated corporate governance code became a mandatory part of the WSE rules. Also, listed companies are required to disclose compliance with the Code on a "comply-or-explain" basis. Poland has also adopted the International Financial Reporting Standards for application in consolidated financial statements of listed companies.

General Overview

According to a 2005 World Bank assessment that benchmarked Poland against the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance, "Poland has adopted new legislation, effectively promulgated a corporate governance code, and continued to develop strong regulatory and enforcement institutions" (cover page). The World Bank observed that the Polish corporate governance framework, therefore, complies with many of the OECD Principles. Another 2003 Corporate Governance Sector Assessment Project (published in 2004) was conducted by the European Bank for Reconstruction and Development (EBRD). The EBRD confirmed that corporate governance legislation in Poland is in "high compliance" with the OECD Principles. Nonetheless, deficiencies were observed in both assessments.

The World Bank report identified (1) insufficient regulation of pension funds, which hold 10 percent of market capitalization (as of 2005); (2) weakness of the supervisory board; (3) problem in delisting procedures; and (4) inadequate approval of related-party transactions. A 2006 EBRD assessment of commercial laws of Poland noted that minority shareholder disclosure procedures were "complex" and enforceability was problematic. Further, "when considering redress, procedures are considered complex and it would take about 3-4 years to obtain an executable judgment" (p. 8). The World Bank made detailed recommendations and noted that "future revisions to the law should focus on empowering the supervisory board, removing the clause that allows the general meeting to appoint the management board, and strengthening the provisions that define the duties of loyalty to the company" (p. 6). The Bank also recommended investing greater resources in the training of supervisory board members and advised the Polish Institute of Directors (PID) to develop guidelines for the establishment of independent audit committees.

Some of these issues have since been addressed. In its 2005 assessment, the World Bank noted that the Warsaw Stock Exchange (WSE) promulgated a corporate governance code of best practices in 2002 (updated in 2005 and 2007). The 2006 EBRD report notes that "listed companies are required to issue an annual declaration stating whether or not they comply with the code and explaining the reasons for any non-compliance" (p. 7). Per a 2007 EBRD report, the WSE Council resolution of July 2007 made this code a mandatory part of the WSE rules. The World Bank noted that the 2001 Commercial Code had strengthened "one-share/one-vote" provisions, and removed the possibility for public companies to issue preferred shares. Also, public companies are required to file annual, semi-annual, and quarterly reports, and consolidated financial statements of listed companies must be in compliance with International Financial Reporting Standards (IFRS) beginning January 1, 2005.

According to the 2006 EBRD report on "Commercial Laws of Poland," the main law governing corporate governance practices in Poland is the Commercial Companies Code of 2000, last amended in 2004. Per this law, the two types of corporate forms available are: (1) companies limited by shares, which include joint stock companies and limited liability companies; and (2) partnerships, which include registered, limited, professional limited and limited joint stock partnerships. Joint stock companies are governed by a two-tier board structure, consisting of a supervisory board and a management board. The World Bank noted that "the supervisory board of public companies must have at least five members" (p. 5). The report further explained that the supervisory board is responsible for supervising the company's activities, whereas the management board is responsible for managing everyday operations.

Per the Act on Financial Market Supervision adopted in September 2006, the supervision of securities market, insurance, and pension funds was consolidated under the Polish Financial Supervisory Authority (Komisja Nadzoru Finansowego, or PFSA). The integration of the Banking Supervisory Commission into the new regulator was planned for January 1, 2008, as noted in the IMF's 2006 Article IV Consultation report. The 2007 EBRD report noted that the market regulator is not operationally independent since it is supervised by the Polish prime minister. In its 2006 Article IV Consultation report the IMF also expressed concerns regarding the scope for political interference under the new legal framework for financial sector supervision, and noted that "the governance provisions for the new unified supervisory agency were little improved in the legislative process and continue to fall short of best practice" (p. 44). However, in its 2005 assessment, the World bank observed that "regulatory oversight is stronger than in many transition and emerging markets" (p. 1).

As noted in the World Bank report, Poland is the largest economy of the eight transition countries that acceded to the EU in 2004. However, the report stated that Poland's equity market is smaller than most EU accession countries. Market capitalization at the end of October 2005 was PLN 271.1 billion. There were 254 companies listed on the WSE, up from 203 at the beginning of 2004, and from 221companies at the end of 1999 as of October 2005. The market saw 67 new listings in 2004-2005, the World Bank said.

In its 2008 Doing Business report, the World Bank rates investor protection in Poland as being above the regional average and at par with OECD average. The Investor Protection Index is a subcomponent of the World Bank's 2008 Doing Business Indicators, and consists of three aspects of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indices range between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and therefore, better investor protection. Poland scores 7.0 in the disclosure index, against a regional average of 4.9 and an OECD average of 6.4. It scores 2.0 in the Director Liability Index, against a regional average of 3.8 and an OECD average of 5.1; and it scores 9.0 in the Shareholder Suits Index, against a regional average of 6.3 and an OECD average of 6.5.

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

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In its 2005 Corporate Governance Country Assessment of Poland, the World Bank rates Poland's observance with the sub-principles of Principle I as follows: "Overall corporate governance framework" was rated as "observed," indicating that all essential criteria are met without significant deficiencies. "Legal framework enforceable /transparent," "Clear division of regulatory responsibilities," and "Regulatory authority, integrity, resources" were rated as "largely observed," indicating that only minor shortcomings are observed that do not raise questions about the authorities' ability and intent to achieve full observance in the short term. The 2007 EBRD report also identified a few deviations from OECD sub principles, noting that the market regulator is not operationally independent since it is supervised by the Polish prime minister.

Principle II: The Rights of Shareholders and Key Ownership Function

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In its 2005 Corporate Governance Country Assessment of Poland, the World Bank rates Poland's observance with the sub-principles of Principle II as follows: "Basic shareholder rights" was rated as "observed," indicating that all essential criteria are met without significant deficiencies. "Rights to participate in fundamental decisions," "Disproportionate control disclosure," and "Shareholders Annual General Meeting rights" was rated as "largely observed," indicating that only minor shortcomings are observed that do not raise questions about the authorities' ability and intent to achieve full observance in the short term. "Functioning of control arrangements" was rated "partially observed," indicating that while the legal and regulatory framework complies with the Principle, practices and enforcement diverge. "Exercise of Ownership Rights" was rated as "materially not observed," indicating that despite progress, deficiencies raise doubts on the authorities' ability to achieve observance. And finally, "Shareholders allowed to consult with each other" was rated as "not observed," implying no substantive progress toward observance has been achieved. The 2007 EBRD report also identified a few deviations from the OECD sub principles. It noted that the law, for instance, does not give shareholder meetings the exclusive power to appoint auditors, approve auditors' remuneration, or request additional information regarding the auditors' report. The report observed that "company's ultimate ownership and the identity of intermediaries are not clearly disclosed" (p. 21).

Principle III: The Equitable Treatment of Shareholders

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In its 2004 Corporate Governance Country Assessment of Poland, the World Bank rates Poland's observance with the sub-principles of Principle III as follows: "Prohibit insider trading" and "Equitable treatment of shareholders" was rated as "largely observed," indicating that only minor shortcomings are observed that do not raise questions about the authorities' ability and intent to achieve full observance in the short term. "Board/management disclose interests" was rated as "partially observed," indicating that while the legal and regulatory framework complies with the Principle, practices and enforcement diverge. The 2007 EBRD assessment also reported certain departures from the OECD sub principles.

Principle IV: The Role of Stakeholders in Corporate Governance

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In its 2005 Corporate Governance Country Assessment of Poland, the World Bank rated Poland's observance with the sub-principles of Principle IV as follows: "Stakeholder rights respected," "Redress for violation of rights," and "Performance-enhancing mechanisms," were all rated as "observed," indicating that all essential criteria are met without significant deficiencies. "Stakeholder disclosure" was observed "largely observed," indicating that only minor shortcomings are observed that do not raise questions about the authorities' ability and intent to achieve full observance in the short term whereas, "Whistleblower protection" was observed "materially not observed," indicating that despite progress, deficiencies raise doubts on the authorities' ability to achieve observance. And finally, "Creditor rights law and enforcement" was observed "partially observed," indicating that while the legal and regulatory framework complies with the Principle, practices and enforcement diverge. The 2007 EBRD assessment reported certain departures from the OECD sub principles, for instance, "Polish law generally does not recognize a category of stakeholders. General civil law rules apply" (p. 29).

Principle V: Disclosure and Transparency

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In its 2005 Corporate Governance Country Assessment of Poland, the World Bank rated Poland's observance with the sub-principles of Principle V as follows: "Fair and timely dissemination" was rated as "observed," indicating that all essential criteria are met without significant deficiencies. "Disclosure standards" and "Standards of accounting and audit" were rated as "largely observed," indicating that indicating that only minor shortcomings are observed that do not raise questions about the authorities' ability and intent to achieve full observance in the short term. Finally, OECD sub principles "Independent audit annually," "External auditors should be accountable," and "Research conflicts of interest" were rated as "partially observed," indicating that while the legal and regulatory framework complies with the Principle, practices and enforcement diverge. The 2007 EBRD assessment also reported certain departures from the OECD sub principles.

Principle VI: The Responsibilities of the Board

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In its 2005 Corporate Governance Country Assessment of Poland, the World Bank rated Poland's observance with the sub-principles of Principle VI as follows: "Access to information" was rated as "observed," indicating that all essential criteria are met without significant deficiencies. While "Acts with due diligence" was rated "largely observed," indicating that only minor shortcomings are observed that do not raise questions about the authorities' ability and intent to achieve full observance in the short term. The sub-principles "Treat shareholders fairly," "Apply high ethical standards," "Board should be able to exercise objective judgment," and "Board should fulfill certain key functions" were rated as "partially observed," indicating that while the legal and regulatory framework complies with the Principle, practices, and enforcement diverge. The 2007 EBRD assessment identified deviations from the OECD sub-principles with regard to the number of board directorships that a director can hold.