Corporate Governance: The Blueprint for Sustainable Success

20 June 2024

Dorota Serwińska from our office in Warsaw, spoke with Beata Stelmach, Chair of The Supervisory Board, of The Polish Association of the Listed Companies

Beata, as a person closely related to the market of listed companies, you are a great supporter of the value of corporate governance. Why is this so important?

Not so long ago, corporate governance meant the proper organization of relations with shareholders, paying particular attention to the organization of mutual relations between the leading shareholder and the group of minority shareholders. Another important issue was the presence of independent members of the supervisory board. Moreover, great importance was attached to the quality and transparency of communication with the market. This is still very important, but it is no longer enough. We look at the impact of the company's activities on the environment and how its presence affects all stakeholders with whom the company has relations. In short, we evaluate a long-term sustainability strategy. This is a much more serious responsibility for the organization and management of the company, taking into account environmental, social and corporate governance aspects.

In short, we are talking about ESG standards, and all these areas are jointly assessed by shareholders or rating agencies, which consequently translates directly into the company's value. Therefore, today a code of good practice is not enough.

Okay, but if we were to think about it practically, why is it so important?

The world's economies have been growing at a breakneck pace over the years, and we have been content with growth and progress, but we have paid little attention to the environmental damage that this development has brought with it. Air and water pollution, gas emissions contributing to global warming - all this has gone too far not to react decisively and stop the environmental devastation. Therefore, business has been tasked with protecting our planet. Regardless of whether we are dealing with production, services, trade or heavy industry we need to look at the entire chain of events to ensure appropriate standards of operation.

Beata, you say that until now corporate governance was a matter of soft requirements, and now hard regulations are being introduced. What do they concern?

One of the most important regulations that should be mentioned is the CSRD (Corporate Sustainability Reporting Directive) - these are EU regulations regulating the scope of mandatory reporting in the area of ​​sustainable development. The regulations require company management to place ESG issues at the center of business planning and short and long-term strategies.

In addition to taking care of the above-mentioned environmental issues, companies are expected to take even greater care of their relationships with stakeholders. The rights of investors and shareholders have today been supported by tough regulations to not only standardize the method of communication, but also to lead to even greater transparency. Other regulations also appeared along the way, including: guaranteeing transparency of remuneration in public entities, which is aimed primarily at eliminating the pay gap between women and men in similar positions, or ensuring equal representation of various groups at the level of company authorities.

The "Women on Boards" directive aims to increase the representation of those groups that are underrepresented on company boards. In practice, it is expected that more women will be invited to the group of managers. The first moment when entities will be obliged to publicly submit an appropriate report is 2026, so shareholders should take care to ensure the diversity of the bodies appointed for the new term of office today during general meetings.

It is expected that modern enterprises will ensure diversity in the workplace, in particular among management and supervisory bodies, respect minority rights, introduce mechanisms that guarantee an inclusive environment and open to diversity, encourage teamwork, and ensure the education and improvement of competences of their employees.

So we're not just talking about the consequences of the new directives for the external market, it also applies to employees?

Of course. The main point is to create a work environment that will respond to new challenges and expectations of employees. The workplace is our second home, but this also means appropriate balance of activity and division of time into work and rest. Therefore, another directive worth mentioning concerns "work-life-balance". It is not only about respecting private time, but also about taking care of the physical and mental health of our employees. It must be admitted that the pandemic and remote work have opened our eyes to a number of new needs. Today, hybrid work is a standard, but there are new risks: loneliness, the unnoticed problem of burnout, depression... it is a big challenge for companies to take care of their employees.

A motivated, well-coordinated team means better well-being at work, but also greater commitment, identification with the company, and in turn, greater responsibility and a proactive attitude.

And back to corporate governance itself, the last component of ESG…

Let's look at the Polish Stock Exchange. Among the largest WIG-20 companies, half are companies with State Treasury shareholding. Corporate governance has been in great "disarray" over recent years. Meanwhile, listed companies should be a model for all other entities on the market; by definition, they should be the best organized, respecting market laws, treating all shareholders equally, caring for their image, and respecting public market standards. They also include competent management and supervisory boards composed of independent members, but there are also many listed companies where the majority of shares are still in the hands of the founder. As long as corporate governance is respected, stock investors entrust their funds to the company's development. However, it sometimes happens that it is difficult to accept public market standards, the desire for manual control prevails, and independent and competent specialists are reluctant to hire - and this destroys the trust of financial investors.

And what could be the consequences of this?

Research shows that over 80% of professional investors take into account how corporate governance rules and ESG requirements are met. Professional investors, funds and asset management entities directly adopt investment strategies aimed at entities and their instruments guaranteeing a sustainable development strategy. The application of these principles translates directly into the valuation of companies, image, recognition and attractiveness for business partners.

Do you have any golden advice for the management boards of large companies regarding corporate governance, or ESG more broadly?

Complying with ESG standards simply pays off. At the same time, by taking care of the environment and the community gathered around the company, we create a culture and values ​​that attract investors, business partners and loyal employees who identify with the workplace. By operating according to transparent rules, companies become attractive to shareholders for many years, which guarantees further development.

We are grateful to Beata Stelmach for taking the time to speak with us about such an important subject.


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