The corporate governance agenda has received great prominence during the past two decades. Many think of this as the next best thing after international accounting standards. But why is good governance so important?
Share ownership structures and management structures have changed dramatically over time. Moving from family owned businesses to public companies, and the separation of ownership from management, we are now more familiar with the model of large and dispersed shareholder bases (dispersed ownership) working with accountable management teams. The need of safeguarding shareholder rights is greater than ever before and this is where corporate governance applies.
Taking this a step further, corporate governance principles and practices can affect a company's shareholder structure, as they can either attract or repel investors and shareholders. The investment community is cautious when it comes to the protection of shareholder rights and they will most certainly opt for the friendliest habitat.
Moreover, the case of Enron showed us how the lack of good corporate governance can bring down a mighty company. Compliance to the letter of the law will ultimately protect us from ourselves. Man needs guidance and control by those who know best, as Hobbes would argue.
One should not ignore companies' desire to improve efficiency. Institutional guidelines and reforms are known for enhancing performance, so sticking to the rules and following best practices will ultimately take businesses forward.
Good corporate governance draws on corporate responsibility: does this mean that companies embracing corporate governance principles are just committed to being good? Is it possible that good governance practices are the making of feelings of responsibility and business ethics?
Corporate governance map
Depending on background/geography, business genre (family owned vs public company, small cap vs large cap), different economies, societies or mentalities, it's getting hard to even come up with one definition of corporate governance these days.
Moreover, in many cases companies are publicly listed in more than one country and are, by default, required to operate in compliance with more than one set of rules and standards. By standards one refers to key areas of focus (some corporate governance issues featuring more than others), practices and procedures, levels of transparency, accountability etc.
Yes, there are variations of every form. And any transition from one model to the other in most cases involves substantial reform in the systems. The interaction, however, of different corporate goverance systems and sets of rules, provided they don't work to undermine or contradict each other, ultimately drives companies forward. Bilingual kids: they tend to outsmart their peers in activities.
OTE SA (Hellenic Telecommunications Organisation SA) is Greece's telecom's incumbent and a large capitalisation company listed on the Athens, New York and London Stock Exchanges. Consisting of the parent company OTE SA and its subsidiaries, the OTE Group offers fixed-line (voice, broadband, data and leased lines) and mobile telephony services in Greece and Romania, as well as mobile telephony services in Albania and Bulgaria. The Group is also present in Serbia through its 20 percent stake in the country's incumbent operator, Telekom Srbija. OTE Group is also involved in a range of activities in Greece, notably in real-estate, satellite telecommunications and professional training.
Due to the fact that the company is listed on the Greek as well as on the USA and UK stock exchanges, OTE operates in compliance with applicable domestic and international capital markets and corporate governance rules.
Against this background and with a dispersed shareholder base comprising of more than 100,000 shareholders, the Greek incumbent has always had more than enough to chew on in terms of compliance and adaptability.
Compliance to Greek law is by default top priority and requirement as a result of OTE SA's country of establishment. Greek legal requirements must be met first, and this means that OTE has to comply with a body of national corporate law which determines the framework of operation of societe anonymes, as well as a number of acts that have been introduced over the last decade, demonstrating regulatory authorities' commitment for best corporate governance practices by all businesses.
Following its listing on NYSE and LSE, OTE was required to adhere to further sets of laws, rules and regulations. As a result, the company proceeded with the incorporation, within its operations, of all necessary practices that would enable the company to comply with applicable legislation, placing special emphasis on three key objectives: the protection of its shareholder rights; the setting up of consistent control mechanisms over its operations; and its management and disclosure of information to all stakeholders. One of the first company initiatives was to implement procedures that would address matters of control over management as a means to safeguard shareholder rights.
Applicable national and international legislation provide rules with regards to the board of directors. They address areas such as the designation of board members, their capacities (executive, non-executive and independent non-executive) and define criteria of independence. OTE implements procedures for the assessment of board members' independence.
OTE's Audit Committee supports the company's board in the exercise of the latter's supervisory authority and in its obligations towards shareholders, the investment community and third parties, especially with regards to the financial reporting processes. The committee also supervises the operation of the company's Internal Audit team.
The Compensation and Human Resources Committee of OTE sets the principles of the company's human resources policy and defines the company's compensation and remuneration policy.
Both committees work closely with the board, and in essence act as partners as well as control agents for the company's top administrative body.
With regards to the entire management team, a series of acts that were introduced in the context of capital markets legislation between 2005 and 2007 work jointly to ensure management control and transparency over their practices. These Acts address issues of inside information abuse and market manipulation, and require that OTE implements procedures such as the disclosure of inside information and the prevention from inside information abuse, the disclosure of financial transactions and the examination of cases of financial activity between OTE managers/directors and any of the company's main suppliers/contractors or customers. Since 2005 when the specific acts were introduced and through well-set-up procedures, the company's knowledge of persons with access to inside information, and the list of these persons created thereby, has increased tenfold.
Moving from management control mechanisms to operations' control, the Internal Audit team at OTE assists the company's management team with decision-making related to the optimisation of the various auditing mechanisms. These mechanisms aim to ensure the efficiency of operations and activities as part of OTE's business plans. This is an independent business unit which reports directly to the board, is supervised by the Audit Committee and operates under a strict code of conduct. The internal audit operation is considered a key control mechanism aimed not only to enhance efficiency but also protect shareholder rights.
Having also established a code of ethics and business conduct, the company abides by a set of rules (and practices) which aim to achieve the smooth operation of the company and the appropriate business conduct of its employees. The code is in line with applicable legislation and defines the manner in which the company should interact with employees, suppliers, shareholders, competitors and other third parties as a means to enhance performance and protect stakeholder rights.
Legal requirements also provided the platform for the adoption of an Internal Operations Regulation (IOR), which sets out the applicable procedures in OTE across all operations. An extremely efficient enhancement tool, the IOR covers issues relating, amongst others, to the company's decision-making bodies, its organisational structure and responsibilities, the recruitment and evaluation of executives, the internal committees and the regulatory framework. In essence, the IOR works as a GPS, identifying the company's bodies and tasks, describing procedures and how they all coexist.
Since 2007, Greek law, via a specific act, requires the disclosure of information relating to changes in companies' shareholder structure and share holdings. This information was referred to as regulated information. In compliance with this law OTE established a regulated-information disclosure process which aims to inform the investment community and all interested parties of any significant changes in the company's participations (whether acquisitions or disposals) in a timely and accurate manner. The law and its requirements apply both for the legal entities/companies that buy/dispose of stakes in companies and for companies whose shares are being acquired or sold; enhancing disclosure of info and interaction between parties. As a result of this law, in the case of OTE which experienced significant shareholder changes over the last two years, disclosure of information has increased tremendously.
Apart from institutionally derived procedures that ensure transparency, OTE adopts a number of other practices that enhance the disclosure of information to all interested parties, such as:
– Consistent posting of company-related information on the OTE investor relations website as well as the OTE corporate home page, so that all interested parties can have fair and timely access to that information
– Regular release of corporate publications (presentations, annual reports) thereby enhancing the continuous flow of information on issues relating to the company's strategy, targets, operation and performance
– Enhancement of AGM (Annual General Meetings of Shareholders) related literature (releasing agenda clarifications for shareholders prior to the event)
– Establishment of a two-way communication channel between company representatives and the investment community through meetings, conference calls, roadshows
– Codification of internal bylaws and consistent reporting on corporate governance issues (via the IR website, the corporate governance report and a quick response system to corporate governance info requests)
OTE has come a long way with regards to corporate governance. The company's understanding of corporate governance principles and practices grew within the Greek and international institutional context. This journey has been a significant learning experience as it involved compliance with basic legal requirements as well as exposure to international best practices; a mix of responses to external stimuli and personal commitment and effort. For OTE, today, this all translates into a solid understanding of corporate goverance concepts which trickle down to all company operations.
By reinforcing its procedures and organisational make-up over the years, in adherence to corporate governance rules and practices, OTE operates in compliance with the regulatory framework and enjoys a special corporate culture, founded on business ethics and committed to protect the rights of the company's shareholders and all stakeholders.