RECENT CORPORATE GOVERNANCE REFORM IN RM
Prof. Tito Belicanec, PH.D

THE ADOPTION OF NUMEROUS DOCUMENTS
The preparation of the new Company Law coincided with the adoption of numerous documents containing opinions and rules which have to protect the position and regain the trust of the investors
(shareholders) following the big scandals that took place in the USA and Europe:
- The Agreement for stabilization and association in the Republic of
Macedonia with the European Union - in the next ten years the
Republic of Macedonia must to harmonize its legislation with the
European Union directives;
- In the new Company Law the European is incorporated the basics of the By-law for the status of the so called European society (Societas europea).
- The obligations arising from the Program for stimulating investments in the Republic of Macedonia that should create the best atmosphere for attracting domestic and foreign investments was also assumed.

OECD’S PRINCIPLES OF CORPORATE
GOVERNANCE
The new CL contains all the principles of the “White Paper” which further elaborates the OECD’s Principles of corporate governance;
- The reference for implementation and preparation for application of the principles included in the White Paper is also taken into consideration;
The new CL also contains all the principles of revised OECD’s Principles of corporate governance;
- Furthermore, the views of the European financial regulatory committee were also taken into consideration, and particularly the references regarding the most important issues of governance (corporate governance) in relation to the report of the so called Winter’s group.
- When accepting numerous solutions from the above mentioned documents, the historical circumstances in the country were also taken into account.

THE EMPLOYEE
- The Directive of the European Union 2001/86/EC starting from October 8,
2001 regulates the participation of the employees in the European society and is a constituent part of the By-law for the European society. These two normative documents must be applied together.
- The new CL refers to the right to participate in the decision making upon issues and decisions regarding the life of the employees, or managing the so called economic rights of the employees arising from the employee status, particularly the employees’ right to participate in the profit and other economic rights, as well as information and consultation to be regulated by a separate law, which is already in progress.

ONE-TIER AND TWO-TIER MANAGEMENT SYSTEMS
- The new CL “takes over” the one-tier and two-tier management system from the first CL.
- The reasons behind this are the positive results in the development of corporate governance which were achieved by their application.
- According to the results from the project of EBRD Corporate Governance
Sector Assessment Project – 2002 Results these legal solutions were highly rated.
The final scores of countries are categorised as A,B,C, D and E.
Republic of
Macedonia from 27 countries with other seven countries is categorised as “B”
(“High Compliance”) level of corporate governance system when measured against OECD Principles of Corporate Governance by using revised Checklist. No country was categorized as “A- High Compliance”.
- Despite such high rating of the solutions for the one-tier and two-tier management systems from the first 1996 CL, in the new CL they are partly changed and significantly amended.

MANAGEMENT SYSTEMS
According to the new CL as well, the JSCs may choose between the two different systems of management:
- one-tier (board of directors); or
- two-tier system (management board and supervisory board).
The novelty here is the possibility that the two-tier system may be organized with a manager instead of a management board and supervisory board.

BODIES THAT CARRY OUT THE ELECTION
- Cumulative voting is introduced as an optional provision. Namely, if stipulated by the company charter, the election of the members of the Board of
Directors or Supervisory Board may be executed by cumulative voting;
- Prior informing of the general meeting of shareholders of the JSC for candidates elected is introduced with the obligation for data on candidates to be submitted to shareholders not later than seven days prior to the election of the general meeting.

THE ANNUAL REPORT
In the annual report on the operations of the company for the previous business year, the management body shall be obliged to objectively present and explain:
- the main factors and circumstances which influenced the operations, including any changes in the environment in which the company operates, the response of the company to such changes and their impact;
- the investment policy for maintenance and support of the successfulness of the operations of the company, including the dividend policy, the sources of the company’s assets;
- the policy of the long term debt against the charter capital and the policy of risk management;
- major transactions and interested party transactions, as well as the assets of the company the value of which is not reflected in the balance sheet according to the international accounting standards;

- the prospects of future development of the company and its business venture;
- activities in the field of research and development, as well as information in relation with acquisition of own shares or parts, depending on the relevant circumstances;
- the earnings of each executive member of the Board of Directors and member of the Management Board (salary, salary allowances, bonuses, insurance and other rights) or the reimbursement of the non-executive members of the
Board of Directors and members of the Supervisory Board.

LIABILITIES IN CASE OF LOSS, OVER-INDEBTEDNESS AND INSOLVENCY
- The provision in Article 354, which was not consisted in the first Company
Law, defines the liabilities of the executive members of the Board of Directors, or the Management Board, if during the operation, and especially if according to the quarterly or semi-annual calculations, or the annual account statement the JSC shows new losses that exceed 30% of the value of the assets of the company, or
50% of the charter capital, when there are circumstances determined by the law as a condition for initiating a bankruptcy procedure, or following the occurrence of insolvency to pay or over-indebtedness.
- The members of the management body shall be jointly and severally liable to the creditors and to the shareholders for the damages caused, if they acted contrary to their liabilities.

ONE -TIER MANAGEMENT SYSTEM (BOARD OF DIRECTORS)
Composition: The new CL amends the composition of the board of directors as follows:
- As opposed to five members the Board of Directors shall consist of at least three where the number of executive members shall be less than the number of the non-executive members of the Board of Directors.
- The obligation of the number of non-executive members to be divisible by three is abandoned; and
As already mentioned, all members of the Board of Directors shall be elected by the General Meeting of Shareholders.

ELECTION OF EXECUTIVE MEMBERS
The new CL abandons the previous manner of electing executive members of the board of directors:
- The executive members shall be elected by all members of the board of directors.The manner of electing executive members of the Board of Directors shall be determined in the charter.
- The charter of the JSC shall stipulate the majority required to elect non-executive members.
- There is a possibility for one of the executive members of the Board of Directors, to bear the title which is typical for the exercise of the function (general director, chief executive director, and other appropriate title).

INDEPENDENT MEMBER
• If the Board of Directors has up to four non-executive members, at least one of the non-executive members of the
Board of Directors shall be an independent member and if the Board of Directors has more than four non-executive members, at least one quarter of them shall be independent members of the Board of Directors;
• - When electing the members of the Board of Directors, it shall be specified which members are elected as independent members of the Board of Directors.

TWO-TIER MANAGEMENT SYSTEM (MANAGEMENT BOARD AND
SUPERVISORY BOARD)
The following three provisions have been added with respect to the composition of the management board:
- No person shall be at the same time a member of the Management Board or manager, and a member of the Supervisory
- The Management Board has a president who shall call and chair the meetings, and shall be responsible for keeping the minutes of the meetings and organizing other forms of operation and decision making of the Management
Board
- If the president, for any reason, is not able to exercise his function, or if he is absent, the meetings of the Management Board shall be chaired by a member of the Management Board, appointed by the Supervisory Board.

MANAGER INSTEAD OF MANAGEMENT BOARD
Notwithstanding the JSC the charter capital of which is less than 150.000
EUR in denar equvalent, instead of a management board a manager can be elected having all rights and liabilities of the management board.

SUPERVISORY BOARD
Composition and Election of the Members of the Supervisory Board
Article 378 contains two new provisions:
- The Supervisory Borad must have independent members;
- If the Supervisory Board has up to four members, at least one of the members shall be an independent member and if the Board of Directors has more than four members, at least one quarter of its members shall be independent members of the Supervisory Board.