Conclusions on the corporate governance landscape
Estonia’s legal framework, supported by frequent amendments driven mainly by EU directives, now appears to have the essential elements of an overall corporate governance framework in place. Gaps that were identified earlier, in particular related to audit requirements and standards and SOE oversight, have been addressed through recently enacted legislation, while others, such as the role of independent directors, are left to voluntary guidelines. As the market of listed companies is small and relatively illiquid, market mechanisms play a limited role in providing incentives for good corporate governance. However, most market observers expressed the view that Estonian companies follow legal corporate governance requirements.
Estonia’s FSA could play a more important role in ensuring that Estonian listed companies comply with various corporate governance-related requirements. Fines issued to date have been very low, while efforts to prosecute market abuse cases have had only limited success, although this has improved recently. Improved co-operation between the FSA and the Public Prosecutor’s Office is a welcome step, but further steps would be desirable to increase the sanctioning capacity of FSA to deter non-compliance. Changes in Estonia’s personal data protection laws have now been finalised and will enable Estonia to sign IOSCO’s Multilateral MOU on Consultation and Co-operation on Exchange of Information, which will enhance its capacities to deal with cross-border cases.
Responses to Estonia’s “comply or explain” CG code by Estonian companies have been uneven. Some of the CG code’s recommendations are already required by law, while others are purely voluntary. Although the FSA issued a critical 2008 report on the adequacy of company corporate governance reports, responsibility for improving such reporting should not fall on the companies alone. Better compliance could also be achieved by bringing together the FSA, Stock Exchange and relevant market players to review and update the CG code to ensure greater clarity about what is legally required, what is voluntary, and the nature and extent of explanations sought in relation to each of the recommendations. The development of clearer questions and guidance on the type of information required, along with the establishment of mechanisms to enforce reporting requirements, would lead to better corporate governance information for the market.
The Estonian authorities have announced plans to review the Corporate Governance Code beginning in late 2010. This review should consider making some of the code’s recommendations legal requirements, for example to strengthen disclosure and board independence as discussed in greater detail later in this report.
In the SOE sector, the nomination process of supervisory board members and the sometimes politically-oriented appointments are matters of some concern, addressed in further detail in the section of this report dealing with stakeholders and boards.