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Stakeholder rights and boards of directors

The fifth core corporate governance feature to be reviewed calls for recognising

stakeholder rights as established by law or through mutual agreements, and the

duties, rights and responsibilities of corporate boards of directors.

Stakeholder rights

Principle IV.A states that “The rights of stakeholders that are established by law or through mutual agreement are to be respected”. Company relations with employees in Estonia tend to be informal, with unions playing a fairly minor role in most cases. The percentage of the workforce belonging to unions had dropped to 8 per cent by 2009, down from 15 per cent in 2002. Discussions with union representatives highlighted that with the economy in a downturn, unions feel that they are in a weak position to negotiate.

There are no formal regulations on the participation of employees in corporate governance (except for the participation of employees in the appointment of the supervisory board of a European company). It is worth noting, however, that as of 1 February 2007, a new Employees’ Representatives Act entered into force. This new act implements a Directive (2002/14/EC) requiring employers to inform and consult employees with respect to matters that may affect employment. Many employees have also signed collective agreements with the companies they work in.

Principle IV.B states that stakeholders should have the opportunity to obtain effective redress for violation of their rights where their interests are protected by law. If an Estonian employee’s rights are violated, the employee has the opportunity to take the case to the Labour Dispute Committee or to the court. Labour Dispute Committee proceedings are faster and easier for the employee, but deal only with smaller disputes. Court proceedings are slower, but deal with every violation. Decisions of both bodies are obligatory to the employer. Furthermore, the employee has the right to log a complaint against an employer to the Labour Inspectorate who can impose a penalty.

Principle IV.E states that “Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised”. Estonia possesses no special regulation for employees to communicate with the board, and no specific legislation for protection of whistleblowers. However, according to the Estonian authorities, employees can turn to the labour inspector in the Labour Inspectorate, who will approach the appropriate authority, leaving the employee’s identity anonymous, based on labour inspectors’ oversight best practices. The self assessment also suggests that in these cases “the employees may communicate their concerns to the board through trade union’s representatives or employees’ trustees who enjoy greater protection against employer’s unlawful acts”. The FSA also reported that it makes use of information from whistleblowers in preparing cases, for example, involving market abuse.

Furthermore, general labour protection legislation was cited as the current framework for protecting employees in the workplace, including the Labour Act, the Collective Agreement Act, the Employees’ Representative Act (2006) and the Employment Contracts Act.

On the more general level of company relations with stakeholders beyond legal requirements, it was reported that Estonian companies are not known to take a particularly proactive approach towards stakeholders beyond informal communications. One study conducted in Estonia on stakeholders states that “although there are changes taking place, Estonian businesses are still more concerned with those interests that reflect their public image to their clients and partners, and not those that reflect the internal qualities of the company to their employees” (Kooskora, 2008).

Principle IV.F, which states that “The Corporate Governance Framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights”, was the only principle under Chapter IV deemed “fully implemented” in the Estonian self-assessment response.

In Estonia, there is no central insolvency regulatory authority to oversee bankruptcy procedures. Until recently, three authorities were involved in the supervision of a bankruptcy trustee: the Ministry of Justice; a court (a judge); and the commercial register. With the enactment of the Bailiffs and Bankruptcy Acts (entered into force on the 1st of January 2010), a fourth entity has been established, the Chamber of Bailiffs and Bankruptcy Trustees, which will exercise supervision over the professional activities of bailiffs and bankruptcy trustees.

Guideline IV.A states that “Governments, the co-ordinating or ownership entity and the SOEs themselves should recognise and respect stakeholders’ rights established by law or through mutual agreements, and refer to the OECD Principles of Corporate Governance in this regard”.

The legal framework for SOEs’ consideration of stakeholder rights (Guideline IV.A) is similar to that described for the private sector above, providing the same consultation and complaint mechanisms for SOEs as for all other companies.

Interviews carried out with the major SOEs in Estonia indicated that relatively low importance is given to stakeholders. With regards to employee participation, Estonian SOEs have no formal employee representation on their supervisory boards. Generally, the input from workers and workers’ unions is incorporated into decisions of the company on an ad hoc basis, through meetings between the CEO and trade unions, for example.

Eesti Raudtee (a railway company) management noted that the relationship between management and the trade unions has not had significant conflicts, despite the need for major layoffs in recent years. The management indicated that unions have understood and accepted that lack of revenues required such layoffs without opposition.

Some SOEs interviewed by the review team reported having regular contact with trade union officials, but no SOE was found to be following a formal process to include stakeholders’ input in SOEs decisions. Similarly, there appeared to be no whistleblower mechanisms in place in SOEs to allow for the communication of illegal or unethical practices to the board.

Guideline IV.C states that “the boards of SOEs should be required to develop, implement and communicate compliance programmes for internal codes and ethics. These codes of ethics should be based on country norms, in conformity with international commitments and apply to the company and its subsidiaries.”

Ethics codes are uncommon; none of the SOEs interviewed reported having elaborated one. There is no requirement by law for SOEs to have these.

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