Update: Corporate Governance Statement becomes a mandatory component of the Annual Report

Nejc Novak -

Until now, only public companies were bound to provide the Corporate Governance Statement. Consequently, most of the audited companies will face the duty of drafting the statement for their first time in the beginning of 2017. In addition to knowing key information about the corporate governance of the company, understanding of recommended good practices is required.

The Corporate Governance Statement must include:

  • selection of the relevant corporate governance code;
  • the information on the scope of deviations from the selected corporate governance code (per the “comply or explain“ principle);
  • a description of the principal characteristics of internal control and corporate governance systems in the company in connection with the financial reporting procedure;
  • information on the qualified holder of the company’s shares; special control rights; restrictions on voting rights; rules on amendments to the articles of association; rules governing the appointment or replacement of members of the management or supervisory bodies and; authorisations to the management, particularly authorisations to issue or purchase own shares;
  • the records on the activities of the company’s general meeting and its key responsibilities, and a description of the rights of the Shareholders and the method of exercising of such rights; and
  • information on the structure and operation of the management and supervisory bodies and their committees.

Carefully drafted explanations on the company’s deviation from the chosen corporate governance code is vital to the company’s corporate identity. Consequently, the Corporate Governance Statement is often referred to as the “personal ID” of the company. Corporate governance of a company presents an important information to the business environment and potential investors. The latter often consider corporate governance to be as important as financial indicators.

Being part of the Annual Report, the Corporate Governance statement will be subject to an audit. Auditors will focus on the internal controls and risk management, in particular regarding the financial reporting procedure.

Lastly, drafting the Corporate Governance Statement can also be an opportunity for companies to identify their governance weaknesses and mitigate them. It is recommended that such procedure is conducted with the assistance of external experts. Such work requires deep understanding of financial and commercial aspects of a company, as well as extensive knowledge in statutory, corporate and insolvency law. NR provides such legal and strategic advice with focus on developing and executing the best solutions for its clients.