THE WORLD BANK GROUP A World Free of Poverty

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  1. Corporate Governance


1. Corporate Governance Assessment And ROSC Module


Section Contents:

1. Summary fact sheet

2. Market overview

2.1 Structure of the corporate sector and capital market in the country

2.2 Legal, regulatory and professional/best practice bodies

3. Registration and listing requirements

3.1 Capital markets regulator

3.2 Stock exchange

4. Treatment of shareholders

4.1 Legal rights/treatment of shareholders

4.2 Minority shareholders

4.3 Statutory and other remedies

4.4 Insider trading and self-dealing

4.5 Share registration

5. Oversight of management

5.1 Structure and powers of the ultimate bodies governing the corporation

5.2 Legal duties owed by the members of the governing bodies

5.3 Process for nominations to the governing bodies

5.4 Independent oversight of management

6. Disclosure and transparency

6.1 Disclosure of material financial and non financial performance

6.2 Independent audit

6.3 Disclosure of ownership

6.4 Disclosures relating to the company’s directors, managers and advisers

6.5 Disclosures for related party transactions

6.6 Other disclosure provisions, risk management

Annex Poland OECD principles matrix

1 Summary fact sheet

Market and Regulatory Overview


Market Cap (percent of GDP)

PLN 123.4 billion or US$ 29.6 billion (20% of 1998 GDP).

Turnover Ratio

46 %

Number of Listed Companies


Legal System (Origin)

Civil Law System. New law being introduced in the legislature.

Autonomy of the Capital Markets Regulator

Appointed/removed by the Prime Minister.

Powers of the Capital Markets Regulator

Administrative powers (request information, inspections, inquiries, audits), incl. sanctions, suspension, fines.

Stock Exchange Governance

WSE. SRO; joint-stock company with 53 shareholders (Treasury, banks, brokerage houses)

Corporate Ownership Structure

Shareholders' Rights

Voting Rights

Privileged shares with special rights, including 5 votes per share, are allowed. Articles of association may limit voting rights (voting cap). Listed companies will require one share/one vote by WSE.

Proxy Voting


No notarization required; no postal ballots

Cumulative Vote/Proportional Representation


Minority shh w/20 percent of the capital can demand a "block voting procedure " when voting for members of the Supervisory board.

Ownership % required to call Shh Meeting


Redress against Violations/ Minority Oppression Remedies


For shh holding ≥1% of share capital. No class action provisions or derivative.

Take-over Code


Mandatory Tender Offer in Change of Control


At 50%, acquirer must make a tender offer for all outstanding shares.

Insider Trading and Self-Dealing Prohibition


Criminal offense, but difficult to monitor and enforce.

Preemptive Rights


May be canceled by shh resolution adopted with 4/5th majority.

Relationship to OECD Principles of CG

See annex.

Oversight of Management

Board Structure

Two tier board

Independent Directors

Supervisory board cannot include management members

Committee Practices


Shh representing ≥5% of capital may request appointment of audit board.

Relationship to OECD Principles of CG

See annex.

Disclosure and Transparency

External Auditors


Appointed/removed by special resolution at AGM

Consolidated Statements


But, if parent w/ ownership interest of 10 % or aggregate of 20% no consolidation is required.

Segment Reporting


There are no specific rules requiring disclosures of segment reporting, except for some details of sales.

Disclosure of Price Sensitive Information


To the stock exchange and SEC

Accounting – Standards and Enforcement


Standards are not in compliance with IAS; however companies listed in foreign exchanges disclose beyond required levels. Reconciliation required from 2000.

Company Officers related Disclosures


Info. on managers and directors must be included in the prospectus and updated regularly. Also publicly available in commercial register.

Related Party Transactions


Prospectus contains info. on all transactions b/w the issuer and the members of its management & supervisory bodies. Certain disclosures must be made in the notes to the annual financial statements.

Disclosure of Ownership


Notice to SEC, the AMO and the company itself required when ownership crosses 5 % and 10 % ownership threshold of the voting rights of a public company.

Risk Management and other Disclosures

Management board obliged to call GSM if major losses incurred

Relationship to OECD Principles of CG

See annex.


WSE: Warsaw Stock Exchange SEC: Securities and Exchange Commission of Poland

AMO: Anti Monopoly Office


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2 Market overview

2.1 Structure of the corporate sector and capital market in the country

As of June 30, 1999, there were 7,290 Joint Stock Companies (JSC) in Poland, representing 5.2 percent of all companies. The Warsaw Stock Exchange (WSE) is the only stock exchange in Poland, established in 1991 with the introduction of the Act on Public Trading in Securities and Trust Funds. As of December 31, 1999, the market capitalization of the WSE was PLN 123.4 billion (US$ 29.6 billion), or 20 percent of 1998 GNP. Its turnover/liquidity ratio was 46 percent. The average free float is approximately 30%. There were 221 companies including 15 National Investment Funds (NIFs) listed on the exchange. The government is a shareholder of approximately 15-20 percent in 57 of these listed companies. In addition to WSE, there is an over the counter market called CeTO where some 25 equities were listed as of December 1999. 15 of the 221 listed companies constituted 80.1 percent of the total market capitalization. Foreign investors account for 39 percent of the total turnover; while domestic institutional investors account for 22 percent and domestic retail investors for 39 percent.

Table : List of sectors represented on the WSE as of December 1999.

Macro sector/sector



% in total

market value

Macro sector/sector



% in total market value













Light Industry






Wood & Paper












Building Materials



Wholesale & Retail









Electro engineering



Telecom & IT


















Source: Warsaw Stock Exchange

All listed securities are traded in dematerialized form. The National Depository for Securities (NDS) is the depository for equities, fixed income and derivative instruments. Use of NDS is compulsory by virtue of the Law on Public Trading in Securities of August 21 1997 (the Securities Law). Brokers executing transactions on WSE hold a securities account in NDS and a cash account in a clearing bank. The WSE is in compliance with the ISSA G30 recommendations. Trades are settled on a rolling settlement basis at T+3. Securities are settled on a gross simultaneous basis followed by net settlement of funds. The clearing bank credits or debits participants’ bank accounts pursuant to NDS’s instructions reflecting the actual balance of participants’ respective receivables or liabilities determined by multilateral netting. The participants obliged to render a pecuniary performance must have the necessary funds for settlement on the

account in the clearing bank no later than 11:30am on transaction settlement date.

2.2 Legal, regulatory and professional/best practice bodies

Poland is a civil law country. The legal framework for listed companies comprises the Commercial Code of 1934 (or the Code) and the Law on Public Trading in Securities of Aug. 21,1997 (the Securities Law) as amended. On July 26th, the Lower House of the Parliament passed a new Code of Commercial Companies which, if approved by the Senate, will replace the Commercial Code. It is expected that the new Code will enter into force on January 1st 20001. The new Code represents a comprehensive regulation of company law and commercial partnership laws. It brings Poland’s corporate governance framework into line with recommendations in the OECD Principles, and to prepare for EU accession. The Commercial Code sets forth basic requirements related to corporate governance. These include a definition of the mandatory provisions of companies’ articles of association, the functions and role of governing bodies, the role of the general shareholders’ meeting (GSM), and the rights and obligations of shareholders.

The law on Public Trading in Securities governs the capital market and defines its principal agents including WSE, CeTO, the Polish Securities & Exchange Commission (SEC), NDS, brokerage houses and investors. It regulates the sale of substantial blocks of shares, inside information, and sets forth the extent of civil and penal liabilities.

SEC is an administrative body dealing among others with securities trading and brokerage houses. SEC is responsible for the licensing and monitoring of issuers, intermediaries, investment funds, portfolio managers, brokers, advisors as well as investors. It is governed by a chairman, two deputy chairmen and nine other members. The Chairman is appointed and dismissed by the Prime Minister at the joint request of the minister of finance and the president of the National Bank of Poland, following an opinion expressed by parliamentary commissions. SEC is empowered to investigate, judge, and punish by means of administrative penalties, fines or suspension of licenses, any irregularity that might occur in the securities market. WSE supervises the functioning of the stock market, defines the terms and conditions under which securities are admitted for trading on the exchange, and supervises the activities of securities brokers. It is a joint-stock company with 53 shareholders including the Treasury, banks and brokerage houses.

A number of groups have been active in sponsoring debate on corporate governance, including the Warsaw Stock Exchange which has held meetings for members of supervisory boards, the Center for Privatization, Business and Finance, which has sponsored a series of high level seminars on corporate governance, the Private Employers Federation whose chairperson, Henryka Bochniarz, is a member of the World Bank/OECD Private Sector Advisory Group on Corporate Governance and the Polish Association of Brokers & Investment Advisers. The Polish press has played an active role in raising awareness, by reporting major cases concerning the operation of companies and by highlighting new local and international developments. The WSE and SEC have also acted with vigor on cases concerning poor corporate governance, and with effective outcomes.


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3 Registration and listing requirements

3.1 Capital markets regulator

A company is required to obtain the consent of the SEC in order to trade its securities. Article 68 of the Securities Law sets out that an application for listing must be submitted through a brokerage house. It must include information on the company’s business including its statute (articles of association). The company must also submit a prospectus containing information on organization and governance as well as competence and experience of its board members.

The SEC follows a disclosure approach. The Commission places emphasis on issues such as minority shareholder rights and corporate control in making its decision and, in certain cases, has refused to admit companies into public trading until their articles of association were amended.

3.2 Stock exchange

After receiving SEC approval, an issuer must submit an application to WSE. The application must include information concerning the type of securities to be listed, the ownership structure of the company, a copy of the founding act and the articles of association, the consent of the SEC for introduction of the shares into public trading, the prospectus, and any additional information on events which occurred after its publication. WSE’s own supervisory board makes a final decision whether or not to admit the issuer’s securities for trading on the exchange. Corporate governance issues are a factor considered in the decision.

To be admitted for trading, shares must be freely transferable. WSE has three market segments with different listing requirements. Depending on whether the market value of the shares to be admitted exceeds PLN 24 million (US$ 5.9 million), PLN 12 million (US$ 3 million) or PLN 4 million (US$ 1 million), the company is listed on the main, parallel or free market respectively.

CeTO imposes a lower financial threshold and less burdensome disclosure requirements on companies and brokerage houses as compared to WSE.


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4 Treatment of shareholders

4.1 Legal rights/treatment of shareholders

The Commercial Code sets out the fundamental rights of shareholders and their treatment by the governing bodies. Shareholders have the right to participate in shareholders meetings. Current provisions allow certain shares to hold multiple voting rights (up to five) but the new Commercial Code would reduce this to two. The maximum voting privilege in a private joint stock company will be two votes per one shares, and three votes per one share in a limited liability company. No shares may be deprived of the right to vote. Companies listed on the Warsaw stock exchange shall observe the ‘one share, one vote’ principle. The new code also introduces the concept of preferred shares. Shareholders have the right to elect and remove members of the governing bodies. They can subscribe preferentially to a capital increase in proportion to their equity stake in the company. However, they may be deprived of their preemption rights when the articles so provide or by a shareholders' resolution adopted by a four-fifths majority. Shares may be redeemed only when the company’s articles so provide.

Shareholders meetings are convened by public notice unless all shareholders are present and consent to have a meeting without such notice. The announcement must be placed at least three weeks in advance and must include the agenda. At the meeting, only items on the agenda can be decided. Resolutions at the GSM must be recorded by a notary to be valid.

At the GSM, shareholders approve the company’s financial report including its balance sheet and profit and loss account for the preceding year and the reports of the management and supervisory board. They also approve the allocation of profits including the declaration of dividends or provisions for covering losses and adopt a resolution sanctioning the fulfillment of duties by management and supervisory board members. Shareholders approval is also required for authorizing a capital increase, for the purchase, lease or sale of enterprise property including real estate, unless the articles of association provide otherwise. One of the most important innovations of the new code consists in the adoption of the institution of authorized capital. Furthermore, a shareholder may pass a resolution authorizing the management board to issue new shares to be offered to bond holders and/or employees and executives (conditional increase of capital). Upon conversion of bonds into shares, the subscribed capital of the company is automatically increased without the need to register it in the commercial register. Authorized capital and conditional increase of capital are aimed at lowering the costs of financing the company, accelerating the process and reducing legal risk associated with challenge resolutions in the GSM.

Shareholders must be treated equally within the same class of shares. Article 410 stipulates that a company may only issue a new class of shares that might prejudice other classes if a special resolution amending the articles of association has been adopted separately for each class of shares. However, the code authorizes companies to issue privileged shares which may have special rights attached to them such as the right to receive special dividends, or to appoint members of the management or supervisory boards, or the right to cast five votes per share, provided such provisions are included in the company’s articles of association.

Three pieces of legislation regulate substantial acquisition of shares in listed companies, the Law on Public Trade in Securities, the Law on Counteracting Monopolistic Practices and Protection of Consumers 1990 ("Antimonopoly Law") and the Commercial Code. According to the Securities Law the purchase of shares representing up to five percent of the voting rights of a public company is not subject to consent or notification. However, pursuant to article 147, any person who crosses the five percent and the ten percent ownership voting rights’ thresholds of a public company, whether through investment or disinvestment, is obligated to notify the SEC, the Anti-Monopoly Office ("AMO") named Office for Protection of Competition and Consumers and the company itself. Moreover, an investor holding ten percent or more of voting rights is subject to notification obligation each time he/she acquires or sells shares representing at least two percent of the votes.

Acquirers are also obliged to give prior notice to the SEC and receive the latter’s consent before they may acquire or exceed 25 percent, 33 percent, or 50 percent of the voting rights of a target entity (article 149 ). Any acquisition in violation of the tender rules or without the consent of the SEC results in loosing the voting rights for such shares. Failure to comply with reporting obligations may also result in fines up to PLN 1,000,000 (US$ 200,000).

In addition, article 11 of the Antimonopoly Law, requires that AMO be notified of the intention to merge business entities (this includes situations such as the same person sitting on the boards of competitors, acquisition of 25/33/50% of voting rights or otherwise taking control over a target company). Any person who does not comply with this requirement may be punished with a fine of up to one percent of the combined revenues for each successive month of non-fulfillment of the obligation. AMO may, among other reasons, object to the merger, if in its opinion such merging would result in the parties acquiring or solidifying a dominant position in the market.

To date the SEC has not published rules concerning the substantial acquisition of shares or Take-over Code. In practice there are no material restrictions on the ability of an investor to launch a hostile take-over bid. An acquirer must comply with certain steps such as notification to the SEC, AMO and the public company as stated above. Additionally, where an acquirer purchases more than ten percent of the voting rights of a company within 90 days, he must do so by tender offer. Where an acquirer acquired 50 percent or more, he/she must set out a tender offer to buy all outstanding shares.

4.2 Minority shareholders

The Commercial Code secures the right of shareholders to vote at general meetings. The company's articles of association may limit the voting power of shareholders who own a substantial number of shares to protect minority shareholders, e.g. shareholders of substantial blocks of shares can be restricted to exercise no more than 25 percent of total votes at the GSM, despite having to comply with the duties of purchasers of substantial blocks of shares. However no shareholder can be deprived of his/her right to cast at least one vote per resolution. Merger proposals, issuance of bonds, amendments of company's articles of associations require a 75 percent majority. Amendments which restricts the rights of a particular class require the consent of all shareholders within that class. Proposals for change in the company's activities require two thirds of the votes cast. Resolutions to purchase real estate exceeding one-fifth of the paid-up share capital concluded within two years form the registration of the company, requires a majority of two-thirds of the votes.

The Commercial Code provides that shareholders representing one tenth of the company’s share capital are authorized to demand the convening of a shareholders’ meeting, if the management board fails to do so. They may also propose a resolution to be adopted at the GSM. Article 216 provides that in limited liability companies shareholders representing at least ten percent of the company’s share capital may designate auditors to audit the company’s financial reports. At 20 percent, they have the right to demand that a supervisory board be appointed besides the audit board or vice versa even if the articles of association provide otherwise. The same rights are granted to shareholders in joint stock companies.

Shareholders have the right to vote by proxy. Generally, there are no restrictions as to whom may be appointed as proxy, as long as the person appointed is not restricted in the articles of association. Members of the board of directors and company personnel may not be appointed as proxies (with the exception of some privatized companies). The proxy appointment does not have to be notarized, however it must be in writing and attached to the minutes of the shareholders’ meeting in order to be valid. Shareholders can neither in person, nor by proxy, nor as other persons’ proxies, vote on the adoption of resolutions relating to their liability to the company for any reason, on the remuneration to be received or on the contracts and disputes between them and the company. The new Code grants each shareholders the right to obtain information from the management board. The board may refuse to provide this in cases justified by law (such as disclosure of commercially confidential information).

4.3 Statutory and other remedies

Several remedies are available for shareholders in case of violation of their rights whereby they can initiate legal action either in the name of the company as derivative actions or in their own name. Additionally the SEC is also empowered with its administrations powers to investigate violation of laws and regulations pertaining to corporations.

The Commercial Code provides for the shareholders to seek redress for violation of their rights through the courts. Shareholders can institute derivative actions or may initiate legal action for invalidation of company resolutions. Shareholders may seek such a nullification if the resolution is in contravention to the Commercial Code or the articles of association of the company or for such resolutions which may be legal and valid, but are contrary to the commercial integrity of the company, are detrimental to its interests, or aimed at injuring a shareholder.

A number of such cases have been reported where shareholders have effectively used the courts to uphold their rights. However, such a right is limited to those shareholders only, who had voted against the resolution and had their objections duly recorded in the minutes. In addition, because certain shareholders in the past have abused their rights to sue listed companies for invalidation of resolutions, this right has also been restricted to shareholders holding at least one percent of the company’s share capital.

The new Code abolish the latter restriction as unconstitutional but introduced sanctions for filing frivolous actions and shortened the statutory periods for challenging board resolutions. In addition, it provides that an action challenging a GSM resolution does not automatically suspend registration procedures. The registration court may suspend a resolution on the increase of the capital only after a hearing.

The Commercial Code provides for derivative actions against controlling parties and management to protect the interests of the company and the shareholders. The Code establishes that a person who has committed an act of damage to the company, including damage through activity contrary to the law of the land or provisions of the company’s articles of association, is liable for such damage, with joint liability if several persons are responsible. If the company fails to bring a suit within a year of disclosure, any shareholder may bring a derivative action for damages to be paid to the company (art. 477). The plaintiff is exposed to possible liability if the action is found to be unjustified or to have been brought in bad faith or as a result of gross negligence. Shareholders seldom bring such suits, since the litigation costs are reimbursed to the company and not the shareholders. If the company fails to reimburse the shareholder suing on its behalf, he/she has to initiate another law suit.

Shareholders may resort to court actions to protect their rights through temporary injunctions. Courts usually provide orders which temporarily ban actions such as share transfers, until the time of final adjudication. This minimizes the adverse effects of otherwise lengthy proceedings, but enables a single shareholders to suspend a capital increase or a merger for months or years..

In addition to the provisions of the Code, SEC is the main regulatory body with an important role in enforcing shareholders rights and protecting their interests. It can initiate investigation of its own accord or upon the notification of third parties. In case of non-compliance or violation of Securities Law by market participants, the SEC can use its administrative powers and may give warnings, revoke or suspend licenses in full or in part or impose a fine under the provisions of the Securities Law. Prosecution for breaches involving criminal activity are the responsibility of the Public Prosecutor.

4.4 Insider trading and self-dealing

Under the Securities Law, trading on the basis of insider information is a criminal offence. The Law defines insider information as "information regarding the issuer or the securities which has not been provided to the general public and the disclosure of which could significantly influence the price of securities." Any person disclosing such information may be guilty of an offence punishable by imprisonment and a fine. The SEC investigates such cases and, if appropriate, refers them to the public prosecutor to adjudicate. According to the SEC during the period from 1991 to November 1999, the SEC informed Prokuratura, the public prosecution, of 20 cases involving a potential violation of the insider trading provisions.

4.5 Share registration

There are two types of shares; registered and bearer shares. Currently all shares traded at WSE and CeTO are dematerialized bearer shares. Registered shares are registered in the special registry kept by the company. Owners of bearer shares must deposit their shares with the company to take part in shareholders' meeting. In the case of dematerialized shares, shareholders submit certificates of brokerage houses confirming ownership and blockage of shareholders on the account until the end of the General Shareholders Meeting. They must present their shares to be paid a dividend. Both bearer and registered shares require the transfer of share certificate when being transferred. Dividends for dematerialized shares are payment through brokerage houses in practice, share certificates are often kept on deposit either by the company or the brokerage house. Banks and brokerage houses are linked to the NDS and trades in dematerialized shares are executed through book entries. According to market analysts, the system of recording all the share transfers in public trading is effective and transparent.


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5 Oversight of management

5.1 Structure and powers of the ultimate bodies governing the corporation

The Commercial Code provides for a two tier board structure comprising a supervisory board, a management board and where applicable an audit board. These bodies exercise permanent supervision over the activities of the company. Every JSC, with a share capital over PLN 500,000 (US$ 120,000) must have a supervisory board and/or an audit board as well as a management board.

The supervisory board supervises the management board and oversees the company’s financial statements. It reports to the shareholders on the activities of the company, and the management’s proposal for distribution of profits and losses and submits a written report to the shareholders. The supervisory board is also entitled to suspend individual members or the entire management board and appoint its own members temporarily. Where only an audit board exists, its responsibilities can be extended to include those of the supervisory board. The articles usually expand the competencies of the supervisory board by providing that important business decisions of the management board and, not infrequently, yearly and long-term business strategy must be approved by the supervisory board.

Supervisory boards must have at least five members. Members cannot be part of management. While joint stock companies are required by the Commercial Code to establish either a supervisory board or an audit board, some companies have opted for both governing bodies. Where only the supervisory board exists, shareholders representing one-fifth of the share capital may request the appointment of an audit board. In limited liability companies, shareholders representing ten percent of the share capital can request a registration court to appoint external auditors to inspect the companies books and operations. The new code eliminates the audit board in a joint stock company. Its functions are performed by licensed auditors and supervisory board.

The management board conducts the day-to-day business of the company and represents the latter in courts. It is responsible for those issues which have not been reserved either for the supervisory board or for the shareholders' meetings. It is common for the company’s articles of association to require that the management board must ask for the consent of the supervisory board before taking major decisions. The maximum tenure is three years but members can be removed at any time. If the management board consists of several persons, the company’s articles specify its composition. The new code provides that articles may provide that board members may be removed only for cause. The Commercial Code does not provide for any specific committees within the board structure. Specific committees can only be created through the articles of association.

5.2 Legal duties owed by the members of the governing bodies

Members of the governing bodies of a company must exercise the diligence of a "good merchant" in performance of their duties. They are responsible to the company for any harm caused by their action which is against the law or the company’s articles of association. General duties of the governing bodies include the responsibility of maintaining the company’s books; the duty to call the GSM, to inform the SEC and the WSE and the public of any material fact which may have a bearing on the market value of its securities; to report any personal interest in transactions of the company; to maintain a register of registered shares and temporary title certificates and to make such register available to shareholders; and to update company files at the district court including financial information and composition of the governing bodies. The management board is also obligated to notify the Commercial Register of any changes within 14 days.

Members of governing bodies are legally liable for actions detrimental to the company and may be imprisoned up to five years or fined. Directors are jointly and severally liable for damages perpetrated by the board. Duties of the governing bodies are enforced by derivative action. Where the company fails to bring a suit against its members within one year, the shareholders may petition the court for such action. If the shareholders validate the activities of the members of the governing bodies at the AGM by simple majority, it constitutes a waiver of their liability. The new code provides that granting a loan, credit, guarantee or other privilege to a board member must be approved by the GSM. Persons sentenced for certain criminal offences listed in the code may not serve as board members. In addition, the SEC and the WSE closely monitor companies and have the power to reprimand, fine, suspend or withdraw consent to trade securities on the stock exchange. Members of the management board cannot without consent hold or take up a business activity which is in direct competition with the business of the company.

5.3 Process for nominations to the governing bodies

Election of the management and supervisory boards usually takes place at the GSM.. However, the code allows companies to establish alternate procedures under its articles of association. In principle, Members of the management board are elected by the shareholders. In an effort to strengthen the supervisory board, the new code provides that members of the management board are elected by the former, unless the articles provide otherwise.

The debate on the role of members on boards is central in corporate governance discussions in Poland, with growing attention to issues of independence and competence among board members.

Partially privatized listed companies where the government retains a majority interest are subject to the Law on Commercialization and Privatization of State-Owned Enterprises (as amended) of 1996. This law provides that companies which have been "commercialized", must have a supervisory board composed of five members, two of whom must be representatives of the employees. Companies involved in agriculture, food processing or fishing must have one farmer or fisherman on the supervisory board. The representatives are elected by their respective groups. In some specific industries such as banking, members of the management board must have at least two years of experience in the banking industry and altogether five years experience in financial institutions. Minimum criteria have been established to qualify members of supervisory boards of state owned enterprises. Members of these boards must first pass a special exam organized by the Ministry of the Treasury. The exam contains a test of business, legal and accounting skills. Partially privatized listed companies have supervisory board members that have passed this exam. There is some discussion in Poland about the effectiveness of this particular procedure in contributing to ensuring effective boards, though the overall value professional training is widely supported.

Non-residents or foreigners may be appointed to the management board and supervisory board. However, companies that need a license to operate are subject to specific requirements concerning the nationality of the members of their management board or their ability to communicate in Polish. Although the Commercial Code does not provide for cumulative voting procedures per se, minority shareholders representing 20 percent of the share capital can demand a "block voting procedure" when voting for the members of the supervisory board. This procedure allows one or more shareholders acting as a "block" to select a specified number of members to be appointed to the supervisory board without the approval of the other shareholders. The other shareholders vote at large for the remaining seats. The new Code closes several loopholes which permit majority shareholders to prevent minority shareholders from exercising their right to elect board members.

5.4 Independent oversight of management

To ensure relative independence of the executive directors, section 378 of the Commercial Code prohibits executive members of the management board to serve simultaneously on the supervisory board or the board of auditors. Internal control is exercised by the supervisory board and/or by the audit board. As above, the Commercial Code provides for the establishment of an audit board as an alternative or a supplement to the supervisory board. Shareholders representing at least one-fifth of the capital stock may request the appointment of an audit board in addition to the supervisory board. The supervisory or audit board represents the management in case of conflict of interest between the management board and the company, such as related party transactions.


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6 Disclosure and transparency

6.1 Disclosure of material financial and non financial performance

Rules regarding financial disclosure are covered under the Commercial Code and the Law on Accounting of 1994. In addition, the Law on Public Trading in Securities and its secondary legislation impose further requirements on listed companies. The latter must release a prospectus containing disclosure of material financial and non-financial information at the time of their flotation, and for subsequent issues. They must also comply with on-going disclosure requirements. A Decree of the Council of Ministers dated December 22, 1998 sets out the kind, form and scope of current and periodical information to be submitted by issuers of securities admitted to public trading, as well as the terms of exemption. The requirements include the publication of audited annual reports including consolidated financial accounts and the report of the supervisory board within two weeks of the GSM; quarterly financial reports and additional information depending on the particular industry; material events relating to operations and all other information that may impact the price of securities; and information on the ownership structure along the guidelines described in section 6.3. In addition, listed companies must provide their financial reports to the commercial register, which is open to the public. These registers are maintained by district courts and must be updated within two weeks of the General Meeting.

The following additional reporting requirements apply to public companies: semi-annual financial statements have to be reviewed by independent auditors and submitted to the SEC; companies obliged to include in the financial statements a narrative description of major differences between the accounting policies adopted and IAS; from 2000 a reconciliation will be required of both the financial result and net equity to that which would arise under IAS.

Financial reporting requirements are consistent with many of the International Accounting Standards. Nevertheless there are some differences in the Polish Accounting Standards (PAS) such as provisions for reporting on hyper-inflation versus the PAS historical cost basis; effects of changes in foreign exchange rates; depreciation of assets; retirement benefit costs; discontinued operations; purchased goodwill; and disclosures in financial instruments. In addition, group companies may be excluded from consolidation if they are "immaterial" where immateriality is defined as when the total assets/income of the subsidiary is less than ten percent of the parent company or the total income of such subsidiaries does not exceed 20 percent.

6.2 Independent audit

Two acts regulate audits and auditors in Poland, the Act on Accounting and the Act on Auditors and their Self-government of October 13, 1994. Both acts are described as meeting the standards of the European Union. Article 64 of the Act on Accounting of September 29, 1994 states without any exceptions that joint-stock companies must have their annual financial reports audited by independent auditors. External auditors are appointed at the GSM unless the articles of association provide for the supervisory board to make such appointments. Additionally the Code (Article 216) provides shareholders of limited companies representing at least ten percent of the company’s share capital the right to designate auditors to audit the company’s financial reports in order to investigate the accounting and the company’s activity.

The Act on Auditors and their Self-Government imposes duties on auditors concerning their professional knowledge and conduct. To be authorized to perform their professional duties, auditors have to obtain a diploma and be entered into the auditors' register maintained by the National Council of Auditors. The National Meeting of Auditors, which is a body of the Council, determines the rules of ethics of the profession pursuant to article 24. A disciplinary proceeding may be brought before the National Disciplinary Court (another body of the Council) against an auditor whose conduct is contrary to the professional or ethics rules. One of the possible sanctions is the removal from the auditors’ register. According to market analysts these rules are strictly enforced.

6.3 Disclosure of ownership

Disclosures of ownership in listed companies are set out in the Commercial Code, and the Securities Law - which involves both the Securities Commission, and the Polish Office for Protection of Competition and Consumers.

Pursuant to article 351 of the Commercial Code the management board of a joint-stock company is obligated to maintain a register of registered shares and temporary certificates of title (świadectwo tymczasowe). This register discloses the name and address of shareholders, value of contributions paid, as well as information on transfer of title to the shares and temporary certificates with the date of entry. Each shareholder may review the register.

As discussed earlier, under article 147 of the Securities Law, an investor who acquires or sells five percent of total voting rights of a listed company must notify the SEC, AMO and the company within four days of the transaction. Notification must also be given if the ten percent threshold is passed. Thereafter, the investor must deliver such notice each time he acquires or sells an additional two percent of the voting rights of the company. Failure to make any of the required notifications is a misdemeanor, which results in cancellation of the acquirer's voting rights to the extent of the securities acquired without due notification.

In addition, under article 149 of the Securities Law an acquirer who intends to increase his/her holding up to a threshold of 25 percent, 33 percent or 50 percent of the voting rights of a public company, must file a separate notice with the SEC. The Securities Commission may prohibit the acquisition, if it would cause either an infringement of the Securities Law or would pose a threat to the interest or national economy of Poland. In either case, the SEC ensures that comprehensive information is available to the public.

For the purpose of calculating the total voting rights of a public company under articles 147 and 149 mentioned above, holdings of dominant and dependent entities must be aggregated. The Securities Law provides that a dependent entity is one in which a dominant entity holds a majority in the management or supervisory bodies or is entitled to exercise such control. Failure to make notification of dependent entities subjects the defaulting investor to a fine of PLN one million (US$ 0.2 million).

6.4 Disclosures relating to the company’s directors, managers and advisers

The commercial register is publicly available. It contains information on members of the management board. This information shall be updated forthwith. The principal legislation on disclosure relating to companies’ directors and managers is covered under two decrees of the Council of Ministers of Dec 22, 1998. These Decrees set forth a detailed list of information about the company’s directors which must be included in the Prospectus and updated regularly for disclosure to the public. Such information includes the name of directors and managers, their age, their position, their education and qualifications, their previous positions and career summary, any other professional activity which they carried out if such activity is in direct competition with those of the company; the remuneration and bonuses received by each board member, the value of outstanding loans extended by the company to them and their next of kin, and warranties of payment. Certain information, such as personal address and remuneration is usually not available to the public, but only to the SEC. In addition disclosure must be made on the number and value of the company’s shares or entities within its group owned by the board members. Observance of the above mentioned provisions by the joint-stock companies listed on WSE is supervised by the SEC.

Some additional disclosure requirements are required for public officials under the Act on Limitation of Conducting Business Activity by the Persons Performing Public Functions of 21st August, 1997.

6.5 Disclosures for related party transactions

Although related party disclosures are not expressly defined as such, certain related party disclosures are required in the notes to the financial statements, including transactions and balances with related companies and directors and Supervisory Board members and relations. In case of contracts entered into between a company and any of the management board members, the Commercial Code requires that the company be represented by the company’s supervisory board or proxies appointed by the shareholders. The new Code provides that upon obtaining a dominant position, the shareholders hall inform the company concerned within 14 days. The sanction for non-compliance is suspension of his/her votes above the level of 33% of votes in the company. A shareholder may request information from a co-shareholder whether he/she controls their company alone or jointly with other shareholders. The addressee of the question may not exercise his/her right in the company until the answer is provided. Furthermore, specific details regarding related party transactions shall be disclosed in the Commercial code (for example, information about limitation of liability of the dominant entity vis-à-vis a controlled company in the framework of management and profit sharing contracts).

The Prospectus Ordinance requires that offering prospectus contain information on all transactions entered into between the issuer and the members of its management and supervisory bodies on a non-arm’s length basis during the period of three years preceding the date of the prospectus as well as transactions entered into between the issuer and its affiliates.

The Commercial Code stipulates that in event of conflict of interests between a company and members of the management board, his spouse, or relatives, the director cannot participate in the deliberations on such matters. Such non-participation must be mentioned in the minutes of the board meetings.

6.6 Other disclosure provisions, risk management

Monitor Sądowy i Gospodarczy, the journal published under the supervision of the Ministry of Justice contains all notifications that a company is required to make. In case of a joint stock company, shareholders meetings are convened by such notifications. Furthermore, all entries to the commercial register must be published there.

The Commercial Code provides that all resolutions made at the GSM of a joint stock company must be recorded by a notary, in order to be valid. In addition, the management board must include a copy of the minutes of shareholders meetings in a book of minutes. Shareholders have the right to inspect the book of minutes and may also require that the copies of resolutions, certified by the management board, be issued to them. The minutes must state the proper convening of the general meeting and its power to adopt resolutions, and specify the adopted resolutions, number of votes cast on each resolution and objections made, also attach the list of attendance signed by participants in the meeting.

Each company has its corporate files kept in the registry department of the district court where the company is registered. The public has access to all documents kept in such court. They contain information on company name, address and scope of activity, detailed account of its share capital, a note on non-cash contributions made by the shareholders, and the company’s length of incorporation, if limited. The management board must file any changes in these information in the commercial register within 14 days of the change being made.

The application for registration of a company must include a statement signed by all members of the management board that share payments have been effected and that the transfer of non-cash contributions to the company upon its registration has been secured. In cases where the share capital is raised by a public subscription, additional documents should be attached such as a list of subscribers with an indication of their shareholdings and the amounts of payments effected, and bank receipts confirming the amounts of payments effected. If a shareholder believes that the value of an in-kind contribution is over estimated by more than 20percent, he/she may request the establishment of a special commission to review this issue. Minutes must be kept of the resolutions adopted by the management board. The agenda of board meetings and those present and voting must recorded. All statements of accounts prepared by the management board must be submitted to the supervisory board two months after the end of the financial year. The management board is obliged to call a general meeting of shareholders in order to adopt a resolution regarding the continued existence of the company, in cases where the balance sheet has shown a loss exceeding the amount of supplementary and reserve capital and one third of the share capital. In the event that the management board does not file for bankruptcy when it is required by the provisions of law, the members of the management board are criminally liable under article 483 of the Commercial Code.


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