Public Debate on Accountability and Transparency in Companies whose Major Shareholder is the State

On 13 July 2012 a Public Debate on Accountability and Transparency of Work in Companies Whose Major Shareholder is the State took place at the Croatian Parliament. The debate was organized by the Government Office for Cooperation with NGOs, the Ministry of Justice, GONG, and Transparency International Croatia. 4th Integrated Report on the Implementation of the Anti-Corruption Programme in such Companies 2010 – 2012 was presented on the occasion. The public debate was organized as part of the Action Plan for the implementation of the Open Government Partnership initiative, which envisaged conducting a public debate about the financial reports of special state interest companies. Representatives of state institutions, companies, civil society and the academic community assembled at the event.

The discussion was opened by Nikola Kristić, Director of Transparency Internal Croatia and Deputy Chairman of the Council for Open Government Partnership initiative; Sandra Artuković Kunšt, Deputy Justice Minister; Milanka Opačić, Deputy Prime Minister and Social Policy and Youth Minister. In the working part of the discussion the participants were addressed by Zrinka Čupić, representative of the Ministry of Finance; Krešimir Dragić, representative of the Ministry of Finance; Igor Vidačak, Head of the Government Office for Cooperation with NGOs; Pero Matić, General Manager of Plat Hotels, JSC; Jelena Berković, GONG; and Anto Bajo, the Institute for Public Finance. Moreover, Vladimir Šeks, Chairman of the National Council for Anti-Corruption Strategy Monitoring and Implementation, and Vesna Fabijančić-Križanić, Deputy Chairperson of the same Council, who also addressed the participants. After the speeches there was a discussion which resulted in a number of conclusions, which are listed below.

Contrary to the popular perception, but also due to the legacy of bad management and supervision practices in public companies, the Anti-Corruption Programme together with the Code of Corporate Management of 2010 were designed to be the engines of a radical turn towards the corporate culture of accountability, transparency, effectiveness and efficiency according to which the companies owned by the state, but also by local self-governments, are seen as the examples of good governance, taking care of public funds and public interest alike, and thus should have a leading role.

In the three years of its implementation, the Anti-Corruption Programme (ACP) proved to be a tool for establishing internal procedures for the prevention and detection of corruption risks and irregularities in the business operation of companies whose major shareholder is the state. Positive steps in the direction of better business operation and transparencywere noticed, especially by means of publicly announcing the anti-corruption plans, activities and business operation reports. However, future challenges lie in achieving good, systematic, and competitive implementation of all the envisaged mechanisms in practice, in addition to the strong commitment of management and supervisory boards in monitoring the effects of anti-corruption policy on the level of individual companies. Good practices were acknowledged in some of the companies, including the smallest ones, which indicates that the expected high standards are not unreachable and do not require funds, quite the contrary, they are a matter of having committed leadership, good internal organization and high level of anti-corruption awareness among employees.
It is therefore necessary that the improvement, good implementation and monitoring of ACP be envisaged as an important measure within the new strategic and operational documents of national anti-corruption policy in the period 2013-2016, in addition to open and efficient cooperation between competent state administration bodies, civil society and business community, which are interested in affirming corporate social responsibility. In the forthcoming period, ACP implementation should be extended to the companies whose major shareholders are regional and local self-governments, as well as to government agencies and public institutions which are public service providers or do non-profit work. In order to have the best possible target measures in the planning of new ACP, it would be desirable to conduct a detailed external evaluation of ACP implementation 2010-2012 which would provide an insight into the level of quality of individual companies’ practices, main corruption risks and organizational challenges which the companies whose major shareholder is the state are facing.
These are specific conclusions and recommendations for the new cycle of ACP planning and implementation:
1 Increased sponsorship and donation transparency and effectiveness
Although this is on principle a laudable and necessary form of support to civil society and community development, granting donations and sponsoring NGOs and non-profit organizations need to be recognized as a relevant corruption risk and a source of irregularities unless there are defined procedures, criteria and limitations for their allocation; specific ways of recognizing and preventing possible conflicts of interest in the allocation; practices of publicly announcing all information about the procedure, beneficiaries, amounts and purpose of donations and sponsorships on the level of a company. Apart from the possibility of their being used as a bribe and association based on interest, sponsorships and donations can also be used as a front for giving political donations by means of intermediary sponsorship and donation recipients, especially in the light of the legal prohibition of giving political donations to all companies whose shareholders are the state and local authorities. In case of negative business trends, losses or significant burden of liabilities and debt, donations and sponsorships are considered inappropriate, especially if their amounts are significant enough to be reallocated to covering the liabilities.
- The space for entering donations and sponsorships needs to be envisaged in the forms for annual summary financial reports, which will also serve as a basis for monitoring the effects of tax reliefs on profit tax basis.
- Restrictions need to be set for donations and sponsorships in cases of significant financial difficulty and business debts, when philanthropic activities are in effect an indication of social irresponsibility.
- For the purpose of positive change, within the Open Government Partnership initiative and further monitoring of ACP implementation, the Ministry of Justice in cooperation with the Government Office for Cooperation with NGOs, the interested CSOs and business associations, shall define the Guidelines on Responsible, Transparent and Effective Policy of Sponsorships, Donations, and Other Forms of Investing in Community and Social Development for Public Companies, and ensure that there are additional opportunities for consultations and education onthe Guidelines of Public Companies implementation.


2 Ensure stronger company management and supervisory boards’ accountability in timeliness, comprehensiveness and accuracy of reporting about the implementation of ACP as well as in publicly announcing business operation information.
- In the future the representatives of companies’ management will be required to confirm the accuracy and integrity of the information and specify the supervisory boards’ involvement in monitoring the implementation of ACP and in considering corruption risks.
- The companies will be required to provide more precise and detailed reports on the nature of corruption risks and irregularities for the purpose of following trends and defining targeted strategic responses on the level of companies but also the overall sector.
- The requirements for publicly announcing financial and business reports need to be standardized in order to ensure the conditions for their independent assessment by experts and the public.
Companies whose major shareholder is the state need to put in additional efforts in presenting their business results and financial indictors to the public in a way that is understandable to the wider public, as envisaged by the Code of Corporate Governance for companies whose major shareholder is the state. For this purpose, within the Open Government Partnership initiative and as part of further monitoring of the implementation of ACP, in cooperation with the Institute for Public Finance, the Guidelines for the Public Announcement of Financial and Business Information will be prepared.
3 Strengthening the competence for financial management as a precondition of effectiveness and accountability
- Lacking competences and low quality of financial management which are reflected in the insufficient use of strategic planning and risk management tools represent the main cause of economic inefficiency of companies whose major shareholder is the state. Acquiring financial management and strategic planning competences must be given priority in professional development and employee replenishment in companies whose major shareholder is the state.
- In order to ensure an adequate competence structure of employees, the employment of all needed profiles should be ensured by conducting public tenders even, if proved necessary, on the international labour market.
- Strengthening the obligation of and supervision over the implementation of audit recommendations and the use of specific financial management tools, e.g. risk management, is needed.