Corporate governance in Slovenia: Working at last?

Abstract

Because of deploying specific methods of privatization that favoured domestic over foreign owners and that enabled both internal owners and state-controlled funds to gain control over companies, corporate governance in Slovenia used to be a cumbersome issue over the last two decades. This led to an on-going battle for control over companies. On one side, in addition to management buy-outs, internal owners used peculiar methods, such as “shares parking” at related companies to gain control over companies of interest without having to engage in a takeover procedure. On the other side, the government used its state-controlled funds to gain control over strategic companies in specific sectors, such as finance, energy, transport and telecommunications. Combined with direct holdings of assets by the state, this gave the existing political coalition in power a mechanism to exert control over a large number of companies and to interfere with the management of privatized firms through an adverse selection of candidates for supervisory boards and board of directors. The victims of these unsound corporate governance practices were usually small shareholders and suboptimal performance of companies. For a private sector, the “game-changer” was a financial crisis that deprived many management-owned companies of control over the companies, while government involved in some changes in the regulatory framework to fight peculiar corporate governance practices. However, while Slovenia has gradually established a modern framework for a transparent corporate governance system, regulating listed and non-listed private companies as well as SOEs, the practices deployed by the parties are still far from transparent, adequate and professional.