**3. Corporate governance codes in Slovenia**

#### **3.1. Development of corporate governance codes**

a corporate governance statement (CG Statement in their management report. In this statement, a company should disclose its corporate governance arrangement [Article 4(1) (14) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004]. Since the 'comply or explain' approach is the key principle in the EU governance system, a company is required to explain in its corporate governance statement the deviations from the code's recommendations and the reasons for doing so [32, Article 4, 6]. A company is required to describe the alternative measure taken 'to ensure that the company action remains consistent with the objectives of the recommendation, and of the code' [32, Article 17]. In this respect, the EC emphasizes the required high quality of explanations on non-compliance reported by companies [32, Article 8, 11]. The EC recommendation on the quality of corporate governance reporting predominantly addresses listed companies. However, it suggests that other compa-

In Germany, a corporate governance code was found as being unnecessary until 2002 when the German Corporate Governance Code (GCGC) was adopted [30]. This code contains standards of good governance that represent internationally and nationally recognized best practice. German companies are not required to follow these standards with the exception of listed companies. Listed companies have to disclose the (non)-compliance with the GCGC recommendations [37]. The research study by Talaulicar and Werder [37] showed high degrees of compliance with the GCGC, especially among German-listed companies. The authors were also able to identify some recommendations (i.e. 24 recommendations) that many companies do not comply with. However, in authors' opinion low rates of acceptance of these recommendations do not necessary imply that they need to be changed. On the contrary, such a situation may reflect 'that firms take advantage of the flexibility the code grants and disregard

nies might also benefit by following the EC recommendation [32, Article 14].

64 Corporate Governance and Strategic Decision Making

certain code norms in order to address company-specific peculiarities' [37, p. 268].

rules, strengthening shareholder rights and modernizing boards.

Hermes et al. [12] conducted a research on codes adoption in seven Eastern European countries or the so-called transition economies (i.e. Czech Republic, Hungary, Lithuania, Poland, Romania, Slovak Republic and Slovenia) that were at the time of the research already the EU member states. Romania was one of the first countries that issued a code in 2000. Other countries such as Slovenia and Hungary followed a few years later and issued a code in 2004. Twelve Eastern European countries issued their own code by the early 2006: Czech Republic (2001, 2004), Poland (2002, 2004), Russia (2002), Slovak Republic (2002), Macedonia, Ukraine (2003), Lithuania (2004), Slovenia (2004, 2005), Hungary (2004), Latvia (2005) and Estonia (2006); some of these countries published the new version of the code in the following years [12]. Hermes et al. [12] conducted analysis of the contents of the governance codes that are based on the analysed seven transition countries on the 'comply or explain' principle. They focused their research on three areas and that were disclosure

Since in many cases these codes were adopted as listing requirement for stock exchanges, this gave codes a formal and compulsory character. The research results show that the codes of the Eastern European countries on average cover only around half of the EC recommendations. For some of the countries included in the research (especially Romania, Hungary and Poland), domestic forces related to country-specific characteristics of corporate governance system Slovenia is a new European state that was founded in 1991 and is nowadays one of the EU member states. Since the early 1990s, Slovenia like other Eastern European countries has made considerable efforts in transition to market economy [12, 26]. After its foundation, Slovenia has been faced with a three-way transition process [14]: (1) the transition to an independent state, (2) the reorientation from the former Yugoslav to Western-developed markets and (3) the transition to the market economy. These include several developments such as privatization of companies, trade liberalization, development of domestic financial markets and their integration to global capital markets, and development of the institutional framework in terms of regulations and law systems. All these developments have triggered the need to regulate the governance of companies in order to mitigate agency problems [12]. The transformation of companies' ownership from social into private one was realized based on the law on ownership transformation that came into force in 1992. The first Companies Act was adopted in 1993. Since then, corporate governance has been regulated by a number of acts that have been amended and supplemented as response to changes in legislation, market conditions and cases of good governance practice [15].

Corporate governance codes present an important element of corporate governance regulations in Slovenia. The first governance code was introduced for public joint stock companies. The Slovenian corporate governance code for public companies (in continuation: the Slovenian CG Code) was the result of joint efforts of the Ljubljana Stock Exchange, the Managers' Association of Slovenia and the Slovenian Directors' Association in creating recommendations on the best governance practices. The Slovenian CG Code came into force in 2004. Since then, the code has been revised several times: in 2005, 2007, 2009 and the last revised version of the code came into force in January 2017 [38–41]. Not only listed companies can apply the Slovenian CG Code's recommendations but also all those companies that would like to establish a transparent and understandable governance system [42].

First versions of the code included besides recommendations of the best governance practices also legal provisions on corporate governance. The Slovenian CG Code, which came into force in 2009, comprised only recommendations that are not legally binding (i.e. soft law). It is based on Slovenian legislation and incorporates 'the guidelines and recommendations of the European Union, principles of business ethics, internal bylaws of the three institutions (authors comment: the Ljubljana Stock Exchange, the Managers' Association of Slovenia, and the Slovenian Directors' Association) and the internationally recommended standards of diligent and sound corporate governance' [42, p. 2].

Companies, which are listed on the Slovenian-regulated market, must disclose to which code they adhere, any deviations from the code and reasons for them in their corporate governance statement, thus realizing the 'comply or explain' principle [43]. Shareholders have a right to demand additional explanations from a management board regarding the content of the statement at the shareholders meeting [40, 46]. According to the LJSE Rules [44] and LJSE Guidelines [45], prime and standard market companies are requested to disclose (non) compliance with the code in the Statement on Compliance with the code that is the part of the CG Statement. The CG Statement was introduced by the Slovenian Companies Act [46] in 2009 and must be published as a part of annual reports. It is recommended that listed companies published it separately on their website [45]. This is in line with Article 20(1) of Directive 2013/34/EU that requires listed companies to provide information of their corporate governance arrangements as well as how they applied the relevant corporate governance code recommendations. It is believed that such requests would improve transparency for shareholders, investors and other stakeholders [32]. From 2015, the CG Statement is obligatory not only for listed companies but also for those companies that are bound to auditing.

Companies in Slovenia are relatively free in choosing a governance code to which they adhere. However, it is expected that companies listed on the prime and standard market of the Ljubljana Stock Exchange will largely follow the Slovenian CG Code [42, 47]. Companies can also create their own code, which might be a reasonable approach in the cases of adopting more codes. The selection of a code can also be influenced by the expectations or preferences of the company's shareholders [40]. However, other codes are not the subject of this contribution.

Since several research studies discussed in the next section explored the adoption of the CG Code from 2009 as well as this code has been adopted in the practice of Slovenian companies longer than any other Slovenian code did, we explain in more detail the content of this code. The recommendations of the CG Code from 2009 [42] cover several broad areas of corporate governance and that are corporate governance framework, relations with shareholders, supervisory board, management board, independence and loyalty of members of supervisory board and management board, audit and system of internal controls, and transparency of operation.

*Recommendations in the area of the corporate governance framework*:


#### *Recommendations in the area of the relations with shareholders*:

First versions of the code included besides recommendations of the best governance practices also legal provisions on corporate governance. The Slovenian CG Code, which came into force in 2009, comprised only recommendations that are not legally binding (i.e. soft law). It is based on Slovenian legislation and incorporates 'the guidelines and recommendations of the European Union, principles of business ethics, internal bylaws of the three institutions (authors comment: the Ljubljana Stock Exchange, the Managers' Association of Slovenia, and the Slovenian Directors' Association) and the internationally recommended standards of dili-

Companies, which are listed on the Slovenian-regulated market, must disclose to which code they adhere, any deviations from the code and reasons for them in their corporate governance statement, thus realizing the 'comply or explain' principle [43]. Shareholders have a right to demand additional explanations from a management board regarding the content of the statement at the shareholders meeting [40, 46]. According to the LJSE Rules [44] and LJSE Guidelines [45], prime and standard market companies are requested to disclose (non) compliance with the code in the Statement on Compliance with the code that is the part of the CG Statement. The CG Statement was introduced by the Slovenian Companies Act [46] in 2009 and must be published as a part of annual reports. It is recommended that listed companies published it separately on their website [45]. This is in line with Article 20(1) of Directive 2013/34/EU that requires listed companies to provide information of their corporate governance arrangements as well as how they applied the relevant corporate governance code recommendations. It is believed that such requests would improve transparency for shareholders, investors and other stakeholders [32]. From 2015, the CG Statement is obligatory not only for listed companies but also for those companies that are bound to auditing.

Companies in Slovenia are relatively free in choosing a governance code to which they adhere. However, it is expected that companies listed on the prime and standard market of the Ljubljana Stock Exchange will largely follow the Slovenian CG Code [42, 47]. Companies can also create their own code, which might be a reasonable approach in the cases of adopting more codes. The selection of a code can also be influenced by the expectations or preferences of the company's shareholders [40]. However, other codes are not the subject of this contribution. Since several research studies discussed in the next section explored the adoption of the CG Code from 2009 as well as this code has been adopted in the practice of Slovenian companies longer than any other Slovenian code did, we explain in more detail the content of this code. The recommendations of the CG Code from 2009 [42] cover several broad areas of corporate governance and that are corporate governance framework, relations with shareholders, supervisory board, management board, independence and loyalty of members of supervisory board and management board, audit and system of internal controls, and transparency of operation.

• the management board together with supervisory board creates and adopts a Corporate

• with the CG Policy they lay down major corporate governance outlines that should be

*Recommendations in the area of the corporate governance framework*:

compliant with the long-term goals of a company [42].

Governance Policy (CG Policy);

gent and sound corporate governance' [42, p. 2].

66 Corporate Governance and Strategic Decision Making


#### *Recommendations in the area of the supervisory board*:


*Recommendations in the area of the management board:*


*Recommendations in the area of the independence and loyalty of members of supervisory board and management board*:

• members of both boards make independent decisions taking into consideration the goals of a company [42].

*Recommendations in the area of the audit and system of internal controls:*


#### *Recommendations in the area of the transparency of operation*:


At the beginning of 2017, a new version of the CG Code was issued where the purpose remains the same. That is to provide corporate governance recommendations for joint stock companies that are listed on the Ljubljana Stock Exchange. Other companies may also follow the CG Code's recommendations, thereby establishing transparent governance system in order to increase companies' legitimation among different groups of stakeholders (i.e. domestic and international investors, employees, banks, public, etc.). There are three main reasons for renewal of the previous version of the CG Code [48]:


were also one of the reasons for introducing changes in the corporate governance recommendations of the CG Code. The analysis revealed those recommendations that the majority of companies complied with and which recommendations were among those that companies reported on non-compliances. The analysis and the issuers of the CG Code tried to improve those recommendations that were recognized as being described not clear enough, and therefore their introduction in the company's governance practice caused unnecessary problems.

*Recommendations in the area of the audit and system of internal controls:*

professional surveillance of the system of internal controls [42].

*Recommendations in the area of the transparency of operation*:

renewal of the previous version of the CG Code [48]:

nance system of a company came into force.

pany's financial statements;

68 Corporate Governance and Strategic Decision Making

information;

ation the Companies Act;

company's website [42].

• an auditor is appointed in order to ensure an independent and impartial audit of the com-

• an efficient system of internal controls is set up that also ensures a quality-risk management; together with its auditing committee, a company ensures periodical and impartial

• a corporate communication strategy should be defined as a part of the CG Policy dictating high-quality standards in preparing and publishing accounting, financial and non-financial

• informing both shareholders and public should be set up in a manner providing equal,

• the company's governance practice is presented in the CG Statement taking into consider-

• the Statement is a part of the annual report published as an independent document on the

At the beginning of 2017, a new version of the CG Code was issued where the purpose remains the same. That is to provide corporate governance recommendations for joint stock companies that are listed on the Ljubljana Stock Exchange. Other companies may also follow the CG Code's recommendations, thereby establishing transparent governance system in order to increase companies' legitimation among different groups of stakeholders (i.e. domestic and international investors, employees, banks, public, etc.). There are three main reasons for

• The regulatory framework has changed in the last 7 years. Several changes in legislation, especially in the area of corporate governance, reporting and public disclosure on gover-

• Several changes in international and domestic recommended governance practice also importantly influenced a decision to renew the CG Code from 2009. In 2015, the OECD adopted new principles of corporate governance. Consequently, several countries have issued new codes (e.g. Austria, Finland, Germany, Denmark, Sweden, UK, Romania and Baltic countries). At the same time, advanced recommended governance practice has been developed in Slovenia (e.g. corporate governance codes for non-public companies in 2016, recommendation for auditing committee in 2016, practical advices for quality explanations in Statement on Compliance in 2015, etc.). The EC recommendations on the quality reporting on governance issued in 2014, which propose the EU members to monitor the codes' compliances, also importantly influence the development of the new CG Code in Slovenia. • The results of the latest analysis of disclosures of compliances with the Slovenian CG Code from 2009 for the 2011–2014 periods (which are in more detail discussed in the next section)

timely and economical access to information related to all aspects of a company;

Therefore, several changes were introduced in the new CG Code. We present the major changes by organizing them according to the major areas of the Slovenian CG Code from 2017 [48, 49]:


#### **3.2. The role of codes in improving corporate governance practice in Slovenia**

Even though research studies on the adoption of governance codes in the corporate governance practice in Slovenia are scarce, the existent research results provide an important insight into the development of governance practice in Slovenia and the role of the corporate governance codes in this process. In this section, we analyse the findings of the previous research studies on governance codes in Slovenia. The structured content analysis was done chronically, starting with the research that explored the earlier version of the CG Code from 2005 and continuing with the research studies on the CG Code from 2009. The research conducted by the Ljubljana Stock Exchange together with the Slovenian Director's Association in 2015 [50] provides the most comprehensive insight into dynamics of the corporate governance codes' adoption and implementation of 'comply or explain' principle in Slovenian companies. Other research studies gave only partial and often static view in the role of governance codes in the practice of Slovene companies. The main research findings are presented in **Table 1**.

The Slovenian CG Code that came into force in 2005 (i.e. the revised version of the first code) was included in the *comparative analysis of the codes contents of seven Eastern European countries* (i.e. Czech Republic, Hungary, Lithuania, Poland, Romania, Slovak Republic and Slovenia) that was conducted by Hermes et al. [12]. The research covered three areas of recommendations that were disclosure rules, strengthening shareholder rights and modernizing boards. The main findings of the research were explained in one of the previous sections. In this section, we focus on the research findings for Slovenia.

The comparison of the Slovenian CG Code with respect to the EU recommendations on enhancing corporate governance disclosure showed that the Slovenian CG Code included five out of nine analysed recommendations. Those recommendations that were not included in the code were those not addressed in the codes of the majority of other six analysed countries as well. Research findings showed that 'openness from shareholders in general and from institutional investors in particular, with respect to their holdings and policies as major owners of companies' [12, p. 65] were not recommended by the analysed codes. The results can be explained by the corporate governance systems in these countries where important features are controlling shareholders and block-holdings. According to Berglöf and Pajuste [26], companies with controlling shareholders are less prone to disclose information.

The comparison of the Slovenian CG Code with respect to the EU recommendations on strengthening shareholder's rights shows that the Slovenian CG Code included two out of three analysed recommendations. Those were the recommendation dealing with providing shareholders information for evaluation of a company's performance and operations (not included only in the Romanian code), and the recommendation on shareholder democracy (i.e. the one shareone vote democracy). The last recommendation was found only in Slovenia and Lithuania [12].

Regarding the EU recommendations on modernizing the boards of directors, the Slovenian CG Code included four out of six analysed recommendations. Recommendations not included in the code were the recommendation on disclosure of the remuneration policy (included in three analysed codes) and the recommendation on prior approval by the shareholder meeting of share and share option schemes in which directors participate (included in four analysed


**3.2. The role of codes in improving corporate governance practice in Slovenia**

Even though research studies on the adoption of governance codes in the corporate governance practice in Slovenia are scarce, the existent research results provide an important insight into the development of governance practice in Slovenia and the role of the corporate governance codes in this process. In this section, we analyse the findings of the previous research studies on governance codes in Slovenia. The structured content analysis was done chronically, starting with the research that explored the earlier version of the CG Code from 2005 and continuing with the research studies on the CG Code from 2009. The research conducted by the Ljubljana Stock Exchange together with the Slovenian Director's Association in 2015 [50] provides the most comprehensive insight into dynamics of the corporate governance codes' adoption and implementation of 'comply or explain' principle in Slovenian companies. Other research studies gave only partial and often static view in the role of governance codes in the practice of Slovene companies. The main research findings are presented in **Table 1**.

The Slovenian CG Code that came into force in 2005 (i.e. the revised version of the first code) was included in the *comparative analysis of the codes contents of seven Eastern European countries* (i.e. Czech Republic, Hungary, Lithuania, Poland, Romania, Slovak Republic and Slovenia) that was conducted by Hermes et al. [12]. The research covered three areas of recommendations that were disclosure rules, strengthening shareholder rights and modernizing boards. The main findings of the research were explained in one of the previous sections. In this sec-

The comparison of the Slovenian CG Code with respect to the EU recommendations on enhancing corporate governance disclosure showed that the Slovenian CG Code included five out of nine analysed recommendations. Those recommendations that were not included in the code were those not addressed in the codes of the majority of other six analysed countries as well. Research findings showed that 'openness from shareholders in general and from institutional investors in particular, with respect to their holdings and policies as major owners of companies' [12, p. 65] were not recommended by the analysed codes. The results can be explained by the corporate governance systems in these countries where important features are controlling shareholders and block-holdings. According to Berglöf and Pajuste [26], com-

The comparison of the Slovenian CG Code with respect to the EU recommendations on strengthening shareholder's rights shows that the Slovenian CG Code included two out of three analysed recommendations. Those were the recommendation dealing with providing shareholders information for evaluation of a company's performance and operations (not included only in the Romanian code), and the recommendation on shareholder democracy (i.e. the one shareone vote democracy). The last recommendation was found only in Slovenia and Lithuania [12]. Regarding the EU recommendations on modernizing the boards of directors, the Slovenian CG Code included four out of six analysed recommendations. Recommendations not included in the code were the recommendation on disclosure of the remuneration policy (included in three analysed codes) and the recommendation on prior approval by the shareholder meeting of share and share option schemes in which directors participate (included in four analysed

panies with controlling shareholders are less prone to disclose information.

tion, we focus on the research findings for Slovenia.

70 Corporate Governance and Strategic Decision Making


codes). The Slovenian CG Code was the only code of the analysed ones that included the recommendation on the recognition in the annual accounts of the costs of share and share option schemes of directors [12]. These findings indicate that the Slovenian CG Code from 2005 already included recommendations not only on disclosure of fixed and variable remuneration of individual directors but also on disclosure of more sensitive information on how option and share schemes are constructed and how much that costs a company. These results indicate that the Slovenian CG Code introduced at that time many of the best governance practices at least in listed joint stock companies in Slovenia.

*In 2012, the Ljubljana Stock Exchange initiated the analysis of the companies' disclosures on the compliance* with the Slovenian CG Code from 2009. The analysis was conducted with the support of the Slovenian Director's Association. Ten companies listed on the prime market of the Ljubljana Stock Exchange were included in the analysis since these companies were expected to adhere to high governance standards. Companies were obliged to disclose any deviation from the code's recommendation together with the explanations in their annual reports. The main goal of the analysis was to explore the level of credibility and quality of explanations of deviations in accordance with the 'comply or explain' principle in order to identify those factors that could improve the quality of information on corporate governance system for investors [40]. The analysis and its results directly addressed the agency problem since an active monitoring of the governance mechanisms could present an additional pressure on the companies' management to consider the interests and goals of a company and not their personal interests and goals. The disclosures on compliance for 2010 and 2011 published in the annual reports in 2011and 2012 were the subject of the analysis.

The major findings of the analysis were that both the level of compliances with the best corporate governance practices and the quality of explanations of deviations from the CG Code's recommendations have increased in the observed period [40].

The results of the analysis indicated that two companies in 2011 and one company in 2010 complied with all code's recommendations. The rest of the analysed companies disclosed on average a compliance with 81% of the code's recommendations. More than half of total 112 code's recommendations were identified as those that all analysed companies complied with. The comparisons for the observed 2-year period show that the level of compliance with the CG Code from 2009 has been improving [40]. Such results suggested that companies have been trying to consider the CG Code's recommendations as much as possible, thereby also raising the quality of their governance practice.

The analysed listed companies disclosed deviations especially from the following six recommendations of the Slovenian CG Code from 2009 [40]:

• definition of goals in the company's statute,

**Authors/source** Ljubljana Stock

Disclosures of (non)-compliance with the

Slovenian CG Code 2009 for 2011–2014.

Exchange

together with

the Slovenian

Director's

Association [50]

The SEECGAN

The adoption of codes in the listed companies

All prime and standard market that

Any corporate

•

More than three-quarter of prime and standard market companies disclose a code.

governance code.

• • explain the deviations from it.

88.9% of prime and all standard market companies disclose the compliance with the code and

Companies refer to one of the official codes.

were listed on the Ljubljana Stock

Exchange in June 2014; in total 22

companies.

in Slovenia was explored by the following

questions as a part of the SEECGAN Index

methodology:

•

Has the company developed and publicly

disclosed its own Corporate Governance

(CG) Code?

•

Has the company adopted some official CG

Code (CG Code of the Chamber of Commerce, CG Code of the Stock Exchange or

similar)?

•

Does the Company disclose the extent to

which it is complying with its Corporate

Governance Code (does it explain possible

deviations from the Code)?

**Table 1.**

Scope (subject) of analysis and major findings of the research on corporate governance codes in Slovenia.

Index [38, 39]

**The scope/subject of analysis**

**Sample** Companies listed on the Ljubljana

Slovenian CG Code

• in 2011 to 71.7% in 2014.

• in 2013, and 89.8% in 2014.

• • •

Half of the most frequent deviations were deviations from the principles on the transparency.

Companies complied with 22 recommendations (out of 112) in all observed years.

The number of specific, high quality explanations of deviations has ireased—23.5% of such

72 Corporate Governance and Strategic Decision Making

specific explanations in 2011 and 27.8% in 2014.

Companies on average comply with 89.8% of recommendations in 2011, 90.6% in 2012, 89.9%

The number of companies adopting the Slovenian CG Code (2009) has increased from 63.8%

Stock Exchange: 58 companies for

2009

2011 and 2013, 57 companies for

2012, and 60 companies for 2014.

**Code under investigationMain findings**


Effectiveness of the CG Code in practice depends also on the transparency of deviations that should be reliable and complete. The detailed analysis of explanations of deviations shows that only 27% in 2010 and 44% in 2011 were such that could be classified as specific, highquality explanations on deviations describing besides deviations also alternative governance practice and reasons for its adoption by a company [40].

Even though the quality of explanations of deviations has increased in the observed period, the comparisons of the reported disclosures and the actual governance practices raised an important question of the quality, completeness and credibility of these disclosures. The research results revealed that companies did not disclose all deviations mainly for two reasons. Firstly, companies did not interpret a particular recommendation correctly, and secondly, companies did not find a particular recommendation as relevant [40].

The Ljubljana Stock Exchange together with the Slovenian Director's Association conducted *the next analysis in 2015* in order to be able to observe development in the adoption of the CG Code from 2009. The analysis covered disclosures of compliances with the code for the 2011– 2014 periods. The sample consisted of companies listed on the Ljubljana Stock Exchange: 58 companies for 2011 and 2013, 57 companies for 2012, and 60 companies for 2014 [50]. This sample was therefore much larger than the one of the 2012 analyses since it included not only prime market companies but also other companies listed on the Ljubljana Stock Exchange. The comparisons of the results of both analyses are therefore only limited possible. The major sources of data were companies' annual reports and especially the CG Statement with the Statement on Compliance with the code being a compulsory part of the annual report.

The first step in the analysis was to explore the adoption of the Slovenian CG Code from 2009 in the analysed companies. The results show that the share of companies adopting the Slovenian CG Code from 2009 has increased from 63.8% in 2011 to 71.7% in 2014. The analysis reveals that even though the law enables companies to select any publicly accessed corporate governance codes, only one company decided on such solution. Reasons for not adopting the Slovenian CG Code are diverse and are mainly due to the fact that companies [50]


Results of the analysis on the compliance with the Slovenian CG Code show that only few companies comply with all 112 recommendations. Those were three companies in 2011, two companies in 2012, three companies in 2013 and four companies in 2014. Companies complied on average with 89.8% of recommendations in 2011, 90.6% of recommendations in 2012, 89.9% of recommendations in 2013 and 89.8% of recommendations in 2014. Only 22 recommendations (19.6%) were found that all analysed companies complied with in the observed period [50]. The percentage is lower than in the 2012 analysis, but we should take into consideration that in 2012 analysis only primer market companies were explored that are expected to adhere to the majority of the code's recommendation.

• the principle regarding payments of the supervisory board members that are determined

• appointment of an audit committee and a remuneration committee and a nomination com-

• disclosure of payments of the members of a management board and a supervisory board. Effectiveness of the CG Code in practice depends also on the transparency of deviations that should be reliable and complete. The detailed analysis of explanations of deviations shows that only 27% in 2010 and 44% in 2011 were such that could be classified as specific, highquality explanations on deviations describing besides deviations also alternative governance

Even though the quality of explanations of deviations has increased in the observed period, the comparisons of the reported disclosures and the actual governance practices raised an important question of the quality, completeness and credibility of these disclosures. The research results revealed that companies did not disclose all deviations mainly for two reasons. Firstly, companies did not interpret a particular recommendation correctly, and sec-

The Ljubljana Stock Exchange together with the Slovenian Director's Association conducted *the next analysis in 2015* in order to be able to observe development in the adoption of the CG Code from 2009. The analysis covered disclosures of compliances with the code for the 2011– 2014 periods. The sample consisted of companies listed on the Ljubljana Stock Exchange: 58 companies for 2011 and 2013, 57 companies for 2012, and 60 companies for 2014 [50]. This sample was therefore much larger than the one of the 2012 analyses since it included not only prime market companies but also other companies listed on the Ljubljana Stock Exchange. The comparisons of the results of both analyses are therefore only limited possible. The major sources of data were companies' annual reports and especially the CG Statement with the Statement on Compliance with the code being a compulsory part of the annual report.

The first step in the analysis was to explore the adoption of the Slovenian CG Code from 2009 in the analysed companies. The results show that the share of companies adopting the Slovenian CG Code from 2009 has increased from 63.8% in 2011 to 71.7% in 2014. The analysis reveals that even though the law enables companies to select any publicly accessed corporate governance codes, only one company decided on such solution. Reasons for not adopting the

• referred to legislative and other regulations, internal rules and/or their Corporate Gover-

Slovenian CG Code are diverse and are mainly due to the fact that companies [50] • neither disclosed the code in their annual report nor published the CG Statement,

• developed their own governance practice without adopting any official code,

• companies' shares were not traded at the market,

• referred to invalid CG Code (e.g. from 2007), and so on.

ondly, companies did not find a particular recommendation as relevant [40].

mittee as soon as possible after the constitutive meeting of a supervisory board,

at the shareholder meeting,

74 Corporate Governance and Strategic Decision Making

nance Policy,

practice and reasons for its adoption by a company [40].

As stated in the report of the analysis [50], the number of companies complying with all code's recommendations is still low. However, this does not necessarily indicate lower quality of companies' governance practice. The main purpose of the analysis of compliance with the code's recommendations is not to ensure compliance with all recommendations if that is not an optimal solution for a company. If deviations are explained and alternative solutions are presented, such non-compliance indicates that a company has developed an alternative practice that best suits its specifics. Therefore, in-depth analysis of explanations was conducted. The findings demonstrate that the share of specific, high-quality explanations of deviations that described both deviations and alternative solutions has increased. The share of such highquality explanations was 23.5% in 2011 and 27.8% in 2014 [50]. Even though the results suggest that companies have becoming aware of the importance of good disclosure practices, the quality of disclosures on deviations still needs to be improved. Contrary to the 2012 analysis, this analysis did not include investigation on whether companies really disclosed all deviations.

The results of the analysis also provide a comprehensive insight into those recommendations that companies did not comply with. The list of the most frequently disclosed deviations is organized per main areas of the CG Code accompanied with the data on the share of companies that disclosed deviations from a particular recommendation [50]:


A closer look at the results shows that the share of companies disclosing deviations from particular recommendations has increased in the observed period. Half of the statistically most frequent deviations were those from the recommendations on the transparency.

Another research on corporate governance codes in Slovenia was conducted as a part of research on measuring the corporate governance quality by applying *the SEECGAN Index of Corporate Governance* [38, 39]. The main goal of the SEECGAN Index of Corporate Governance (the SEECGAN Index) is to enable assessment of the quality of governance practice in individual companies as well as the situation regarding overall corporate governance practice in a national economy. Additionally, it makes possible to compare corporate governance practices in South Eastern European countries since the SEECGAN Index methodology pays attention to the particularities of these economies. Seven governance categories are assessed [51, 52]:


All companies of the prime and standard market, in total 22 companies, that were listed on the Ljubljana Stock Exchange in June 2014 were explored. The main source of data was annual reports for the year 2013. Additionally, reports and documents published on the companies' websites were analysed. Research results revealed that more than three-quarter of the prime and the standard market companies disclosed a code. The majority of companies referred to one of the official codes. All standard market companies and 88.9% of the prime market companies disclosed the compliance with the corporate governance code and explained the deviations from it. Even though the disclosure of compliance with the chosen code is obligatory for the prime and the standard market companies in Slovenia [45, 46], one of the prime market companies did not disclose compliance with the code [39].
