Corporate Governance in Baltics – Status Quo?


Firmly established, plausible corporate governance not only enhances company’s competitive advantage, but also increases company’s trustworthiness in the eyes of its stakeholders, eventually translating into higher value. Meta-research on value-added of corporate governance, combining the results of the several studies, unambiguously drives the conclusion that, in the long-term, there is a strong positive influence on the financial and stock performance. Following these findings companies in developed countries already for two decades strive to improve their corporate governance systems, motivated by the regulators as well as by the market per se. Do Baltic exchange-listed companies also follow this trend? Our answer is YES, but at the speed of the turtle, possibly not yet completely understanding the benefit of additional transparency and not feeling significant pressure from the market.

We have conducted a research on the corporate governance quality of 30 Baltic companies included in the main list of Nasdaq Baltic, looking at the period from 2016 to 2020 to understand the current state of the corporate governance quality in Baltics and to see its development trend, too. It is a common knowledge that the quality and transparency of the corporate governance systems can be a decisive factor in the investment decision-making process, particularly in the Emerging Markets. Therefore, it would be important to know if Baltic market was able to increase its attractiveness in the eyes of foreign investors.

Ignored diversity and lack of independence?

Diversity is obviously not the main strength of the Baltic companies as women in the Management Boards are represented in just half of the companies (53%). And even if they occupy managerial positions, their representation in senior management is just 33%. However, we see that overall Baltic companies are moving in the right direction, albeit at a slow pace: in 2016, there was 22% of female managers in aggregate, while in 2020 this number increased to 24%. Management diversity is more likely to be professed by the consumer companies: Apranga, Ekspress Group, Novaturas.

On the level of Board of Directors (BoD), one sees that the companies strive to comply with best practice  and  60% of them have women elected to the board. However, those that have, are still significantly skewed towards male representation, with women accounting for mere 21% of total Board members, which is substantially below the recommended level by the best practice. It is worth noting that over the last 5 years situation in Baltics did improve: women representation on the aggregate scale has increased from 10% in 2016 to 13% in 2020. To compare, in European listed companies this ratio reaches 36%, so Baltic companies obviously have certain space to grow.

 Figure 1. Management board and Board of Directors diversity, Baltic companies, 2016 vs. 2020

Source: Alphinox, CG Reports of Baltic companies

Independence aspect of the BoD is another space for improvement for Baltic companies: in our home market we see yet weak representation of independent directors as opposed to broader Europe, where share of those is about two times higher – 64% vs 35% for the Baltic market. This might be the result of the majority shareholders willing to retain full control over their companies, as well as of lack of skilled independent directors due to short history of capital markets development.

Figure 2. Independence of Board of Directors 2020

Source: Alphinox, CG Reports of Baltic companies

 Rock-solid CEO positions

In Baltics, the average number of members in Management Board and Boards of Directors seems to be reasonable, totaling 3.5 and 5 members respectively. During the last 5 years the size of the governance bodies stayed relatively stable: in 2016 the average size of the management board was 4, while that of the supervisory board was 5. Worth noting that four companies of the analyzed sample have only 1 member that represents the entire Management Board, which, as a rule, is a reprimanded practice, but some argue that such operating model suits company the best.

On the European scale the organization on the level of BoD in Baltics looks very efficient considering limited number of members on the board. In contrast to Baltic companies, the average BoD size in Europe amounts to 11.5 members. The largest boards often are seen in German companies, which is explained by the fact that employee representatives tend to be members of BoD and actively participate in the Boards’ meetings.

Stability of the Management board and long CEO tenure tend to be the indicators of how successfully management implements corporate strategy. Right now median management team tenure within Baltic listed companies reaches 5.5 years, which can be considered to be adequate for implementing corporate strategy.

An interesting fact is that CEO tenure is very impressive for many Baltic companies: in more than half of the analyzed companies (57%) CEO position remained as solid as a rock, with the man at the helm being the same since they became public. In most cases, CEO has a significant stake in the company and is also a founder or a founding member. Average CEO tenure in Baltic companies is 8 years, which is a solid number allowing the Chairman the management to implement intended strategic initiatives.

 Figure 3. CEO tenure, Baltic companies

Source: Alphinox, CG Reports of Baltic companies

Baltic companies can also boast of longer BoD tenure as compared to the tenure seen among European companies: 6.4 vs. 5.9 years respectively.  Longer tenures allow the boards to monitor and supervise implemented strategy and adjust if necessary as well as take the responsibility of the decisions made before.

Figure 4. Average BoD tenure (in years)

Source: Alphinox, CG Reports of Baltic companies

Compensation adequacy

Remuneration of the governing bodies remains a very sensitive topic for companies, resulting in their unwillingness to disclose relevant data in corporate reporting. However, pushed by the market scrutiny, Western European companies are providing very detailed disclosures on compensation packages of both the Board of Directors and the Executive Management, while Baltic companies are still shy in doing so and shared data on the compensation components is often vague and ambiguous. Certain amount of time should pass until the heads of Baltic companies realize that it is their duty to inform the shareholders and potential investors regarding the remuneration and the pillars of the remuneration strategy.

Based on the available data (70% of sample companies), we have calculated average remuneration of Management and Board of Directors in relation to the company’s net profit for the last 5 years. Median ratio has been increasing since 2017 from 6.3% to 11.3% in 2020 as compensation packages became relatively more generous. However, relatively high ratio in 2020 is also explainable by the lower base of net income as number of companies felt negative pandemics impact on their profitability.

Figure 5. Combined BoD and Management remuneration in relation to сompanies’ Net profit, 2016-2020

Source: Alphinox, CG Reports of Baltic companies

Concluding the discussion on remuneration, we could really praise those companies, which already disclose the compensation details, raising trust and awareness among their shareholders.

Concentrated shareholding as a double-edged sword

It is very characteristic of Baltic companies to have high share of insider shareholding – very often we see concentrated share packages held by the company’s CEO or Chairman. On average, combined number of shares held by the Board of Directors and Management equals to 34% of capital, often being concentrated in the hands of a very few persons. This situation is like a double-edged sword: high insider shareholding certainly increases engagement and commitment to strive and perform as good as possible. On the other hand, this situation might lead to very high power concentration, lack of control mechanisms and opinion diversity in decision-making as well as high temptation to fall the victim of agency problem. The latter can manifest itself as disregard of minority shareholders rights or result into succession wars when major shareholder leaves the company.  The only mechanism to avoid above-mentioned critical situations is to have very strong BoD led by independent members, which can mitigate such disputes, ensure quality corporate governance and sustainability of long-term shareholder value creation.


About Alphinox

Alphinox is part of an independent asset manager group with expertise in capital management operating in accordance with Quality investment style. By combining investment expertise and long-term experience in analysing global financial markets, Alphinox develops customized investment solutions and provides analytical research.


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