Critical assessment of corporate governance regulatory framework in Romania

¶ … corporate governace regulatory framework in Romania

Corporate governance regulatory framework in Romania

Romania is still engaged in a transition process since the fall of its communist regime in 1989. There is political and economic instability and the challenges to corporate governance are intense (Paredes, 2004). Still, the expansion of the country's operations at a global level forces it to adapt its corporate governance and align it with the frameworks in the more developed states (Sellar, 2009).

A report of the Organization for Economic Co-operation and Development ranked Romania 7th on the list of corporate governance practices in the emergent states, with an overall score of 20.6. The highest score was obtained by Greece (32.5) and the lowest by Russia (14.1).

As it can be observed in the table above, Romania finds itself below the average in five specific instances: publications of results, independent audits, equal access of shareholders to information, effective enforcement of shareholder's rights in court and quality of access on visits. But in spite of these shortages, efforts are being made to improve the country's situation (Association for Foreign Investment and Cooperation, 2011).

At the specific level of auditing, it is noted that this is well regulated in the legislation through the Company Law and the Accounting Law. At the level of the economic agents, auditing engages all bodies of corporate governance.

"All three corporate governance bodies have a role in the preparation of the financial statement. The effective drafting of the financial statement is done by the directors / administrators (in practice, based on managers' input). The censors check the information included in the financial statement with the company's books and signal irregularities in their report. Finally, the general assembly of the shareholders approves the document or requires changes" (OECD).

The financial sector is one of particular interest in terms of the company governance regulatory framework in Romania (Center for Urban Development Studies). A trend has been noticed in that financial institutions have improved their structures of corporate governance after 2008 (Spahiu, 2010). The corporate governance regulatory framework has also improved due to the institutional reforms that the accession to the European Union in 2007 implied (Bonetto, 2009).

Several researchers point towards Romania following the general pattern of Continental Europe in terms of internal control of employees and managerial approach, with some particularities (Giurca Vasilescu, 2008). There is a distinct trend that points to a shift from owner-management to professional management (Berklof, Pajuste, 2003).