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On Thursday, 16 October, the Saeima adopted in the final reading a new law setting forth rules on the management of companies owned by the state or a local government. The Law on the Management of State-Owned Capital Shares and Capital Companies will come into force on 1 January 2015 and will lay down the procedure according to which such companies are to be founded, operated and liquidated, as well as the procedure for managing capital shares, including setting of goals and assessment of operations.
“This Law is a prerequisite for our accession to the OECD. By doing a great amount of work to introduce unified standards and a high level of transparency in the management of state-owned companies, the Economic, Agricultural, Environmental and Regional Policy Committee has improved the overall input of this entity to state and local government budgets and the economy as a whole. The Law will apply to all state-owned companies, including ports and theatres,” stated Jānis Ozoliņš, Chairman the Economic, Agricultural, Environmental and Regional Policy Committee, which was responsible for the Draft Law.
The new provisions will replace the Law on State and Local Government Owned Capital Shares and Capital Companies. Until now, each ministry has managed its capital companies at its own discretion, but the new Law sets forth a unified procedure for more effective management of state-owned companies.
The new Law introduces a partially centralised model of managing state-owned capital shares. According to the new rules, state-owned capital shares are to be held by a ministry or another body of public administration appointed by the Cabinet of Ministers. The government will also have to appoint an institution responsible for coordinating the management of state-owned companies, for elaborating guidelines for effective management of capital shares and capital companies, as well as for issuing opinions on the operation of these companies.
The new Law also provides that as of 2016 it will be possible to set up councils for the largest state-owned companies. Councils will be an option for capital companies with the net turnover exceeding EUR 21 million and the balance sheet total exceeding EUR 4 million in the previous financial year. Until now, state-owned companies were not allowed to have councils. The Cabinet of Ministers will determine the number of members that the council and the board shall have.
By 1 July 2015, the government shall adopt the procedure for nominating board and council members of capital companies for which the government has the right to do so.
Furthermore, the Law stipulates specific principles for selecting managers of state-owned companies. Henceforth, the position of board or council member may be held by a person who has a university degree, who has not been convicted of an intentional crime, whose right to carry out business or other professional activity has not been revoked and who has not been deemed an insolvent debtor by a court. The previous regulation provided that the position of board or council member can be filled by individuals whose previous work experience, education and qualifications enabled them to perform their duties in a professional manner. From now on, the holder of capital shares shall have to set up a committee for evaluating candidates. The committee shall include, inter alia, independent experts and, if necessary, observers with advisory rights.
The Law also sets forth a new procedure for remunerating and awarding bonuses to board members by taking into consideration the company’s operations. By 1 January 2016, the Cabinet of Ministers is obliged to adopt rules on the remuneration of board and council members while taking into account the average salary and social benefits offered in a private capital company of similar size.
Today MPs supported the proposal that the maximum monthly remuneration for board and council members must not exceed the previous year’s national average monthly salary as published in the official statistical report by the Central Statistical Bureau, rounded to whole euros and multiplied by a coefficient 10. Bonuses for board members of capital companies will have to be below two monthly salaries; bonuses for council members - below one monthly salary.
Furthermore, the Law sets forth new requirements for open access to information: henceforth, the company or the holder of capital shares will have to publish all topical information on its website, including information about dividends paid and payments made to the state budget.
The new Law obliges state-owned capital companies to elaborate medium-term strategies, and it stipulates the procedure by which the portion of profits to be paid out in dividends is to be determined on the grounds of the company’s medium-term strategy and its operation.
Saeima Press Service