Discussions at the Highway Communications seminar last Thursday on “Trends in Global Corporate Governance: An Economic Perspective” highlighted some of the peculiarities of corporate governance in Cyprus, such as large family ownership and the very low pay of non-executive directors.
In a later interview, Costas Hadjimarkos, Louis Group Secretary to the Board of Directors and Corporate Governance compliance officer, spoke in a personal capacity to the Financial Mirror about the main issues.
One feature of Cypriot corporate life is that ownership can be highly concentrated: it is possible for up to 65% of a company listed on the Cyprus Stock Exchange to be owned by one person, with the remaining 35% in the hands of public.
Second, says Hadjimarkos, “Corporate life in general is fairly young in Cyprus. Most of the main companies–either listed or not–are being run by the person who founded the company, or by his children.”
Hadjimarkos says this also reflects the Mediterranean culture.
“Everybody wants to run the show.”
Another challenge is that non-executive directors are often appointed because they are friends or are politically connected.
“It is very difficult for non-executive directors, or even shareholders to stand up and speak their minds freely because they might be replaced the next day.”
Non-executive directors are also poorly paid, which does not give them the incentive to take on their responsibilities.
Board members at the Cyprus Development Bank get a mere CYP 30 per year, while the usual fee is CYP 500-1000 per year, compared with about CYP 30,000 in the UK, where the number of directorships is also limited.
“Directors are only beginning to understand and appreciate what a great responsibility it is to belong to the board, and that they need to be educated and taught their responsibilities, but the current remuneration is not enough to devote the proper time,” he said.
Foreign investors want corporate governance
However, these potential obstacles to good corporate governance need to be overcome if companies want to grow, argues Hadjimarkos.
“The challenge for managers, the chairman, members of board and shareholders is to appreciate the value of correct corporate governance and let it lead those companies to more successes,” he said.
“After you gain some size, the Cyprus market is not enough. To be successful in the international arena you have to grow. You need capital, so you have to attract foreign investors.
“Foreign investors not only appreciate corporate governance, they have to be convinced that it is being applied,” said Hadjimarkos.
Fiona Mullen
