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Investor Relations and Corporate Governance Rules

While there is no such legal requirement, it is recommended that a company maintains investor relations after entering the public market, among others by holding meetings with analysts, fund managers and the financial media, and pursuing an active information policy via its corporate website. In the absence of extensive investor relations, the interest of investors in the company will diminish, the liquidity of trading in its shares will be limited, and consequently its share price will be affected.

In order to create the conditions necessary to develop adequate investor relations, the Warsaw Stock Exchange adopted the Code of Best Practice (corporate governance rules) several years ago. The Code is a set of rules which among others improve corporate transparency and consequently reinforce the company’s image and market relations.

“The Code of Best Practice for WSE Listed Companies” represents soft law. This means that companies should comply with the rules (it is assumed that by entering the stock exchange they accept this obligation and agree to fulfil it), yet the WSE imposes no sanctions for failure to comply or partial compliance. According to the “comply or explain” principle, a listed company may not apply the rules of the Best Practice, but if it fails to apply any of the rules (permanently or incidentally), the company is required to notify the market. Its current report (submitted via the EBI system) should contain information about such failure to apply a rule and specify under what circumstances and for what reasons the specific rule was not applied, and how the issuer intends to remove effects of not having applied a given rule and what steps it intends to take to mitigate the risk of the specific corporate governance rule not being applied in the future. While failure to apply the rules is not subject to any sanctions (regulatory penalties may only be imposed on an issuer who has failed to fulfil or inadequately fulfilled information obligations related to corporate governance), yet the market may take a negative view on a company which does not comply with corporate governance rules, and consequently the company’s valuation may suffer.

Issuers are not required to submit statements (declarations) concerning future compliance with the rules of the Code. The obligation to publish relevant information arises only if a specific rule is not applied permanently or is breached incidentally. If non-compliance with a specific rule discontinues, the issuer should immediately disclose this for public information.

Issuers are required to prepare annual reports on the company’s compliance with corporate governance rules. An annual corporate governance compliance report may be a part of the company’s annual report published in accordance with the provisions of the Act on Public Offering. The scope of the report is determined in the Regulation of the Minister of Finance of 19 February 2009.

The rules of corporate governance adopted by the WSE are simple and transparent; consequently, they can be applied by companies established under different legal systems and operating in different countries. Similar codes have been adopted by stock exchanges in other EU member states.

The introduction of the Code of Best Practice has made the Polish capital market more transparent and thus even more competitive in Europe. The positive impact of the Code has been acknowledged by individual and institutional investors. The adoption of the rules of the Code of Best Practice by listed companies contributes to improved corporate governance in Poland. The application of the rules has a positive impact on the share price of many companies on the stock exchange.

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