Corporate Governance (CG) is an often discussed theme, especially in Western Europe and in the U.S. after the financial crisis 2007-2010. However, in Latvia, which suffered the most in the European Union (EU) from the economic crisis, this is seemingly not a subject of debates. This poses the question whether Latvia is an emerging market in the sense of the development of CG. Therefore I chose to look at this issue more closely. The U.S. CG system influences the most important national CG systems in the world and as there is a lot of research done on the CG in the U.S., it seems to be interesting to compare the development of the CG in the U.S. with that in Latvia.
The fact that CG is getting a more and more important issue in Latvia is shown e.g. in the foundation of the Baltic Institute of Corporate Governance in 2009. The Institute’s aim is to promote development of responsible CG in the Baltic States. As it is a new organisation, it does not yet have any publications on CG in the Baltic States released. In addition, there is actually no up to date research on CG in Latvia. In 2002, the World Bank conducted the Corporate Governance Assessment based on the OECD principles of CG. There is the recently (in 2009) published book Corporate Governance in Transition Economies edited by R.W. McGee. It contains also an article on CG in Latvia, which, in fact is a summary of the CG assessment by the World Bank in 2002.
Regarding all the aspects mentioned above, the analysis of CG in Latvia provides a very interesting research area as it has been insufficiently researched until now. Moreover, a comparison with a well-established CG system like that in the U.S., could be a source of useful information and recommendations for Latvia’s companies.
Table of Contents
Introduction
1. Corporate Governance: Theoretical Considerations
2. The Framework for Development of CG in Latvia
2.1. Short Historical Overview
2.2. General Political Context
2.3. General Economic Context
2.4. Structure of Enterprises
2.5. The Regulatory Framework
3. The CG Agents
3.1. Shareholders’ Meeting
3.1.1. Shareholders’ Rights
3.1.2. Voting Rights
3.1.3. Shareholder Protection
3.2. Board of Directors
3.2.1. Composition and Election of the Board
3.2.2. Obligations and Responsibilities of the Board
3.2.3. Disclosure of Information
3.3. Council
3.3.1. Composition and Election of the Council
3.3.2. Obligations and Responsibilities of the Council
3.4. Structure of the Ten Largest Latvia’s Companies
3.5. Case study – AS Diena.
4. Corporate Governance in the U.S.
4.1. The Main CG Agents
4.2. Foundations of Corporate Law
4.3. Foundations of Securities Regulation
5. Evaluation of CG in Latvia
Research Objectives and Themes
This study examines whether the corporate governance system in Latvia is converging toward the American model. It analyzes the legal framework and practical structures of major Latvian companies, comparing them with U.S. standards to identify key governance characteristics and the presence (or absence) of the principal-agent problem in the Latvian business environment.
- Theoretical comparison of Anglo-Saxon and Continental European corporate governance models.
- Analysis of the political and economic context influencing Latvian enterprise development.
- Detailed examination of governance agents: shareholders, the board of directors, and the supervisory council.
- Empirical assessment of ownership structures in the ten largest Latvian companies.
- Evaluation of transparency, information disclosure, and minority shareholder protection in Latvia.
Excerpt from the Book
3.1 Short Historical Overview
Latvia as independent democratic country was founded on November 18, 1918. On August 23, 1939 the secret Hitler-Stalin Pact was signed and Latvia got into the influence sphere of the Soviet Union. A short-time afterwards Latvia was occupied by the Soviet Union on June 17, 1940; by Germany on July 1, 1941. Latvia was reoccupied by Soviet Union on May 8, 1945 with the End of the Second World War. During the occupation most private property was nationalised. Only after the collapse of the Soviet Union in 1991 Latvia became a sovereign state again. Economically, this meant denationalisation. In order to do it, multiple new economic and legal institutions were founded and economy was opened for foreign investors.
The privatisation is the main aspect when starting talking about CG in Latvia. After regaining the independence in 1991 the main economic concern was the transition from a centralized economic system to a market economic, at which basis there are private property and private initiative. Therefore the renewal of ownership rights (denationalisation) was started, as a result massive privatisation of state and local authorities property took place. The goal of the state was, with the change of the proprietors, to create a favourable environment for development of private capital in Latvia and to narrow the activities of the state and local authorities acting as entrepreneurs. This was also meant to attract investment. To facilitate involvement of citizens in the process of reforms, inhabitants of Latvia received securities from the state in accordance of the time they had been living in Latvia. These securities were so called privatization vouchers, which people could use as means of payment when acquiring state and local municipality property. These vouchers had a nominal value of 28 LVL. It has also to be mentioned that the privatization vouchers were used as a mean of compensation for persons who lost their properties after the nationalization in 1940. Therefore a new type of privatization vouchers was introduced in Latvia– certificates of property’s compensation.
Summary of Chapters
1. Corporate Governance: Theoretical Considerations: Outlines core definitions and differences between Anglo-Saxon and Continental European models, emphasizing the principal-agent theory.
2. The Framework for Development of CG in Latvia: Describes the historical shift from a centralized Soviet economy to a market economy, including privatization and the prevailing political and economic environment.
3. The CG Agents: Details the roles and legal responsibilities of shareholders, the board of directors, and the supervisory council within the Latvian Commercial Law, including a case study on AS Diena.
4. Corporate Governance in the U.S.: Explains the U.S. governance environment, focusing on the roles of the board, securities regulation, and the specific duties of officers.
5. Evaluation of CG in Latvia: Synthesizes findings, concluding that Latvia largely adheres to the Continental European model with concentrated ownership and an emphasis on shareholder value rather than the classic principal-agent conflict.
Keywords
Corporate Governance, Latvia, U.S. Corporate Governance, Continental European model, Anglo-Saxon model, Shareholders' Meeting, Board of Directors, Supervisory Council, Privatization, Commercial Law, Concentrated Ownership, Principal-Agent Problem, Transparency, Disclosure, Market-based governance.
Frequently Asked Questions
What is the core focus of this research?
The work focuses on whether the corporate governance system in Latvia is converging toward the American model by comparing legal frameworks and the actual management structures of major companies.
What are the primary themes discussed?
The study covers corporate governance theory, the impact of privatization on Latvian business, the roles of various governance agents, and the influence of transparency on business outcomes.
What is the ultimate research question?
The research asks: Does the corporate governance system in Latvia converge in its development toward the American model?
Which scientific methodology is applied?
The paper uses a comparative analysis method, evaluating Latvian governance agents and practices against established Western (specifically U.S. and Continental European) models.
What does the main body of the work cover?
It provides a historical context for the Latvian economy, a detailed breakdown of the legal structure for joint stock companies, an empirical analysis of the ten largest Latvian firms, and a comparative study of U.S. governance.
Which keywords define the study?
Key terms include Corporate Governance, Latvia, Privatization, Concentrated Ownership, and Principal-Agent Problem.
How is the principal-agent problem viewed in the context of Latvia?
The author concludes that the principal-agent problem is largely irrelevant in the Latvian context because ownership is highly concentrated and owners often directly occupy management positions, negating the conflict between owners and managers.
What did the case study of AS Diena reveal?
The AS Diena case illustrates significant issues regarding transparency and information disclosure in Latvia, as the media company's ownership takeover remained opaque and financial reports were inaccessible.
How does the Latvian management structure differ from the American one?
Latvia employs a two-tier system consisting of a board of directors and a supervisory council, whereas the U.S. typically utilizes a one-tier board system where executive and supervisory functions are concentrated.
- Quote paper
- Ausra Liepinyte (Author), 2010, Corporate Governance in Latvia – Does It Follow the Pattern of the U.S.?, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/159937
