1 Introduction

Concern about the ways in which companies are managed, about the rights and duties of shareholders and administrators has been present for long time in the field of management research. Adam Smith’s ‘Wealth of Nations’ (Smith 1776) is the major driving force for several modern economists, acting to develop new aspects of organizational theory. Among other things, Smith predicted that if a firm is controlled by a person or a group of persons, other than the firm’s owners, the objectives of the owners are more likely to be diluted than ideally fulfilled.

The work of Berle and Means (1932) who deals with the separation of ownership and control, also has shed new light on the subject. The authors considered Smith’s concern to specifically examine the organizational and public policy ramifications of ownership and control separation in large firms. They argue that, when different individuals increasingly hold ownership, the industry becomes consolidated and hence the rules to limit the use of power tend to disappear. Numerous researchers and economists, including J.K. Galbrait, have defined the industrial system as part of the economy that is characterized by the activity of some structures large corporations (Burlacu and Poloz 2004). When presenting agency theory, Michael and Jensen (1976) broadened the discussion, providing a theoretical basis for corporate governance studies.

Corporate governance is commonly defined as the structures and processes for the direction and control of corporations, specifying the distribution of rights and responsibilities among the main participants in the corporation and spelling-out the rules and procedures for making decisions on corporate affairs (OECD 2004).

For the first time, the Cadbury codeFootnote 1 established the basic rules of governing a company, in which the corporate governance was defined as the system by which companies are directed and controlled.

Corporate governance is the mode in which a company is managed and controlled. The corporate governance regulates the distribution of rights and responsibilities between different categories of persons involved in the company, such as: the board of the company, its directors, the shareholders and other categories. It establishes the rules and procedures for decision making regarding the company’s activity. This system sets the structure and the decision making authority with respect to the company’s objectives, the means to achieve them and the system for performance monitoring.

Later on, the White Charter, OECD Principles, Preamble, 1999 defines the corporate governance as “a set of relationships between the management of an entity, its board, the shareholders and other associated parties. This also provides the structure which sets up the company’s objectives, as well as the means for achieving the objectives and for monitoring its performance. A good governance of corporations should provide the motivation for achieving the objectives which are in company’s interests and in the interests of the shareholders and for promoting an efficient monitoring, thus encouraging the companies to use their resources in an efficient manner.”

Until recently, few researchers and practitioners were concerned with the problems of corporate governance, being generally perceived as an important issue only for the companies listed on the Stock Exchange and Securities Exchange. On the other hand, the small companies, which are not listed on the exchange although they make up a large share of the total companies, doubt the need for introducing standards for corporate governance in their activity, arguing that small companies have a limited number of shareholders and the respect of corporate governance principles is expensive. This is the reason why developing countries pay inadequate attention to the problems dealing with the quality of corporate governance, while the implementation of such respective principles is carried out reluctantly. Although the financial crises of 1997–2000 in Asia, Russia and Latin America have shown convincingly the need for strict corporate governance, few developing countries maintain this issue in a focus of the decision makers. It should be mentioned that the inefficient procedures for corporate governance are a great danger not only for individual corporations, but also for the society as a whole (Pânzari and Spinei 2004, p. 3).

Corporate governance is defined by Organization for Economic Co-operation and Development (OECD) as a set of relationships among company’s management, its board, its shareholders and other stakeholders, providing the structure through which the objectives of the company are set, while the means of attaining those objectives and monitoring performance are determined.

In Notes of Corporate Governance Manual, written by the International Finance Corporation, corporate governance “includes legal norms, normative acts and activity practices in the private sector which allow the corporations to attract funds and human resources, to effectively exercise entrepreneurship activity and, finally, to assure the continuity of their operation by increasing their long term value and observing the interests of the shareholders and of the society as a whole.”

Good corporate governance should provide proper incentives for the board and management, in order to pursue objectives that are in the interests of the company and shareholders and to facilitate effective monitoring, thereby encouraging firms to use resources more efficiently (OECD 1999). The basic principles of the OECD on corporate governance were recognized in 1999 by the Financial Stability Forum as one of the 12 basic conditions for the stability of financial systems. Studies have shown that good corporate governance practices have led to significant increases in economic value-added of firms, higher productivity, and lower risk of systemic financial failures for countries. Essence of corporate governance as science can be deduced from its definition: corporate governance is the study of the mechanism and procedures of planning, organization, motivation and decision-making control over them as well as processes, links in the cumulative capital-based enterprises (Burlea 2011a, b).

Studying the literature, we find out that the authors conclude that in the Republic of Moldova, there is no normative act so far that would regulate the concept of “Corporation”, although in the legislative and normative acts starting with 1991 this notion is used (Burlea 2011a, b). The only definition so far was adopted by Government Decision no. 22 of 16.01.2003 (Government Decision 2003), thus repealed later on, which stated “Corporation is an enterprise registered in the form of an open-ended joint stock company, which has executed or envisages the issue of shares. More broadly under the notion of corporation is meant the totality of enterprises and organizations linked to each other through property and (or) production relations in order to achieve a common purpose (holdings, financial-industrial groups)” and the corporate governance “is a set of relationships between the owners of the corporation and the employed managers, as well as other stakeholders—employees, partners, creditors, and local authorities, through which the balance of their interests is achieved using a certain model of corporate governance established by the law.” The notion of corporate governance, as it is stipulated above, included a multitude of relationships between the management of companies and stakeholders and it determines the balance of their interests.

The present aspect, also indirectly related to the corporation, is provided in par. 2, art. 55 of The Civil Code of the Republic of Moldova (The Civil Code of RM 2002), namely: the legal person can be organized in a corporate way or as membership, may be dependent or independent of one number of members, may have a lucrative or non-lucrative purpose (Burlea and Spînu 2012).

Therefore, it seems that there is in fact a deficiency of proper legal framework to stimulate creation of genuine corporate structures in the national economy. Currently, the main efforts of The Republic of Moldova legislator is geared towards making various reforms and creating regulative conditions, but with all the significance of these measures, on corporate governance—the internal factors of economic success remain outside the attention of governmental managers.

The founders of corporate governance, considered to be the most important economists and also a number of classics of economic science (Drucker P., Eucken W., Keynes J.M., Lambin J.J., Hall A., Porter M.E., Samuelson P.A.) dedicated a great deal of research regarding this aspect of economic science, of major importance. Further, their research has been developed in the studies of foreign well-knows scholars such as Ansoff I., Brealy R., Dunning J., Prahalad C.K., Shleifer A., Stiglitz J.E. and others.

Both in theory and in practice, corporate governance is a relatively new theme in the Republic of Moldova. Many Contemporary national authors (such as Burlacu N., Ţurcanu G., Poloz A., Rău A., Balanuţă V., and Vulcan) have focused their research either on the general aspects of corporate activity or on the analysis of their financial activity. Therefore, the authors regard the conceptual approach to the corporate governance as insufficient, which leads to the lack of an instrument for assessing the efficiency of corporate governance, and they are proposing ways to make it more efficient, based on the research on this topic before and on the situation in Moldova nowadays.

There are many companies in the Republic of Moldova that were privatized or are still state owned, in which the control over the management is inconsistent or almost nonexistent. In such conditions the introduction of the corporate governance principles (Business Principles), and implementation of an adequate control system is an urgent need. In order to encourage foreign investments, the Republic of Moldova needs to develop a business environment capable of assuring a high level of corporate governance (Pânzari and Spinei 2004, p. 3).

The paper presents the information on corporate governance practice both in the international and the regional context, specifically to identify the current situation of corporate governance in the Republic of Moldova. The applicative value of the work lies in the proposition to adopt the Corporate Governance Code, which would ensure managers’ accountability, management argumentation, increased transparency of information, increased confidence from business partners, and improved corporate governance.

2 Methodology, Purpose and Objectives

Research position of the authors related to this topic was formed on the basis of the local and foreign scholars publications on the theory of corporate management, general and strategic management, company theory, business valuation and investment projects, accounting and economic analysis, as well as the literature on the concept of value-oriented management entity. Following the documentation on the most important authors who contributed to the theoretical and methodological research, the authors used research methods such as deduction; induction; analysis and synthesis; graphic methods (to illustrate certain results); methods of comparative analysis (which allowed the dynamic comparison of several entities depending on a particular indicator); methods of mathematical modeling, etc.

The purpose of this article is to investigate the particularities in organizing corporate governance in Republic of Moldova, taking into account the international experience of introduction and application of corporate governance at national level, scientific design of methods identifying the particularities of corporate governance organization in Republic of Moldova, identification of the existing organizational and management problems in Moldova’s enterprises and with establishing solutions to critical issues to be able to proceed with the development of the issues methodological and applicative aspects of company management renovation in Moldova.

3 Corporate Governance Versuss Efficiency of a Company

According to Leal (2004), there is a strong desire of executives and institutions to promote good corporate governance practices, and in that way they lead to higher firm value. The study points out the importance of corporate governance in developed markets and emergence and suggest empirical relationships between investors and value of the company they own.

Rivals Silveira (Saito et al. 2008), searched for evidence of the relationship between mechanisms of governance and performance, how it varies according to the econometric approach, if the mechanisms of governance are exogenous or endogenous and what type of the causal relationship exists. For Bohren and Odegard (Bohren and Odegaard 2003), almost all of the corporate governance studies employ an econometric approach, which assumes that governance mechanisms are exogenous variables, causality presents a unique sense of corporate governance for performance and the regressions are run by means of isolated equations using some of the mechanisms of governance. There are, according to the same authors, studies that assume that the mechanisms are endogenous variables, analyzing the causal relationship also in a single sense, going from the structure of property for performance.

There are a large number of researches whose main objective is the search for an empirical relationship between corporate governance and performance. In fact, studies try to demonstrate that there are no other major factors to justify the adoption of a corporate governance structure to demonstrate that transparency, fairness, accountability and social responsibility have relation to the company’s financial results.

Studies carried out by Silveira (2004), Silva (2004), Leal (2004) and Srour (2007) present revisions of a large number of empirical researches that aims to establish a relationship between mechanisms of corporate governance and performance.

Through a variety of analytical researched in this area, it is certain that the studies aim to demonstrate a relationship between corporate governance and corporate performance, using accounting indicators and indicators of analysis of joint actions with the use of econometric methods. However, depending on the relevance of the relationship between governance and performance, there are suggestions in the literature to establish alternative performance measures, with the use of non-parametric analyze one of the proposals (Nanka-Bruce 2006).

Lehmann, Warning and Weigand (2004) tested the hypothesis that firms with more efficient structures of corporate governance have high profitability. The analysis was carried out with data from 361 German companies covering the period from 1991 to 1996. The results showed that the efficiency scores of the governance structures contribute significantly to explaining the differences between of profitability between companies. The differences by type of control are not statistically significant. Efficiency, on the other hand, explains both the type of control and the concentration of ownership.

4 Corporate Governance in Republic of Moldova

Most economists and specialists in the field of economy and administration, native and foreign, believe that the stable processes of the recent crisis that affected the economy are linked, in many respects, with the problems of forming the new appropriate type of economic, managerial, administrative and state governance that are modified by the economic reality—corporate relations. Most convincing manifestations of this situation: the existence of numerous contradictions that prevent the dynamic development of the economy and the creation of new organizational and legal forms—have not determined the creation of efficient owners in most corporations.

The strengthening of the private property regulation, and the development of new types of business organizations have accompanied rapid economic reform (Love 2010). At present, corporations in Moldova are mostly small and medium size joint stock companies, in which substantial financial and material assets are concentrated. Such companies comprise 2.6% of all companies, employ 25.7% of the total number of employees, and generate 34.8% of net sales. The company’s structure is characterized by an enhanced concentration of share capital. Corporations make an essential contribution to the revenues of the budget, promote the exports of goods and services, and have a positive impact on economic policy (IMF Country Report No. 04/395, 2004, p. 64).

Although reforms in the economy of the Republic of Moldova have lasted more than 20 years, the market has not yet formed professional managers who may be employed in economic entities. There is missing the effective control over the management and the methods of the management of corporations by the founders; this is also, in the opinion of many foreign investors, an impediment to integration of the Moldovan companies within the market where the foreign companies compete, in order to attract foreign investments and to exit to international markets, etc. In this way, the evolution of the forms of interaction between founders and the hired managers not only did not solve the problem of increasing the efficiency of the economic activity of the entities, but vice versa, it has aggravated the problems that existed (Burlea and Spînu 2012, p. 112).

In our opinion, we need to make sure first that corporate governance exists within the entity, in order to be able, by various manners, to influence the process of making corporate management more efficient. Therefore, if it does not exist (which is very often the case within the entities of the Republic of Moldova), it must be implemented.

Corporate governance is a relatively new theme for legal science and practice entrepreneurship in the Republic of Moldova. The vast majority of contemporary national authors, studying large structural organizations, have focused their attention on studying the financial and banking groups, while corporations are divided into members of the financial and non-financial sectors. Another part of the local economists, few in number, has focused their research on studying the specifics of financial management in administration corporate sector and in the non-financial sector, their work having an applicative character, basically examining only on the general aspects of corporate managerial activity (Burlacu and Poloz 2004; Ţurcanu and Rău 2013; Poloz 2005; Ţurcanu 2000) or analyzing the financial activity of joint stock companies (V. Balanuţa, A. Caraganciu, A. Poloz).

The local managers interviewed within the social research carried out by Transparency International Moldova in the city of Chisinau view the range of corporate relationships in the same aspect. Referring to the frequency of some corporate relationships, the respondent managers stated that relationships manager—employees prevail in the company (82%), while the relationships manager—supplier amount to 55%. The Moldovan managers place the manager–shareholder relationships, which are extremely significant in the context of corporate governance, in the third place (48%) on their agenda (Pânzari and Spinei 2004, p. 6).

5 Corporate Governance Legislative Framework in Republic of Moldova

Corporate governance in Moldova is mainly governed by the Law on Joint Stock Companies (No. 1134-XIII of 2 April 1997); the Law on Securities Market (No. 199-XIV of 18 November 1998), the Law on Business Investment (No. 81-XV of 18 March 2004) and the Law on Entrepreneurship and Enterprises (No. 845-XII of 1 January 1992), all as amended. In general, the quality of legislation and its effectiveness show serious weaknesses that should be targeted by authorities as a matter of priority. The 2007 EBRD Corporate Governance Assessment showed “medium compliance” of the quality of the corporate governance legislative framework in Moldova compared to the OECD Principles of Corporate Governance, with lowest compliance in the area of disclosure and transparency, responsibility of the board and the rights of shareholders.

The assessment of the practical implementation of the framework indicated suboptimal compliance in the areas of enforceability, speed, simplicity and institutional environment in redress, as well as superficiality and speed in disclosure. The Law on Joint Stock Companies regulates the setting up and the functioning of the joint stock companies and sets out most of the corporate governance rules in Moldova; the Law on Securities Market establishes detailed disclosure requirements for the issuers, conflicts of interest rules and transactions with affiliated parties; the Law on Business Investment sets out the rights and obligations of investors and provides them with guarantees and the Law on Entrepreneurship and Enterprises provides guarantees for the respect of investors’ rights, protection against expropriation, and payment of damages in the event investors’ rights are violated. The Law on Financial Institutions (No. 550-XIII of 21 July 1995) and the Law on the National Bank of Moldova (No. 548-XIII of 21 July 1995), both as amended (Pânzari and Spinei 2004) set out the regulation for corporate governance of banks.

For comparison, a research carried out by Economist Intelligence Unit Limited, funded by KPMG International, has revealed that 46% of the interviewed mangers placed the problems related to corporate governance among the first three priority issues on their agendas, while 14% place them as first priority. The fact that these relationships currently are considered by the Moldovan managers to be important does not mean that they are solved in practice. In the Republic of Moldova, both in some companies with local or foreign investors and in some state own companies, the control over the management is inconsistent or almost nonexistent. In these conditions, the introduction of corporate governance principles for improvement of economic performance of companies and the implementation of an adequate system for control over the management is an urgent need (Pânzari and Spinei 2004).

On June 1st, 2007, a Corporate Governance Code was issued by the NCFM.Footnote 2 The Code includes a voluntary set of rules on corporate governance recommending the “comply or explain” rule.

In order to ensure and protect the rights and legitimate interests of shareholders, there is the need to comply the corporate governance legal requirements from the regulatory framework in force for joint-stock companies with international corporate governance standards. So, the paragraph 27 (1) (c) of the National Plan of actions for the implementation of the Moldova—European Union Association Agreement for the years 2014–2016, approved by the Government Decision of the Republic of Moldova no. 808 of 7 October, established the need for the Code to rule on good corporate governance, which has been published and implemented starting with the 24.12.2015.

The main objectives of corporate governance are to create an efficient system to ensure the safety of shareholders’ funds and their effective use, to reduce the risks that investors are not able to anticipate and/or unwilling to accept, and to avoid the reduction of the company’s investment attractiveness and the value of its shares caused by the investors long-term management.

According to the code, corporate governance provides the way in which the objectives of the company are established and determined, as well as the means to achieve these objectives and the procedures for monitoring the performance of the company.

The Code reflects the corporate governance framework that ensures fair treatment (in strict compliance with the law) for all shareholders of the company, including minority and/or foreign shareholders holding ordinary and/or preferential shares, and represents a set of governance standards for the management and shareholders of the company in the effective management of a company, adopted for:

  1. 1.

    protecting and promoting the rights of shareholders and other relevant stakeholders;

  2. 2.

    clarifying the governing roles of the governing bodies;

  3. 3.

    ensuring the functioning of joint stock companies in an environment without corruption;

  4. 4.

    promoting the interests of managers, employees and shareholders by harmonizing the regulatory framework, as well as by other measures.

The corporate governance framework should ensure fair treatment (in strict compliance with the law) for all shareholders of the company, including minority and/or foreign shareholders holding ordinary and/or preferential shares.

The structure of the management authorities of companies varies from one country to another. Some countries, such as Germany and the Netherlands have developed a two-headed structure for company management. There is a distinct difference between the Administrative Board composed of investors, creditors, and employees, which is responsible for the supervision of the company’s activity and the Executive Board or the management that is responsible for the day-to-day operation. In other highly developed countries, such as, in Great Britain and in Canada, there is only one Administrative Board in which independent members (having no executive responsibilities) hold a significant share. The basic requirements are their non-affiliation and non-involvement in day-to-day operations of the company. In Republic of Moldova, the model that is based on high capital concentration prevails from the three known models for corporate governance. The management bodies of a company include:

  • The general meeting of shareholders;

  • The Board of the company;

  • The company’s executive body.

The responsibilities and obligations of the management bodies are clearly stipulated along with the mode for convening and election of such bodies, in Title IV of the Law on Joint Stock Companies No. 1134-XIII of April 02, 1997. The default rule provided by law is that the general meeting of shareholders appoints the supervisory board, the CEO and also the executive board. This means that in the event the general meeting of shareholders decides to keep the default rule and retain the authority to appoint the CEO and the executive board, the supervisory board has no real advantage for the meaningful oversight over senior management. Further, in most local companies there is no effective separation between ownership and control. Often, supervisory boards are dominated by the controlling shareholder(s), with few—if any—real independent non-executive directors. The whole concept of an independent director is underdeveloped in Moldova.

Transparency is at a low level, due to critical disclosure weaknesses vis-à-vis the International Financial Reporting Standards (IFRS). Significant shareholder rights protection mechanisms are not in place at the companies’ level, in particular regarding the related party transactions. The law does not guarantee a level playing field with respect to the division of powers among corporate bodies; in particular, the default rule on appointment/removal of the supervisory board and executive board members provide little leverage to the supervisory board for its oversight functions (Tofan et al. 2015a, b).

The public disclosure of information in a secure, honest and transparent manner allows interested parties (employees, creditors, and investors, suppliers) to be informed about the company’s situation. In this context, adhering to corporate governance recommendations is vital and essential from the point of view of stakeholders. It is in society’s interest to promote long-term cooperation between stakeholders, which will lead to the prosperity of society and stakeholders will benefit from good management and protection of the company’s capital.

Corporate governance requires stakeholder interests to be taken into account, in line with the recommendations of transparency, accountability and business ethics. If the rights of the interested parties are violated, there should be mechanisms to redress the situation, including addressing the competent public bodies and courts. The company must provide protection to interested parties acting to disclose the illegal actions taken by its management.

Furthermore, Moldovan company law requires companies (and banks) to have an audit commission, which is not a board committee but a separate body appointed by the general meeting of shareholders, whose members cannot be supervisory board members. The Regulation on related party transaction and disclosure of beneficial ownership are detailed but there are doubts about their effectiveness. When it comes to banks, risk governance frameworks, risk management, compliance and internal audit remain under-resourced and not well structured. The audit commission, which is a separate body appointed by the general meeting of shareholders and mandatory for banks, is generally perceived as a dormant body or another layer of internal control reporting directly to the shareholders. The legislation in force does not establish clear mechanisms to ensure the disclosure of beneficial ownership and affiliated parties disclosures (EBRD 2014, p. 21).

5.1 Structure and Functioning of the Board in Republic of Moldova’s Legal Framework

Large companies are organized under a two-tier board system, while in companies with fewer than 50 shareholders; the general shareholders meeting can directly exercise the supervisory board’s powers. The legislation in force and the practices of the ten largest listed companies show a framework on the structure and functioning of the board in need of reform. A major shortcoming is the lack of clarity in law in assigning key responsibilities to the board. We could not find any evidence that the board is playing a strategic role within companies. Furthermore, listed companies are not required to have independent board members. Only boards of banks are required to be made up of a majority of “non-affiliated” persons, but there is no evidence of the presence of independent directors. Board committees are non-existent and the only requirement is for an auditing commission—made of non-board members and accountable to the general shareholders’ meeting. We have doubts about the effectiveness of this mechanism. There is no legal requirement regarding board members’ qualification (except for banks), and boards appear to lack a diversified mix of skills. Boards are generally small and gender diversity is limited, while there is no established practice of board evaluation and a corporate secretary supports the board. Law regulates liability of board members and conflict of interest; however little case law exists until the moment of the research (Cigna et al. 2017).

5.2 Transparency and Disclosure

Non-financial information disclosure requirements for companies and banks are quite detailed. For banks, selected information must be made available on their website. In general, banks’ websites appear to be informative; however, some key information does not appear to be systematically disclosed (e.g. transactions in company shares, minutes of the general shareholders’ meeting). The law requires public interest entities to disclose their financial statements, which must be prepared in line with IFRS. All ten largest listed companies comply with this requirement. Reporting to the market and shareholders appears to be detailed by law, but in some cases it does not appear to be well implemented. The law is fairly detailed concerning disclosure on the external auditor and appears to be well implemented in this respect (Cigna et al. 2017).

5.3 Internal Control

All entities are requiredto establish a system of internal control, but the internal audit function is regulated only for banks. Internal audit often lacks independence, with unclear reporting lines between management, the board and the audit commission. Internal audit does not seem to meet often with board members in the absence of management. Banks do not seem to be required to have a standalone compliance function. Audit committees are non-existent and the only requirement is for an auditing commission that is not a board committee. There is no requirement for companies to adopt a code of ethics. There is no specific whistle blowing legislation in the Republic of Moldova. The external audit function is well regulated but how the independence requirements are properly implemented remains a non-answer question. Regulation on related party transactions and conflict of interest appears to be comprehensive.

5.4 Stakeholders and Institutions

The Moldovan securities market is undeveloped and its stock exchange is very small, listing less than a dozen companies. The volume of transactions is low and some days there are no transactions at all. The stock exchange also operates as a platform for trading of non-listed issuers’ securities, which do not need to comply with the listing requirements. The stock exchange’s website does not provide any corporate governance information on issuers. The National Commission on Financial Markets (NCFM) approved a Corporate Governance Code in 2007, which has never been reviewed. It seems that the Commission has enacted a new code in March 2016. Listed companies and banks are required to dedicate a special chapter of their management report to corporate governance, covering information on the corporate governance adopted by the entity and extent to which it complies with it. Banks are expressly required to have their own code of corporate governance based on the NCFM’s Corporate Governance Code and banks seem to comply with this obligation; however, information on the extent of compliance with the code is generally incomplete or inexistent. There are inconsistencies in corporate governance legislation. International organizations indicators reveal that competitiveness and corruption in Moldova are serious problems that need to be addressed (Cigna et al. 2017).

6 Comparative Analysis with the Good Practices in Central Europe and Russia

In the last 20 years, Central and East European (CEE) economies have undergone large economic transformations. These changes were not straightforward and particular countries have achieved their transformation with varying degrees of success.

Transition economies had to experience a transformation process in which institutional environment had to be created in a relatively short period. Hence, some elements of the environment are missing or underdeveloped. This pertains mostly to legal systems, capital markets, banking sector and human resources. The problem of corporate governance in CEE countries is closely associated with privatization process. The progress of appropriate corporate governance mechanisms has taken a different path in CEE in comparison to Western economies. Corporate governance legislation in most of CEE countries is already in place but its efficiency varies considerably and thus requires further development. The important question in the investigation of formed structures and models of corporate governance is whether to accept one of the models that have evolved over time within matured market economies or it is preferably to suggest another model for CEE countries, which is adapted to specific conditions of transition economies. The core of the problem is to be found in the fundamental orientation of two corporate governance models belonging to developed market economies. On one hand, the Anglo-American model is based on the market that controls companies and presumes capital markets have high liquidity, publicly traded capital and a large number of publicly traded companies. On the other hand, the Continental-European model presumes effective functioning of the banking sector and its monitoring role that substitutes the control function of capital markets. Unfortunately, neither the banking sector, nor capital markets are well established within transition economies (Franek 2016, p. 123).

In the comparative analysis of corporate governance systems, made by Jiri Franek in 2016 (Franek 2016), it was established that the post-privatization period for CEE countries encountered problems in regard with an insufficient system of corporate governance and moral hazard issues. The critical question for these transition economies was how to cope with the period of simultaneous existence of the older system of state enterprise and control over resources and the new system of private ownership control, because privatization process and creation of new institutions in these particular countries have taken a long time to develop (Tofan et al. 2015a, b). The road from the older system to the new one was complicated and transformation processes that could not have been copied from the models of developed countries, because disposable time and primary conditions were very different. Furthermore, the transformation process took place at the background of significant economic, cultural and social differences in CEE economies that were essential for the whole course of changes in these national economies. It was noted in the research that after privatization was completed, CEE countries could be considered representatives of the inside controlled systems that are dependent on banks, according to the corporate governance system in force. The absence of functional capital markets is apparent. The underdeveloped capital markets do not supply the necessary flow of new capital to businesses; their low liquidity does not allow indirect ownership control over the behavior of managerial boards through the market for corporate control. From the economic performance perspective, credit markets in CEE countries are potentially more efficient.

Comparative analysis (Franek 2016), suggests that corporate governance systems operate on the basis that it has been inspired by Continental-European model (German model). Some differences that occurred are not considered significant, though the Codes of Best Practice based on the OECD Principles of Corporate Governance coming from Anglo-American environment has no influence. However, some scandals in Germany have weakened the up to now solid reputation of German model and its dominant influence that has spread into all CEE countries. Participants of international capital markets will still demand a good level of company corporate governance while considering investment opportunities and those companies, which do not pay sufficient attention to corporate governance practices, will discourage them. There are differences in the levels of corporate governance among CEE countries due to the history of legal tradition, social habits and political framework that prevails in a particular country. Transition economies will continue to learn from corporate governance practices of historically successful companies. In recent years, there has been a significant step forward in CEE regarding specific aspects of institutional reform; however the situation varies in particular countries (Franek 2016, p. 132).

When comparing the development of corporate governance in Central Europe and Russia we can identify some similarities and differences.

On one hand, the countries of Central Europe and Russia have much in common: they all have been involved in the two major economic periods of the twentieth century: the communist experiment with a command economy, and the subsequent transition from plan to market (Mogilevskyi 2001). The latter still continues, and it has yielded different results in different countries. For example, between 1990 and 1999, GDP in Poland grew by more than 40%, while in Russia it fell by 40% (Oman 2001). The awareness of the interrelation between the successes of reforms and the quality of corporate governance brought forward the issue of corporate governance improvement.

The Bank of Russia Financial Market Service notes that the purpose of corporate governance is to give shareholders opportunity of effective control and monitoring of management’s activity and all that should help for increasing company’s capitalization (Osipova 2013). Comparative analysis of certain corporate governance institutions in Russia and major EU countries also shows that they have much in common. For example, boards of directors in France, Germany or Italy, as well as in Russia, are not particularly active and there are mainly ‘insiders’ affiliated with the owners and management of the companies. Minority shareholders are clearly in the minority. In the UK and the United States, boards of directors are vigorously active and include mainly independent directors. According to the Merit Research Corporate Governance Risk Survey (Owen 1997) the countries of Central Europe show similar weak and strong points in corporate governance. Thus, the law enforcement is their weakest point, while regulatory framework is the strongest. Slowness of courts, inefficiency of arbitrage, as well as evasion of the final verdict are the most commonly observed problems. At the same time, it is admitted that regulatory institutions are independent and well functioning. In Hungary and Poland, the quality of the regulatory framework is defined as approaching the standards of economically developed countries. Company laws in all these countries are good quality in regards to shareholder rights, but creditor rights and laws dealing with bankruptcies, quality of contracts and conflicts of interests remain less pronounced. According to the opinion of the European Commission (Porshakov 2006) harmonization of the rules relating to EU company law and corporate governance is essential for creating a Single Market for EU legal Services. In the fields of company law and corporate governance, objectives include providing equivalent protection for shareholders and other parties concerned with companies, ensuring freedom of establishment for companies throughout the EU, fostering efficiency and competitiveness of business, promoting cross-border cooperation between companies in different Member States, and stimulating discussions among Member States on the modernization of company law and corporate governance. EU laws and codes set the standards for good and responsible management of companies. They are meant to ensure that a company’s management remains focused on the long-term interests of their shareholders. As part of a wider reform of EU corporate law, the EU Commission is now examining how to strengthen the rules and make them less dependent on self-regulation. Managers and boards of directors would be held more accountable for their decisions (Pistor 2000).

On the other hand, corporate governance practices in the EU and in Russia differ considerably. There are certain objective and subjective factors that allow comparisons and analogies to be made. Furthermore, even within the euro zone, corporate governance institutions differ in the levels of their maturity. These differences became evident especially in the context of the EU enlargement with a large number of East European states, although several ‘old’ EU members (e.g., Portugal or Greece) are only slightly ahead of Russia in the development of such institutions (Shitkina 2008).

In Europe, the state is in charge in reforming corporate governance. The business community, not only in Russia, but also in many European countries, is not yet self-organized and self-sufficient enough to influence the respect of corporate governance principles. The prevalence of concentrated ownership in Russian and the majority of European companies have a substantial impact on the essential aspects of their activity, such as relations between shareholders and management of a company, transparency, and the status of independent directors. In addition, the comparison of development of corporate governance in Russia with Central Europe helps to reveal the factors that influence its poor performance. In the paper “Factors influencing corporate governance in post-socialist companies: an analytical framework” (Stiglitz 1999) the author indicates that “in summary, there are four factors which can influence corporate governance performance, in the form of pressure exerted by: majority shareholders; outside minority shareholders; internationalization/globalization and the state (via legal regulation)”. Although in the process of reforms all those countries have encountered similar problems, such as insider-dealing, violation of shareholders’ rights, residual state property in enterprises and others, (Tofan et al. 2015a, b) it seems that the initial conditions in a country as well as its characteristics and implemented policy reforms play a key role in shaping the performance of a national system of corporate governance.

7 Conclusions and Results

Making a thought analysis base on the definition of corporate governance given by different organization at different times, we may conclude that the notion of corporate governance is viewed through the aspect of an economic entity’s (company’s) operation, and the relationships between the governing bodies and different stakeholders such as shareholders, employees, creditors, suppliers, as well as local authorities and the civil society. One of the areas in need of improvement in corporate governance is the development of the securities market; that became an important sector of the economy, as it is the sector where the sale-purchase of shares takes place and investments are attracted for restructuring and renovation of companies. The investors become increasingly demanding in respect to the quality of corporate information, channels of their disclosure and implementation of standards for corporate governance in companies in which they intend to invest capital.

In the Republic of Moldova legal framework, the promotion of efficient steps in corporate governance, the implementation of business principles recently developed by the representatives of the private sector, nongovernmental organizations and the Union of Trade are efficient actions for the prevention and fighting of corrupt acts.

There are a series of constraints to the further development of corporations, including:

  • a low ratio of foreign investments in the capital structure of companies, investing in Moldova companies is perceived as risky

  • lack of banking resources in the financial structure, due to the weak legislation and the inefficiency of corporate management

  • lack of protection of minority shareholders’ rights

  • weak management responsibility and the lack of a corporate administration code

  • weak mobilization of domestic saving for investments

  • insufficient protection of investors, lack of transparency and insufficient objective information regarding corporations and the stock exchange market

In addition to the above there are a number of organizational problems including:

  • lack of information and incentives for good corporate administration management

  • legal, judicial and public entities personnel are not sufficiently familiar with the role and regulatory methods of the activities of the corporations

  • the absence of a traditions in corporate behavior

  • an insufficient analysis of the problems of the corporate sector

To conclude on our analysis, the objectives of corporate management policy in Moldova are:

  • the promotions of efficient corporate management through the elimination of administrative restrictions

  • the creation of transparent and stable relations, which are understood and accepted by all parties and are based on the rules of corporate culture

  • the strengthening of the competitiveness of Moldovan corporations and of competition among them

  • the creation of a domestic corporate structure which is compatible with international corporate systems

  • the input in the eliminations of corruption

In our opinion, to reach the above-mentioned objectives, the legislative actions should be focus on:

  • preparing the Corporate Administration Code in compliance with international and European principles

  • improving the present legal framework and the mechanism for its implementation

  • assuring the coherence of the legal and procedural framework with the judicial branches

  • creating a competitive market environment

  • undertaking a constructive dialogue between the public and the private sectors in order to achieve balance between the interests of the Government and the business community, including the participants in corporate relations.

Going forward the European path, Moldova should continue to bring its commercial laws in line with international standards and make those laws fully effective, particularly by strengthening the court system, tackling corruption and implementing appropriate measures to strengthen the rule of law. Compliance with the corporate governance requirements set out in the current legislation of Republic of Moldova is the best mechanism to protect the rights of shareholders. The regulated market urges to use internal measures to protect shareholders’ rights and promote good corporate governance.