Leading Croatian companies’ reporting on corporate governance and corporate social responsibility has improved over the past year, according to research just released by Zagreb School of Economics and Management and the PFS Program. This indicates that, at least in terms of public disclosures, the overall investment climate in Croatia has improved.

In late 2004 and again in late 2005, ZSEM conducted two surveys of the public reporting practices of 48 leading Croatian companies. A research team of Leslie Matthews Šulenta, Mirna Korièan and Andrijana Mušura conducted the research, analyzing websites and annual reports through two separate surveys – IRO and CSR. For both surveys, researchers put themselves in the shoes of a potential investor; then, they scanned the leading companies’ public disclosures to determine whether investors’ needs for information are being met.

The first survey, “Investor Relations Online,” involved detailed analysis of the information provided on the websites leading of publicly traded companies and other companies of a public nature (large banks and public utilities). The companies included in the latest surveys account for 81% of the total market capitalization and 66% of the total turnover on the two Croatian stock exchanges.

The main conclusions of the “Investor Relations Online” survey are:

· The trend is positive: Overall, companies are making better use of their websites as an “Investor Relations” tool.

· A small number of companies stand out: These “Top Companies” exemplify good practices.

· There is still plenty of room for improvement: About half of the companies still do not provide the basic information which potential investors need.

· Compared to companies in CEE, Croatian firms still lag.

The second survey involved detailed reviews of the websites and annual reports of the same major companies, this time in search of disclosures on the companies’ corporate social responsibility. The findings of the CSR survey are:

· On average, firms report best in the area of social policy, as opposed to environmental policy or corporate governance.

· Regarding corporate governance, most companies still report only the “bare essentials.”

· Environmental policy reporting improved slightly from a low base.

· In CSR reporting, a few Top Companies “shine” above the others.

· In comparison with other Central or Eastern European countries, again, Croatia still lags.

From the standpoint of a potential investor transparent public disclosures are critical. “No serious investor would invest in a company that does not provide information about its management, supervisory board, ownership structure, and financial results,” said Leslie Matthews Šulenta, ZSEM’s corporate governance lecturer and the leader of the research project.

“The research results are saying exactly what we see in the markets. More Croatian companies are going to the capital markets via IPOs or corporate bond issues, and this shows that the investment climate is improving in Croatia,” Ms. Šulenta explained. “For those companies that are still in the phase of ‘considering’ a public share or bond issue, this research can be quite helpful. It shows them exactly what investors want to see in public disclosures.”

This year the researchers at ZSEM, Mirna Korièan and Andrijana Mušura, have highlighted a group of “top companies” in online disclosures and corporate social responsibility reporting. This group is comprised of those companies which earned the highest scores in the point system applied to the survey results. The “top ten” companies in online disclosures are:

Pliva

Podravka

Ericsson Nikola Tesla

Privredna Banka

Adris Grupa

HVB Splitska Banka

Zagrebaèka Banka

Konèar – Elektroindustrija

Istraturist Umag

Hrvatski Telekom

The “top five” companies in CSR reporting are:

INA

HEP

Ericsson Nikola Tesla

PLIVA

Hrvatski Telekom

“Our research reports will draw attention to the best practices which these companies have adopted,” explained Ms. Šulenta. “In this way, other companies will be able to clearly see what it is that sets these companies apart in the transparency of their public disclosures.”

Promoting a better investment climate

As summarized by Dr. Djuro Njavro, dean of ZSEM, “Our goal in conducting this research is to raise the level of awareness on corporate governance and corporate social responsibility in leading Croatian companies in order to promote a favorable investment climate in Croatia.”

Highlights of the research include:

· A high percentage of major Croatian companies (92%) have a website. 83% of the firms have websites in English.

· Fifty-six percent of companies provide the names of their Management, up from 53% last year.

· The number of firms providing background information on Management increased from 9% last year to 21% this year. This is a significant improvement.

· Just 33% of companies provided the names of their Supervisory Board members, and only 7% gave any type of additional information on them.

· Only 42% of the surveyed firms provided their annual financial reports on their websites. This represents a slight increase from 40% last year.

· In CSR reporting, just 13% of major companies disclose the level of their energy and water use, and 38% disclose their corporate sponsorships and donations.

Detailed survey results were presented at a conference at ZSEM on February 28, 2006. Full survey results are available online at ZSEM’s and the PFS Program’s websites.