It’s been on the calendar for several years now, but IR professionals in Central and Eastern Europe (CEE) are beginning to play down many of the benefits presumed to follow May 1, the date on which ten CEE countries become members of the European Union (EU). The perception has long been that pan-European funds, many of which will be allowed to invest in the region’s equity markets for the first time, will increase capital flows and help ramp up local IR practice to western standards.
However, according to Geoffrey Mazullo, director of Partners for Financial Stability (a program of Budapest’s East-West Management Institute), companies in the region have begun adopting a ‘wait-and-see attitude’ to accession, having spent recent years improving their disclosure and transparency levels. ‘I don’t know if it’s reluctance, transition fatigue or a sense we’re already doing everything we can, and even if we do more it’s not going to matter,’ Mazullo explains.
The day after
For Mart Tõevere, head of IR at Estonia’s Hansabank, winner of the award for best corporate governance at the IR Magazine Central & Eastern Europe Awards 2003, what matters is not May 1, but how things develop over the long term. Many CEE companies now realize the accession hype will subside as European funds remain focused on more traditional and liquid markets, Tõevere explains. At the same time, local blue chips will suddenly find themselves viewed as second-class companies by comparison with their Western European peers, while smaller CEE firms will struggle for any form of coverage.
‘For the average CEE firm, IR will become much more difficult [after accession], because it will have to bring its transparency, reporting and corporate governance up to western standards,’ says Tõevere. ‘The top 20 companies in CEE are very good, but I don’t think a lot of the medium-sized companies are really ready for it.’
Ewa Piwowar, head of IR at Poland’s BPH PBK, thinks the CEE region’s longer-term prospects will largely depend on the EU’s ability to implement its planned financial services action plan – which will fully integrate the continent’s financial markets – by 2005. ‘It’s a very ambitious target,’ Piwowar warns. ‘I doubt it will happen as fast as the EU expects.’
Doing the right thing
Growing western fund interest in CEE has long seen issues of corporate governance and transparency brought to the forefront of local IR concerns. More recently, however, issues of corporate social responsibility are also being raised with local firms – catching many of them off guard.
‘These sustainable growth funds are an increasing trend,’ notes Tõevere, ‘and I’m getting a lot of inquiries from the funds to see if we are eligible and whether they can buy into our stock. But these are things that companies here can’t change overnight.’
For Piwowar, CSR is a ‘hot potato’ and ‘a step forward from governance’ for companies in the region. The problem lies in the fact that local firms don’t know how to communicate their CSR policies. ‘Many companies are good corporate citizens and have been practicing this kind of social responsibility for a long time, but they haven’t been communicating it, they haven’t been praising themselves for what they’ve done for their local communities,’ Piwowar explains.
Firms need better information and company-wide coordination in order to implement an effective CSR policy, she continues. ‘We listened to IR magazine’s very interesting conference call with BT on the subject,’ she adds. ‘BT has a department devoted to these issues, but we’re not in a position where we can restructure our workforce dramatically. Across the organization, many of our branches are doing this locally, but we have not been coordinating it, and don’t always know what they are doing. Right now we are under pressure to communicate, so we have started to coordinate this issue.’
IR professionals in CEE are keenly aware of the emerging challenges they face with EU accession, and most began adjusting their IR practice to western standards long ago. However, there remains a deep sense of suspicion that once the dust has settled on the accession process, many firms will not automatically begin reaping the benefits they had begun to expect.
