As a former member of the Eastern Bloc and a new member of the EU, Poland is experiencing not only rapid economic growth but a fundamental restructuring of its economy. So the development of good corporate governance standards among the investing community is not only a necessity, it is a high priority.
Commercial Union Pension (CU) has won the Central European Award for its pioneering work in pushing forward a corporate governance agenda in a proactive and vigorous way.
It is the largest pension fund in Poland, managing assets of €7bn. Its pursuit of active corporate governance standards is an integral element of its investment process and the lynchpin of its fiduciary duties towards its 2.6m members.
CU believes that actions speak louder than words and that corporate governance is achieved by practical steps such as actively exercising shareholders’ rights, setting market standards and educating stakeholders. The fund was the unquestionable leader in all these areas among domestic institutional players during 2005 and 2006.
While other pension funds simply react to motions put forward by other parties at shareholders’ meetings, CU takes the lead in proposing changes.
At the end of 2005 it was the first Polish pension fund to submit a motion for a listed company to adopt corporate governance principles.
During 2006 CU continued its active participation in shareholders’ general meetings it had pursued the previous year. In order to protect shareholders’ rights it took part in 62 general meetings, and submitted 15 formal motions concerning dividends, amendments to company articles and to motions on share issues.
CU also promotes the concept of independent supervisory board members, and during 2006 supported the appointment of 13 independent members while actively opposing the dismissal of three board members.
Transparency is an essential element of corporate governance and in addition to releasing all voting results at general meetings, CU has launched an extensive analytic module on its corporate governance activities. This includes the printing of CU’s voting record from any given general meeting and generates lists of CU votes at various general meetings in 15 categories. This function allows stakeholders to decide whether the fund is voting in line with its principles.
The pension fund uses all available resources to promote corporate governance standards, even to the extent of alerting the supervisory bodies and independent organisations. For instance, in the case of one company whose shares it owned, CU asked an independent foundation to investigate the level of licence fees paid by the company to a majority shareholder. The foundation then produced a related report that was passed on to lawyers. Supported by Polish MPs, it then called for an investigation into the potential harm caused to the company.
A further example was CU’s support for an independent member of another company’s supervisory board who opposed certain board activities. As a result of this opposition, the Polish Securities and Exchange Commission opened an investigation to establish whether the board had acted against the company’s interests and violated its disclosure obligations.
Both these events led to unprecedented remedial action and were widely publicised, giving rise to higher market standards.
Industry practice plays an essential role in creating new standards. CU takes a major part in the activities of a dedicated team that sets standards for the entire asset management sector. A CU representative co-ordinates the adoption of these standards within the Pension Fund Chamber, Poland’s leading pension fund association. CU also played a pivotal role in establishing the chamber’s views on exercising ownership rights. Over the course of the year, CU executives helped to educate the Polish market by giving lectures at 11 high-profile conferences on ethics and corporate governance.
CU’s corporate governance standards, which are available on its website, mark a breakthrough in current market practice. Its standards are much more comprehensive than those published by its peers.

The fund was the first organisation to pronounce on the relationship between a corporate body, its management board, supervisory board, auditor and the shareholders’ general meeting in terms of liability. Another innovation was the requirement for certain activities to be carried out by supervisory board members, as well as an assessment of their liability. This broke with the tradition of inertia and the denial of responsibility which is deeply rooted in the Polish market. Rules governing conflicts of interest and the transparency of CU procedures in controversial situations are also unique in Poland.
In particular, four pages of these standards are devoted to long-term incentive programmes for company employees. They set out limits on the amount of issued shares, a detailed overview of combined operating and market criteria, recommended gradations of tranche size, lock-up issues and the most restrictive limits - seven years - within which options can be exercised on the Polish market. These standards require key employees who are not board members to participate in an incentive scheme. During 2006 CU proposed amendments to six option schemes.
The standards have been greeted by positive feedback from other pension funds and the capital market community. Furthermore, they have established an industry blueprint and set guidelines for the Polish Chamber of Insurers Standards, as well as receiving attention from Poland’s leading newspapers and journals.
Highlights and achievements
In a young pensions market that is still finding its feet, CU’s pioneering work has been a major force in establishing corporate governance standards. CU takes a proactive role in relation to the companies it invests in, whether proposing motions at shareholders’ meetings or publishing its voting record. It zealously supports those independent board members whose views certain companies find troublesome, and it is not afraid to act as a whistle-blower in cases where it considers a company’s board has acted against the interests of the company and its shareholders. CU also plays an important role in creating new standards, both within Poland’s Pension Fund Chamber and by publishing its own guidelines.