The necessity of sound corporate governance was conceived in the nineties. Corporate governance principles aim to support the transparency and efficiency of the market and to support the rule of law. In particular, they are concerned with the definition and enforcement of shareholder rights and the role of owners, thus further harmonising the interests of the company with its investors’ and its environment’s. The effective corporate governance promotes the increasing of the company’s value and the effective representation of the shareholders and other stakeholders.

The corporate governance primarily includes:

  • careful management of the company (drafting and implementation of strategy);
  • financial planning and execution of it;
  • controlling of the company’s internal processes;
  • issues of business ethics;
  • transparent operation of the company;
  • principles and procedures regarding the disclosure and corporate social responsibilites.

In mid-2002, the Budapest Stock Exchange began working out its Corporate Governance Recommendations for companies listed on the stock exchange. When compiling the recommendations, the suggestions were formulated taking account of the most commonly used international principles, of experiences gathered in Hungary, and of the characteristics of the domestic market. In its meeting of December 8, 2003, the Board of Directors of the Budapest Stock Exchange approved BSE’s former Corporate Governance Recommendations, published in February 2004. In October 2004, The Board – in accordance with the practice followed by several countries – set up the Exchange’s Corporate Governance Committee with the aim of controlling the further development of the Recommendations taking into account professional demands, EU provisions of law in preparation and general international tendencies, as well as representing professional viewpoints in the further development of corporate law. Through the work of the Committee, the Exchange wished to ensure that – while preserving the Exchange’s initiative – representatives of the professional public could participate in decision-making regarding the Recommendations in an organised way. Members of the Committee include representatives of Issuers, regulatory authorities, as well as independent market experts and lawyers.

This version of the Corporate Governance Recommendations replaces the Stock Exchange's earlier Corporate Governance Recommendations, published in February 2004. The recommendations were prepared by the Corporate Governance Committee of the Budapest Stock Exchange led by Mr Gábor Gadó.

The Recommendations are considered to be an addition to relevant Hungarian legislation (predominantly Act V of 2013 on the Civil Code, hereinafter Civil Code), primarily for listed, public limited companies registered in Hungary. On no account shall recommendations included in the Recommendations be regarded as recommendations contrary to the provisions of law. The Recommendations contain recommendations, suggestions and related explanations. Those issues regulated by law are not covered by the Recommendations. However, relevant provisions of law must also be considered when evaluating the corporate governance policy of listed companies registered in Hungary. The Recommendations - as expressed by the title - make suggestions relating to recommended, applicable practices. Alignment and compliance with the recommendations are recommended but not mandatory for companies listed on the stock exchange.

The Civil Code kept the provision introduced by Act IV of 2006 on business associations (Company Act), namely that public limited companies have the opportunity to establish a one-tier (Anglo-Saxon) board structure, where there is no Supervisory Board operating, and the board called the Board of Directors executes the management and monitoring functions at the same time (unitary board structure). Hereinafter, when the Recommendations refer to the “Managing Body” of listed companies they do so meaning the Management Board or Board of Directors, as appropriate, and in those cases where the peculiarities of the law require that a distinction be made between the Management Board and the Board of Directors, one is made. Based on the above, recommendations or suggestions relating to the Supervisory Board are only relevant in the case of the dual board structure.

Current Regulations

When preparing this version of the Recommendations the BSE took into consideration the latest recommendations of the European Communities, with special regard to the recommendations of the "COMMISSION RECOMMENDATION of 14 December 2004 fostering an appropriate regime for the remuneration of directors of listed companies (2004/913/EC)" and the "COMMISSION RECOMMENDATION of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board (2005/162/EC)".

The Company Act gave legal force to the regulation of disclosure obligations regarding corporate governance; these provisions were kept by the Civil Code. In accordance with these, companies are required to submit an annual report on corporate governance to the annual general meeting.

Companies listed on the stock exchange are required to express their views on their corporate governance practices in two ways. In the first part of the statement they have to give an accurate, comprehensive and easily comprehensible account of the corporate governance practices applied by their company in the given business year, including their corporate governance policy, and a description of any unusual circumstances. In the second part of the statement, in accordance with the "comply or explain" principle, they have to indicate their compliance with those recommendations included in specified sections of the Recommendations ("R" - recommendation) and whether they apply the different suggestions formulated in the Recommendations ("S" - suggestion). In some cases, the Recommendations also contain explanations ("E" - explanation) which give directions regarding the relevant recommendation or suggestion or the manner of compliance with those contained therein.

It is reasonable to expect that public limited companies apply recommendations included in the Recommendations, and they are required to provide information as to what extent they follow the recommendations. If the practice followed by the issuer is identical with that included in the section of the Recommendations that is designated as a recommendation, this is to be indicated by the answer YES. If the issuer does not apply the recommendation or applies it in a different manner, an explanation of what the discrepancies are and the reasons for the said discrepancies should be provided ("comply or explain" principle). This method allows issuers to inform market participants, taking into account specific individual, sector, etc., situations on how and why they deviate from the general principles of responsible corporate management. A negative answer, together with its explanation, allows the investors to evaluate the answer and does not necessarily reflect any fault or inadequacy. In the case of suggestions, companies shall only indicate whether they apply the given guideline or not; there is no need for a specific explanation.

Companies listed on the Stock Exchange are required to make a declaration on their application of the Corporate Governance Recommendations within 4 months following the close of the business year at the latest (to 30 of April for companies where the calendar year functions as business year). Issuers of equities shall publish the Corporate Governance Report consistent with the “Corporate Governance Recommendations" issued by the Exchange along with the publication of their annual report.