The Recommendations can be seen as supplementing Hungarian legal regulations. However, when assessing their responsible corporate governance practices, issuers should also take all relevant legal regulations into account. Following the Recommendations requires compliance with legal regulations as well as ethical conduct and business practices focused on the entities’ own responsibility.

The Recommendations are based on the century-old ideal of the fair and honest businessman and ethical commercial practice. In this regard, they are intended to describe in clear terms the operational management of issuers as well as the obligation of the organisations and persons supervising them to maintain and ensure the continued operation of these companies as well as to create long-term value in relation to their operation.

The Recommendations are also intended to increase the confidence of domestic and foreign investors, shareholders, business partners and employees in the companies. In this regard, it is an important objective of the Recommendations to enable every shareholder to access all information related to the companies. Shareholders’ right of equal access to information should prevail in the operation of the companies.

The Recommendations seek to facilitate for shareholders, and especially for minority shareholders, to exercise their rights. An important way of encouraging the exercise of rights by shareholders is ensuring that they can exercise their rights also when not present in person. The Recommendations are aimed at promoting the exercise of shareholders’ rights via various electronic and telecommunications means. They create a framework for supporting shareholders in exercising their rights which allows issuers to provide additional opportunities for shareholders to exercise their rights.

In this regard, however, shareholders should also be able to exercise their company-related rights actively and with responsibility, and to fulfil their obligations to the companies. Shareholders can exercise their rights within the limits set by legal regulations and the Company’s Articles of Association. Abusive enforcement of these rights is prohibited and sanctioned by Hungarian law. The Recommendations also contain requirements concerning the Board of Directors and the Supervisory Board. In accordance with EU legislation, Hungarian company law also allows public limited companies having the relevant provision in their Articles of Association to establish a Governing Board with a uniform governance system instead of having a Board of Directors and a Supervisory Board. The Governing Board performs the tasks of the Board of Directors and the Supervisory Board specified in legal regulations. In this case, the Recommendations are intended for the Governing Board. Therefore, all recommendations and proposals relating to Supervisory Boards only apply to issuers operating in a non-uniform governance system. This explains the use of two terms, Board of Directors and Governing Board, in the Recommendations.

The Recommendations contain both recommendations that are binding for all issuers and non-binding proposals. Issuers may derogate both from binding recommendations and non-binding proposals. In the event of derogation from the recommendations, issuers are required to publish and justify the derogation in their corporate governance reports (‘comply or explain’). This enables issuers to take industry and company-specific requirements into account. Accordingly, even issuers derogating from the recommendations can comply with corporate governance requirements under certain circumstances. Concerning the proposals, issuers should indicate whether they apply a given guideline or not, and they can also explain any derogation from the proposals.

Issuers should make statements about their corporate governance practice in two different ways. On the one hand, companies should give an accurate, comprehensive and clear account of the corporate governance practices they used in the given business year in their mandatory corporate governance report presented to the annual general meeting. That account should cover their corporate governance policy and also describe any extraordinary circumstances which may have occurred. In the second part of the report the issuers should give an account of their compliance with each point of the Recommendations in line with the ‘comply or explain’ principle, including any reasons for derogating from a specific recommendation and/or proposal.

If the practices followed by an issuer are consistent with the ones set out in the Recommendations, they must indicate that by selecting YES in the report. When an issuer does not apply a recommendation or applies it in a different way, they should explain where the differences are and offer a reason for such derogation (‘comply or explain’ principle). This method allows issuers to consider their unique, industry-specific etc. idiosyncrasies and to inform shareholders and market players about their derogations from general corporate governance principles and to provide an explanation. Operating on the same principle, they can also explain any derogations from the proposals.

The basic principle and purpose of the corporate governance report is to enable companies to give an account of their previous business year and to reveal the measure of their compliance with the Recommendations. The Recommendations may, however, include recommendations and proposals relating to events which did not occur at the issuer in the given period. In accordance with the current practice, these ‘event type’ questions can be answered with ‘YES’ also when the relevant event did not occur in the business year (for instance, no dividend was paid, or no shareholders’ comments were received for the proposals to be submitted prior to the General Meeting) if the Company would have responded to the occurrences of such events as set forth in the Recommendations, in line with the provisions of its Articles of Association or its practices. In a situation like that, the solution that comes closest to the principle of transparent operation is for the issuer to select YES and also to add an explanation that though the event in question did not occur in the previous business year, there are appropriate mechanisms in place to handle it.

The Recommendations are applicable to public limited companies. Stock exchange listed issuers are expected to implement the Recommendations and, in that regard, to provide information on how closely they follow them. Private companies not traded on the stock exchange are also advised to take the Recommendations into consideration.

The Recommendations were developed in line with the recommendations of the European Commission and the OECD in addition to the EU law

The Recommendations are periodically reviewed and revised as necessary by the Corporate Governance Committee of the Budapest Stock Exchange Ltd, taking into account the corporate governance reports prepared by the issuers in compliance with the relevant statutory legal provisions, approved at their annual general meetings and published on their company websites.

View the Corporate Governance Recommendations