Few Greek companies have taken on board the principles of corporate governance but economic development should drive progress. Eri Mitsostergiou and Alexandre Arvalis report

Effective corporate governance is one of the key elements of a healthy organisation. It sets the tone as to how the organisation operates and behaves both internally and externally. It defines the relationship of the board, the management and the stakeholders with the organisation as a whole.
Corporate governance should be implemented in all corporations; however, the emphasis is placed on listed entities where there is accountability to various stakeholders, including institutional and private investors, customers, creditors, suppliers and the society in general.
A recent study by the European Public Real Estate Association uncovered a wide divergence in corporate governance standards in listed property companies across Europe(1) .According to the study, the European property companies just about get a pass, based on a minimum standard of achieving 60% of the criteria. Greece was among the countries that fell below the EU average corporate governance ranking of 9.73, with a score of 5.78.
The law regarding corporate governance in Greece took effect in 2003, along with the normative regulation of the Hellenic Capital Market Commission considering the criteria for the prohibition of insider trading.
Since the new legislation, the overall picture in Greece, however, is that the implementation of the subject regulations has not been effective. Many property companies comply with the mandatory legislation indeed, but without making any serious effort to drive their corporate boards to be more accountable.
A recent study demonstrates that only three out of ten Greek corporations have adopted the basic principles of corporate governance and that the proportion of executive and non-executive members on their boards is not at a satisfactory level (2).
Furthermore, the study points out that some of the appointed non-executive members often have often no relation to the daily ongoing business of the company, while many of them do not participate consistently in the general meetings of the shareholders.
Raising the level of corporate governance standards in Greece is not an objective limited to the property companies, but a challenge that needs to be addressed by all sectors.
Corporate governance in listed real estate companies is only a part of the broader economic environment in which firms operate and strongly depends on the legal, statutory and regulatory environment.
Although the level of privatisations in Greece has increased over recent years, the state still retains significant ownership in companies across different sectors. As a consequence, government exerts influence over senior management appointments, often even in cases of minority ownership. This compromises the development of high corporate governance standards since there are conflicting
political agendas and motives at play.
A number of listed Greek companies (including real estate) are family-owned. In many cases, most members of the board are related parties and are directly appointed by the largest shareholder. This raises some questions about whether the board is truly independent and acting in the best interests of all stakeholders or whether board members are pursuing their own personal goals.
Finally, Greece ranks amongst the lowest positions in terms of transparency. This fact, coupled with the problem of extreme levels of domestic tax evasion problem, points out the shortcomings in relation to Greek governance policies. This is a sign of "bad governance"
Since January 2005, listed companies in Greece (including the real estate sector) have been obliged to publish annual and interim financial statements to conform to IFRS. A benefit of standardizing accounting standards is that the financial statements of all Greek companies will become directly comparable with those of publicly traded corporations in all other eurozone countries. This progress, along with an increasing number of RICS professionals in the Greek professional property sector, points to improved corporate governance standards.
Continued economic development and social reforms are expected to lead to improved corporate governance standards over the next few years. In particular, proper implementation of risk management practices, accounting principles and reporting processes are all expected to contribute to a better flow of information from the enterprise to each of its key stakeholders - customers, employees, investors, suppliers and the community.
At the same time, the European Union faces both the pressure and challenge of further harmonization of laws and regulations and convergence of corporate governance systems and practices. The need for increased accountability and transparency has become ever more important in light of recent turmoil in the financial and credit markets and ongoing economic uncertainty.
1 EPRA report ‘Corporate Governance of European Listed Property Firms', 2008, by Erasmo Giambona, Assistant Professor in the Finance Group of the University of Amsterdam; Commentary article ‘Raise your game', 2008, by Steve Hays, Founding Director of Bellier Financial
2 ‘Corporate Governance in front of the firing squad', 2006, by Egglezos Babis, Journal of Economy
Eri Mitsostergiou is European property analyst at Savills Europe. and Alexandre Arvalis is a surveyor at Savills Hellas