Milena runs a boutique advisory company, WM Advisory, supporting managements in value creation, financial and non-financial reporting as well as investor relations. She is a member of Corporate Governance Committee at Warsaw Stock Exchange, a Management Board Member of CFA Society Poland and an Independent Supervisory Board Member at R22 S.A. She devotes her time to promotion of ESG topics with emphasis on diversity. Some topics discussed in the interview:

  • Role of corporate governance and supervisory boards
  • Why women represent only 13,8% of board seats in the 140 largest Polish listed companies
  • What boards can do to improve diversity
  • How the Best Practice document prepared by the Corporate Governance Committee of the Warsaw Stock Exchange can help companies’sustainability efforts

Milena, you are involved in a lot of sustainability related topics but one of the most important is corporate governance. How does somebody become a governance expert in the Central European region?

I believe that corporate governance is the essence of capital markets are a passion of mine. Yet, it is not that easy to define corporate governance. I asked that question in a Polish capital market survey that I conducted on behalf of CFA Society Poland in September 2020. The answers were split mostly between the textbook definition “how companies are directed and controlled” and the practitioners’ approach “the way managements treat minority shareholders”.

Interest in corporate governance comes with experience, in my opinion. The more time you spend working or investing on capital markets, the more sensitivity you develop to proper and improper behaviours of board representatives and shareholders. Once you open your eyes, it is hard to close them. The more you are interested, the more you dig, the more you know about this fascinating topic.

To understand corporate governance, just like in life, it is important to look at matters from different angles. I am fortunate that over the course of my career on capital markets I had the opportunity to work in many roles. As equity analyst I cooperated with key regional and international institutional investors. Running my own boutique advisory company, I support managements of listed companies in value creation and investor relations. Thus, I can feel the management board perspective. Also, I serve as an independent supervisory board member, which broadens my understanding of relations between management and supervisory boards (in Poland we have a two-tier board system) and shareholders.

In Poland, the importance and understanding of role of independent supervisory board member (in one-tier boards their equivalent would be independent non-executive directors) is growing.

It was one of top 3 answers defining key elements of corporate governance in the already mentioned survey. My observations confirm also other survey results, e.g. that Polish supervisory boards are dominated by main shareholders and thus not represent minority investors in a way they deserve based on their holdings. Supervisory board is a rather silent body, thus it may be hard to see directly to amount of work put in by e.g. audit and remuneration and nomination committees

There is room for improvement in Poland in terms of corporate governance standards – none of the above mentioned survey participants believes that corporate governance standards are high in Poland, majority believes these are low. It is high time to change it. I am optimistic and believe that corporate governance will rise on the agenda of institutional investors and move from an intangible element to a more tangible and quantifiable one in the form G-letter in ESG (abbreviation from environmental, social and governance). Stronger incorporation of these non-financial criteria into decision making by financial institutions coupled with shareholder activism could help improve the current situation.

You participated in the preparation of a recent report by CFA Society Poland about the female representation in the boards of Polish companies. What are the main conclusions of the report?

I am very grateful to women in Diversity Committee of CFA Society Poland for months of hard work on data gathering and Aleksandra Włodarczyk, CFA, Anna Golec, PhD, CFA and Iweta Opolska, PhD, CFA for co-writing the “Women on boards and company performance” report with me. You can find the full version of the report here: More women on boards needed (

The research was conducted on 140 largest Polish listed companies included in the WIG20, mWIG40 and sWIG80 indices at the end of 2019. It showed that, in the years 2010-2019, women were a minority on the boards of these companies. There were on average eleven people on the management and supervisory boards combined at the end of 2019 and

female participants accounted for only 13.8% of these.

Women were also more likely to be found among representatives of supervisory boards rather than among management board members.

Our research shows that the number of women on boards increased over the analysed decade, yet that the scale of change has not been sizeable – just 3.8 pp. (share of women on boards of analysed companies was 10.0% at the end of 2010). A lot remains to be done, as in 2019 approximately one fourth of the analysed companies did not have a woman on board at all. Moreover, in as many as nine out of every ten studied firms, the share of women did not exceed the threshold of 30%, described in many sociological and politics studies as being the required threshold to give a minority a tangible influence on the decision-making process.

The largest companies, i.e. those in WIG20 index had the most diverse boards in terms of gender. This could be partly due to the fact that the boards of the largest companies were more numerous (on average 14.7 people at the end of 2019) than for medium and small companies (11.7 and 9.1 respectively). It may seem surprising that in 2019 one of the sectors exhibiting some of the lowest representation of women on boards (only 9.6%) was the retail sector, despite the fact that women predominate in the employment structure of the entire industry in Poland. The most diverse in terms of gender were the boards of companies in the finance (20.2%) and energy (18.7%) sectors.

We also compared a number of financial ratios between companies with a very low female representation on boards against those with relatively higher share of women on boards. The ratios related to dividend payment, profitability, dynamics of revenues and profits as well as valuation and risk were compared. Two of the examined indicators showed statistically significant differences.

The companies with more women in the analysed period were characterized by a higher net profit margin and lower volatility of share prices than the group of companies with the lowest share of women on boards.

Participation of women on the management boards and supervisory boards of listed companies is a topic from both the G (governance) and S (social) matters. With growing popularity of including non-financial criteria in investment decision making, I hope that board gender diversity will be a commonly used factor in stock portfolio selection.

Despite the lack of female representatives in the boards, according to Eurostat female managers represent a significant share in regional companies, Poland is the second in the whole EU. In your view what can be the explanation for this contradiction?

The Eurostat 3Q20 data on share of women in managerial positions in the European Union shows women represent almost half of all employed persons in the EU (46%), yet that they are under-represented amongst managers (34%). Among EU member states, the largest share of women at managerial positions in 3Q20 was recorded in Latvia (45%) and Poland (44%) versus the 34% EU average.

A higher share of women on managerial positions than on boards is a known phenomenon called the Marzipan Layer, a layer of skilled and qualified women who cannot break through the glass ceiling and make it to the top – the board level.

Why it happens? It is a rather complex problem, thus I believe it is more important to focus on a potential solution. In my opinion, it involves recognising the business value of diversity and acting on it. There is established research conducted, among others, by Credit Suisse and McKinsey on thousands of companies from dozens of countries which shows that those companies which have more gender diverse boards outperform non-diverse companies on various financial and risk metrics.

It is thus, in my opinion, important for boards, especially nomination committees, and investors to look into this matter and set themselves ambitious yet achievable targets in terms of diversity. A great example of a proven international diversity initiative is the 30% Club. It is a non-commercial and non-profit campaign which supports voluntary diversity targets aimed at realising a meaningful, sustainable change. For the campaign 30% is a floor not a ceiling. Voluntary adoption of 30% Club targets among largest UK companies has resulted in a sizeable change. In 2010, in the UK, women constituted some 12% of FTSE100 boards, with this percentage now exceeding 30%.

I am optimistic – the more money flows into ESG-oriented funds, the stronger pressure there should be from institutional investors on corporates in relation to board gender diversity. Having so many women below the C-level shows that there is a strong pipeline of female candidates who can be promoted to the top.

Speaking in more general terms, what is the role of governance when it comes to ESG in your views?

It is often said that tone is set at the top and in the corporate structures that top is the board. It has oversight over strategy, business and risk and its role is to preserve the viability of the company. The focus of the boards has been changing over the past years, moving away from shareholder towards stakeholder interest, thus recognising more of the ESG topics, especially sustainability.

That is a good direction, in my opinion, as sustainability issues relate to long-term opportunities and threats and thus require a strategic approach and the board should take a leadership role in their management and oversight. How to do it? One possibility is to include sustainability issues into business strategies signalling that non-financial factors are as important as financial ones. E.g. climate & environment related risks can affect assets and liabilities values, revenues and costs and cost of capital, i.e. financial elements. My observations from Poland are that boards tend to speak about financial and sustainability strategies separately.

To provide more colour, I can refer to Frank Bold Foundation research report published in December 2020. It assessed the quality of climate & environmental disclosures among 303 companies from Central, Southern and Eastern Europe from various industries, from finance, through energy and infrastructure to food & beverage. It showed separation of non-financial information, indicating that 51% of companies published a separate non-financial report from the financial one. In Poland that was 61%. I presume that different departments gather financial and non-financial data and prepare their parts of the reports. It is now time for those pieces of information and separate policies to be merged into the corporate strategy for delivering which the board is be responsible. That is how I would see the role of the board, both management and supervisory board members.

I would especially put the boards’ attention to climate risks and opportunities. The above mentioned analysis showed that only 16% of companies reported on board oversight of climate related risks and opportunities. In Poland it was 6% and in Romania 0%

– I mention those two countries, as data has been reported separately for them. This shows area for improvement and I would urge those lagging boards to step up for the benefit of all stakeholders.

What are the particular challenges in the region? Can you maybe highlight one or two companies or best practices that you think are good examples to follow?

I feel more comfortable speaking for Poland that the region. I believe that popularisation of non-financial reporting is one of the challenges that we going to face as a country. In Poland sustainability has been a journey for selected companies while EU’s actions indicate that it may be a necessity on a much broader scale. Until 2017 non-financial reporting was not compulsory in Poland. Selected companies, e.g. with international owners reported integrated or non-financial reports. Some of them have been very professional, some were concentrated more on social responsibility and PR actions.

End of 2016 marked the introduction of EU NFRD (Non-financial Reporting Directive) into Polish law and roughly some 150+ largest listed companies (some 1/3 of those on main market on WSE, Warsaw Stock Exchange) had to produce non-financial reports for 2017. Since then, the reporting continues with the quality and size of the reports increasing along with experience and knowledge gained and with gradually mounting pressure on the side of investors. However, domestic surveys conducted point that quality of climate-related reporting is rather low.

We are close to marking another stage in which sustainability reporting is likely to become mandatory, either directly or indirectly, for a much broader group of companies. SFDR (Sustainable Finance Disclosure Regulation) came into force on March 10, 2021 in the whole EU with the aim to increase transparency of reporting on sustainability risks by selected financial institutions and financial advisors. Among others, it will require financial institutions to gather ESG indicators from their clients – corporates, indirectly affecting many more than just largest listed companies. The Final Report on draft Regulatory Technical Standards from February 2021 provides a list of 18 compulsory (and more additional) ESG indicators, which cover a vast set of topics from greenhouse gas emissions, biodiversity, social and employee, respect for human rights to anti-corruption and anti-bribery matters. I suspect that many of those topics are not on the agendas of many boards.

Also, April 21, 2021 marked the publication of a proposal for Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements of the NFRD. The proposal: extends the scope of NFRD to all large companies and all companies listed on regulated markets (except listed micro-enterprises), requires audit (assurance) of reported information (‘limited’ assurance), introduces more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards and requires companies to digitally ‘tag’ the reported information. Large companies will report for 2023 (in 2024) and SMEs three years later on a vast range of sustainability topics, including (among others): resilience of business model and strategy to risks related to sustainability matters, opportunities related to sustainability matters, description of targets set in relation to sustainability matters and progress made as well as a description of the role of the administrative, management and supervisory bodies with regard to sustainability matters. Companies will also disclose information on intangibles, including information on intellectual, human, and social and relationship capital. Reporting will take place based on an EU’s sustainability reporting standards – the core version is to be adopted by October 31, 2022 while complementary and sector specific reporting is to be adopted by 31 October, 2023. (More details can be found under this link.)

You are also member of the Corporate Governance Committee of the Warsaw Stock Exchange. How can stock exchanges contribute to stronger inclusion of ESG criteria by investors and sustainability reporting by companies?

In Poland the Corporate Governance Committee is an independent advisory body of the Warsaw Stock Exchange, consisting of corporate governance experts from distinguished Polish institutions. It is responsible, among others, for creation of Best Practice for WSE-listed companies, an element of soft law. On March 29, 2021 the Supervisory Board of WSE approved the latest version of Best Practice for WSE-listed companies 2021 (in Polish we use an abbreviation DPSN2021). It will come into force on July 1, 2021 and by July 31, 2021 listed companies will need to file their first statements in a comply or explain mode.

I am really proud of this document, as it incorporates many sustainability elements. E.g., among others,

companies will need to report whether their business strategies are aligned with sustainability strategies, how they take into account employee, social as well as climate & environmental matters into account

or whether climate risks are considered in decision making process. On top, there is a stronger emphasis on diversity and equity with companies needing to disclose whether they report gender pay gap ratio on their webpages. The document also requires companies to report whether they have a diversity policy addressing gender, education, competences, age, with an indication that in terms of gender diversity is reached with one gender representatives constituting at least 30% of management/ supervisory board. To foster inclusion of the new Best Practice by investors in the form of non-financial criteria, corporate filings are to be more accessible to investors than in past years.

Warsaw Stock Exchange is also a member of UN Sustainable Stock Exchanges initiative. Together with EBRD (European Bank for Reconstruction and Development) it is in the process of preparing ESG reporting guidelines in line with EU’s NFRD and expectations of institutional investors. These are to popularise non-financial reporting among listed companies and thus help them to prepare for upcoming challenges. Both documents are a move in the right direction, in my opinion.