Protecting minority investors

For policy makers trying to improve their economy’s regulatory environment for business, a good place to start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking.

Protecting minority investors matters for the ability of companies to raise the capital they need to grow, innovate, diversify and compete. Effective regulations define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the company and set detailed standards of accountability for company insiders.

How strong are minority investor protections against self-dealing in Romania? The economy has a score of 6.0 on the strength of minority investor protection index, with a higher score indicating stronger protections.

What the protecting minority investors measure?

Extent of disclosure index (0–10)

Review and approval requirements for related-party transactions; Disclosure requirements for related-party transactions;

Extent of director liability index (0–10)

Ability of minority shareholders to sue and hold interested directors liable for prejudicial related-party transactions; Available legal remedies (damages, disgorgement of profits, fines, imprisonment and rescission of the transaction);

Ease of shareholder suits index (0–10)

Access to internal corporate documents; Evidence obtainable during trial and allocation of legal expenses;

Extent of conflict of interest regulation index (0– 10)

Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices;

Extent of shareholder rights index (0-10)

Shareholders’ rights and role in major corporate decisions;

Extent of ownership and control index (0-10)

Governance safeguards protecting shareholders from undue board control and entrenchment

Extent of corporate transparency index (0-10)

Corporate transparency on ownership stakes, compensation, audits and financial prospects;

Extent of shareholder governance index (0–10)

Simple average of the extent of shareholders rights, extent of ownership and control and extent of corporate transparency indices

Strength of minority investor protection index (0– 10)

Simple average of the extent of conflict of interest regulation and extent of shareholder governance indices;

According to Doing Business, Romania stands at 53 in the ranking of 190 economies on the strength of minority investor protection index. While the indicator does not measure all aspects related to the protection of minority investors, a higher ranking does indicate that an economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured.

The full Doing Business 2016 report can be found here.