Language is a great thing except when you are talking to someone who is not a native speaker of the language and as a partner in a Romanian law firm I am well aware of this. Ask my staff!
Last week we talked about confusion in property law that we as lawyers in Romania experience when dealing with western clients and how a different legal system had produced different jurisprudence and legal theory. This is a constant balance which we as a Romanian international law firm have to cope with.
In company law in Romania there are a number of basic misconceptions by foreign investors and directors which bring about confusion. The law 31/1990- the Companies law, is based on the French Company law and is therefore code law based.
In the Anglo Saxon (Common law) company law, the system is based on the use of capital. This means that the organisation and structure of companies is such that it is to allow the use of capital provided by third parties. At the moment of a company formation people invest their capital in an idea or venture with a view to return. They do not wish to be involved in the company. They just wish to see a return on their capital. Companies are thereby structured and set up in a way that allows the investors, be they foreign investors or local investors, to give money to a company and then they appoint directors who are charged with investing and using that capital properly for the reasons for which the company was established and paying a return (dividend) to the shareholders (investors).
In this system, the directors are the important people and the decision makers in a company. They report annually to the shareholders who approve or disapprove of the way that they have run the company. If the shareholders are unhappy with the directors they can then remove them and appoint a new board who they trust to use their money and run the company.
Compare this with the system in Romania and many other Code law countries, especially in Europe. Here the philosophy is that people band together for a venture and they make the decisions as to how the venture is to be run and how the new Romanian company is to be governed. The question of who is the supreme governing body is very clear. It is the shareholders meeting, just as Parliament is the paramount decision maker in a Code law country in relation to the state. As the shareholders meeting is the supreme decision maker this means that in Romania all companies’ major decisions are made by the shareholders and the administrators of the company’s only role is to implement the shareholders’ decision.
This can be very frustrating for western managers who do not understand and appreciate the difference. Many directors imported from overseas even to their own subsidiary in Romania become frustrated as to what they see as the bureaucracy of their own companies. Their view is that they are hired to run the company and will do so. The constant need for general meetings of shareholders to discuss matters which they believe should be left to them can produce many tensions. With proper advice from their Romanian lawyers and properly drafted corporate documents some of these tensions can be relieved.
There is also an issue with the use of the word director and administrator in Romanian companies. Having explained all of the above to the managing director I then have to explain to him that his appointment as the administrator in a Romanian company is what it says. His role is to administer the company in accordance with the directions and instructions of the general meeting of shareholders. He is not a director in the way that he understands. In Romania a director is a more minor position. A director role in a Romanian company is similar to the role and position of a manager in a western structured company.
So if you are considering being appointed to be the administrator of a Romanian company be prepared for a different way of company management and do not be surprised on the limitations of your powers, and please do not blame the lawyers for advising you on how the system is different in Romania. As always in Romania the first step is to obtain good Romanian legal advice and listen to it and take note, so you understand where you stand. From that position you will be able to efficiently run the Romanian company.
Very interesting post. I do, as someone who has worked in France and owned (small) companies there, however have a comment/question.
In spite of France being home to code law, my experience is that the separation of power there is quite similar to the US : Shareholders are not really involved in company decisions.
I guess what you describe is a very „Romanian” way of using the code law.
Thank you Nicholas. I know that the law was based on the French law and at that time there was considerable emphasis on the rights of individuals at shareholder meetings and the powers that they would have. This is implicit in the way the Romanians drafted and implemented the law.
Clearly your knowledge of the practical workings of French companies is better than mine and I thank you for the observation.
As usual Romanians took a law and „Romanised” it.
Nicholas