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Belgrade, Topličin venac 11,
Serbia and Montenegro

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Project Proposal


Author and coordinator:
Prof. dr Goran Pitić


The project aim is to establish more coherent view on corporate governance in Serbia so as to determine current situation and future trends in Serbia, and create the concept of improving corporate governance.

Public opinion in Serbia is not aware of the fact that the poor corporate governance is the crucial cause of the current economic problems in Serbia. Therefore, public advocacy is the necessary step in the process of changing the corporate governance system in Serbia.


The economic situation in Serbia is disastrous: industry sector capacity utilisation is at 30%; unemployment is almost 50%; investment is extremely small; use of available resources is inefficient and the GDP is at the low level. The UN sanctions and wars on the territory of the former Yugoslavia did not primarily cause these distortions in the Serbian economy. It is more likely that they resulted from the absence of reform orientation of the Government. One of the important causes of the poor economic performance in Serbia lays in the corporate governance system which delivers wrong incentives for the participants, and does not provide monitoring and control mechanisms of the management.

Majority of companies in Serbia are characterised by the combination of the socialist self-management and misuse of, which are elected by the ruling coalition. Owing to the domination of social and state property, the old communist nomenclature maintained control over firms. No one does have neither monitoring authority nor capacity to control the management, except the ruling coalition.

A lack of transparency of the governance system eliminates accountability of the main participants: everything is happening behind the scene and nobody is accountable to nobody.

Privatisation process in Serbia, which actually started at the end of 1997, promoted management and employee buyouts. The privatisation process has been is very slow, since the privatisation is not obligatory, so the share of equity capital is less than 10% in the former socially-owned sector. In other words, in the Yugoslav economy socially-owned and state-owned capital still dominate. The current model of the privatisation is the insider one. Consequently, employees as share-holders will dominate in the future, and they do have neither needed monitor capacity nor incentives to control management. Since financial market is underdeveloped, the dispersed ownership does not provide any party with a capacity to supervise the management. In addition, the information asymmetry between insiders and outsiders is huge, and in the absence of efficient market, there is no a way to reduce it in order to reduce agency problems and costs. At the same time legislation does not oblige managers to be held accountable.

Serbian firms desperately need a serious reform in the governance area. The privatisation process should be fostered, while a transparency and mechanisms for accountability should be created.


  1. Assessment of the corporate governance system in Serbi a and its effects on corporate performance,
  2. Defining the sources of the poor corporate governance in Serbia, including the reviews of legal framework, privatisation model and trends, and political influences.
  3. Proposition of the strategy for corporate governance improvement . The crucial questions are: how to design corporate governance systems that can support wider economic reforms, and, on the other hand, how to design legal and regulatory framework that can enhance and make efficient corporate governance in those economies?
  4. Public advocacy of the need for improvement of corporate governance.


  • Research paper,
  • Workshop,
  • Advocacy.
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