In its 2004 Corporate Governance Sector Assessment, the European Bank for Reconstruction and Development (EBRD) concluded that Estonian corporate governance legislation is in medium compliance with the Organization for Economic Cooperation and Development Principles of Corporate Governance. According to a 2006 EBRD Commercial Law Assessment, the institutional environment in Estonia is considered sound, with an impartial and generally experienced and competent court system. Legal procedures and measures are generally clear and enforceable, although it is considered easy for a defendant to delay proceedings. Furthermore, corporate information is reliable and statutory auditors are fairly independent from shareholders. However, shortcomings exist in terms of redress and disclosure of information, as well as in the definition of responsibilities for the management board. Procedures for obtaining disclosure are usually lengthy and complex, and the enforceability of disclosure is weak. Per a 2006 EBRD Assessment, the Commercial Code represents the primary legislation for corporate governance. It was last amended in January 2007. The Corporate Governance Code entered into force on January 1, 2006, and aimed to enhance corporate governance and transparency. According to the Tallinn Stock Exchange website regarding corporate governance, the Code provides recommendations notably as to the composition and responsibilities of management boards, the role of stakeholders, and the disclosure of information in order to ensure fair treatment and equal access to information for all shareholders.

General Overview

The extensiveness of corporate governance legislation in Estonia was last assessed by the European Bank for Reconstruction and Development (EBRD) 2004 Corporate Governance Sector Assessment Project. The EBRD came to the conclusion that corporate governance legislation is in medium compliance with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. According to the 2006 EBRD assessment, the institutional environment in Estonia is considered sound, with an impartial and generally experienced and competent court system. Legal procedures and measures are generally clear and enforceable, although it is considered easy for a defendant to delay proceedings. Furthermore, corporate information is reliable and statutory auditors are fairly independent from shareholders. However shortcomings exist in the areas of redress and disclosure of information. Procedures for obtaining disclosure are usually lengthy and complex, and the enforceability of disclosure is weak.

According to the 2006 EBRD assessment, the Commercial Code represents the primary legislation for corporate governance. The Commercial Code was last amended on January 1, 2007. The Corporate Governance Code entered into force on January 1, 2006 with the goal of enhancing corporate governance and transparency through notably improved reporting systems by listed companies. As noted in the 2005 Financial Supervision Authority (FSA) press release, the Code is enforced by regulations of the Tallinn Stock Exchange (TSE), and is based on the comply-or-explain principle. Recommendations refer, inter alia, to the composition and responsibilities of management boards, the role of stakeholders, and the disclosure of information in order to ensure fair treatment and equal access to information for all shareholders, according to the TSE's 2007 Corporate Governance study.

The FSA is an independent agency which is responsible for banking, insurance, and securities market supervision in order to enhance the stability, reliability, transparency, and efficiency of the financial sector, as noted in the 2005 FSA press release. The TSE is the only regulated securities market in Estonia. Furthermore, the TSE and the Estonian Central Register of Securities (ECRS) are members of the OMX group of exchanges, which offers access to approximately 80 percent of the Nordic and Baltic securities markets. Over the past ten years, as stated on the TSE website, the TSE index has grown to 615 points, with 21 listed shares. Furthermore, according to a 2007 U.S. Department of Commerce (DoC) Country Commercial Guide, Estonia's financial sector is modern and efficient. Fourteen banks operate in Estonia, including branches of seven foreign banks, and the internet banking system is highly advanced.

In its 2007 Doing Business report, the World Bank perceives investor protection as being relatively high. The Investor Protection Index is a subcomponent of the World Bank's 2007 Doing Business Indicators, and consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indexes range between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Estonia scores 8.0 in the disclosure index against a regional average of 4.9 and an OECD average of 6.4. It scores 4.0 in the Director Liability Index against a regional average of 3.8 and an OECD average of 5.1 and 6.0 in the Shareholder Suits Index against a regional average of 6.3 and an OECD average of 6.5.

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

EN

The institutional environment in Estonia is considered sound, with an impartial and generally experienced and competent court system, as stated in the 2006 EBRD assessment. Legal procedures and measures are generally clear and enforceable, although it is considered easy for a defendant to delay proceedings. Furthermore, corporate information is reliable and statutory auditors are fairly independent from shareholders.

Per the same EBRD report, the Commercial Code represents the primary legislation for corporate governance. The Commercial Code was last amended on January 1, 2007. The Corporate Governance Code entered into force on January 1, 2006 with the goal of enhancing corporate governance and transparency through notably improved reporting systems by listed companies. As noted in the 2005 FSA press release, the Code is enforced by regulations of the TSE, and is based on the comply-or-explain principle. Recommendations refer, inter alia, to the composition and responsibilities of management boards, the role of stakeholders, and the disclosure of information in order to ensure fair treatment and equal access to information for all shareholders, according to the TSE's 2007 Corporate Governance study.

Principle II: The Rights of Shareholders and Key Ownership Function

II

The 2006 EBRD study shows that procedures for obtaining disclosure are usually lengthy and complex, and the enforceability of disclosure is weak. The enactment of the Corporate Governance Code on January 1, 2006 provides for the fair treatment and equal access to information for all shareholders, according to the TSE 2007 Corporate Governance study. However, the publicly available information does not directly address Estonia's compliance with this principle.

Principle III: The Equitable Treatment of Shareholders

II

The 2006 EBRD study shows that minority shareholders in Joint-Stock Companies can call a general meeting to request information from management. However they need to be backed by other shareholders representing the majority at the meeting in order to adopt decisions. In relation to redress, actions available to minority shareholders are also limited and costly. Furthermore, procedures for obtaining disclosure are usually lengthy and complex, and the enforceability of disclosure is weak. The enactment of the Corporate Governance Code on January 1, 2006 provides for the fair treatment and equal access to information for all shareholders, according to the TSE 2007 Corporate Governance study. However, the publicly available information does not directly address Estonia's compliance with this principle.

Principle IV: The Role of Stakeholders in Corporate Governance

II

As reported in the TSE 2007 Corporate Governance study, the enactment of the Corporate Governance Code on January 1, 2006 provides recommendations as to the role of stakeholders in order to ensure fair treatment and equal access to information for all shareholders. However, the publicly available information does not directly address Estonia's compliance with this principle.

Principle V: Disclosure and Transparency

II

The institutional environment of disclosure is considered sound, according to the 2006 EBRD assessment, However disclosure of information is complex, and enforceability measures are weak. The enactment of the Corporate Governance Code on January 1, 2006 provides recommendations for the disclosure of information and transparency in order to ensure fair treatment and equal access to information for all shareholders, according to the TSE 2007 Corporate Governance study. However, the publicly available information does not directly address Estonia's compliance with this principle.

According to the 2007 KPMG Investment Guide, beginning in 1995, Estonia based its national accounting standards on International Financial Reporting Standards (IFRSs). Pursuant to the 2003 Accounting Act, all Estonian companies may choose whether to apply Estonian Accounting Standards (RTJs) or IFRSs. However, according to the 2004 World Bank Report on the Observance of Standards and Codes (ROSC) on Accounting and Auditing, public interest companies, such as credit institutions, financial holding companies, mixed-activity holding companies, insurers, and companies whose shares or other securities are traded on a stock exchange in Estonia or other European Union (EU) Member State are required to prepare their consolidated and legal entity financial statements pursuant to IFRSs beginning January 1, 2005. Estonia thereby complies with European Commission (EC) Regulation No 1606/2002, which requires all EU listed companies to prepare consolidated accounts following IFRSs as endorsed by the EC starting January 1, 2005.

Principle VI: The Responsibilities of the Board

II

As stated in the 2006 EBRD assessment, amendments to the Commercial Code on January 1, 2006 improved the rights and duties of companies' management bodies. The enactment of the Corporate Governance Code on January 1, 2006 provides recommendations as to the composition and responsibilities of management boards in order to ensure fair treatment and equal access to information for all shareholders, according to the TSE 2007 Corporate Governance study. However, the publicly available information does not directly address Estonia's compliance with this principle.