Zbigniew Piekarski casts an Investor Eye on the WSE

The Warsaw Stock Exchange used to be in the old headquarters of the communist party praesidium. This was thought to be the only testimony that Leszek Balcerowicz has a sense of humour. But a year ago, the sharecroppers moved around the corner to a purpose-built home of their own. Don't expect a welter of ticker tape and men in red braces and striped shirts screaming bids. Stock markets aren't like that any more. And certainly not this one. Through the portals and you are immediately in another temple of modern Polish architecture, consisting of a cavernous atrium disturbed only by the gentle swish of an escalator which looks as though it will carry you straight to heaven, as in a Hollywood biopic which features a stairway of precisely that kind.
In fact, after this magnificent buildup, you are transported to the very plain offices of Dr. Wiesław Rozłucki. He has been the president of the WSE since its birth in 1991, which makes him the longest serving professional in what is to the general impression a public office, in post-communist Poland. Not that the good doctor is a creature of the government: far from it. But he does command one of the most important regulatory sinecures in the country, and in this role he is mixing it in the bearpit with politicians as often as he is with the market-makers.

He looks like a doctor, but rather the white-coated type. One could see him, stethoscope a-swinging, on patrol of the wards with a posse of respectful interns in tow. He is very slight, gaunt and at first perception definitely clinical, as one would expect a president of the exchange to be. And then it becomes clear that what we have here is a man of private passion. And the passion is the stock exchange. I asked what he does to relax. He said that he doesn't, except to ski if he can, wherever there is good snow. One can see him doing that with a fair degree of determination. Otherwise, it is the WSE which makes him tick.
He has taken the WSE from bawling infancy - five stocks traded at the first session in 1991 - to lusty adolescence - hitting an all-time WIG index high of 22,868.4 in March 2000 - through to the respectable maturity of becoming the fifth largest of Europe's mid-range bourses. But there are critics: it's frankly incestuous, say the noisiest, the same stocks chasing each other around in circles; not enough investment choices; the allegation that 10-15 companies with sufficiently attractive liquidity do not offer competitive portfolio options. The nascent pension funds groan that they do not have enough places to stack their money.
So, does Pan President beat Treasury Minister Kaczmarek around the ears and tell him to put more companies on the block so they end up on the exchange?
"Yes, I do, and at the same time I know it's not an easy process politically," Rozłucki said. "From a purely project point of view, it's not easy to privatise a big company in any country."
Hadn't Mrs. Thatcher, who kicked off the privatisation wave, found it fairly painless?
"There was a different public mood than we have now in Europe 15 years later," he said. In Britain investors gained; in France and Germany the sale of telecom monopolies had brought pain.

"Privatisation nowadays is more difficult everywhere, but having said that, I am in favour," Rozłucki added.
The exchange is also targeted for allegedly discouraging new companies looking for money. Dr Rozłucki is not going to have any of this.
"So should we lower our listed requirements, lower still?" he said. "I don't think so. I think that our investors would not allow it."
He wonders if companies which feel they are being shut out of external financing do enough to make themselves attractive by having attractive and compelling and well-presented business plans. The interview, as ever they do, has now acquired its sense of direction. It is going to be about corporate governance, the role of the exchange authorities as regulators and about ethical and moral standards in a rapidly evolving economy such as Poland. So, to be blunt about it, are all the companies presently listed on the WSE absolutely pucker?
The president refers to the recent problems of corporate governance in the United States and recalls the roaring early nineties when numerous delegations arrived on almost every plane from the states bearing words of wisdom on how to organise a market economy (while the exchange itself was actually created with the active assistance of the French). Then in time came the dot-com boom…"and a minority immediately saw the opportunity of a lifetime to get rich quickly, this way or that way," Rozłucki said. "So sometimes when you have opportunities suddenly arising, you go blind with regard to ethical standards, for the time being.

"So, the US is a perfect case. Suddenly everybody is so surprised. How can these semi-gods, CEOs, behave like this?"
There is nothing specifically cultural about any lapse in Polish standards which is peculiar or isolated here. That is Dr. Rozłucki's case in dragging out recent American dirty washing. He is illustrating markets as, essentially, the Garden of Eden, where temptations are manufactured on a routine basis.
"I think you measure your standards against temptations," he said. "The best clue is: yes, you are tempted, and then, how you behave."
He relates a story from his brother, who lives in Sweden, on the subject of Nordic temptations, those of the fiscal variety. The Swedes were catching up with contemporary practices.
"Their ethical standards have changed relatively quickly because the challenges, the system, encouraged them to compromise their ethical standards for immediate rewards," Rozłucki said. "And that happened also in the United States. I think in Poland that was also the case. Some restrictions went away and new opportunities, enormous ones, emerged and some people got tempted. They compromised their standards."
He concedes that there are some unusual domestic cultural factors.
"For the last 200 years those who governed Poland were foreign rulers, so it was obvious acting against the foreign ruler was something even patriotic and good," Rozłucki said. "So there is a different background which is still with us."
When the economic transformation began, many people had become rich rather quickly, "which is again normal in political and economic turmoil following a major change of the economic system we had here," he said. This era of rapid prosperity had naturally incited envy.

"Some people thought, we would also like to have a piece of this cake," Rozłucki said. "And they were looking for shortcuts in the legal system. I think when the certain order, no matter whether good or bad, is changed for another one, in the process the rules are changing and there is a good time to achieve personal gains, legally or illegally."
Rozłucki does not survey the WSE and smile benignly upon all the perfection he sees before him. He is a regulator who wants smarter standards of acceptable corporate governance, which from the perspective of the presidential desk require better information to the market by company boards, of transparency and improved reporting to shareholders. He doesn't believe that in so fighting for investor trust, he is in any way doing something peculiar to this country. On top of that, it is a question of scale. Issues of corporate misbehaviour are related to the size of markets. Thus the difference in boardroom naughtiness between the USA and Poland.
He is not a policeman. He cannot put everything right. He can have a view and find ways of expressing it about companies which behave in such a fashion that it is bad for the image of the market as an entity. But first and foremost, he is the custodian of the exchange and shareholder values.
"I am mainly concerned with the listed companies trying to drain money from their own companies and to rob shareholders," he said. "Frankly speaking, if they rob anybody else, that's someone else's problem. I am perfectly blunt about that. I am worried about that, but I am not able to do anything about it, so I hope someone else will do something. But I will try to protect shareholders being robbed by the management, by the supervisory board, by related bodies."
He adds: "Exchanges are worried about shareholders."

He cites self-regulation, the reality that people who trade on the exchange are not just out of their nappies. The classic instance quoted is the start of the Great Elektrim Scandal, three or four years back, when an undisclosed side agreement surfaced and sent the share price to the floor, where it has more or less remained ever since. Not quite an Enron, or a Vivendi, but the biggest home-grown affair so far. After the initial disclosures, the market soon sniffed out all the other skeletons.
The exchange has drawn up new rules on corporate governance to supplement those already existing, and each listed company will be leaned on to comply.
"We cannot say to the companies: do this or that," Rozłucki said. "They have an indication from the market and from us vis-a-vis each of those rules. They can say: we do not like it and will not adopt those rules, and that will not be easy.
"They cannot say, oh, we will not adopt it. They should give a reason. They have to explain one by one, why they do not adopt those rules. That is a good way forward. We have already made our companies reconsider some of their practices, bad practices. I think that from now on, those who have bad practices will think twice."
It is a useful point to bring out the E word. Are Polish companies going to be up to scratch when the doors of Europe swing open? Must try harder is the immediate verdict.
"I think that still Polish companies under-perform, and those who are on the management and supervisory boards should try harder to provide better results," Rozłucki said. "Maybe the challenges so far have not been that great. In the first years of the market economy the competition was not there to such an extent."
But it will be now. The WSE in the meantime has not sat about. It has created a significant market in derivatives, which is why the good president becomes especially angry when investors complain about lack of choice. He doesn't, however, want to subsumed under a vast Euro blancmange. It is all about diversity, he says, and that is where the real strength of Europe lies.
I leave this passionate man to his labours. I understand his problems. He is short of companies on the exchange, but he cannot force the government to privatise. I think he is probably the best regulator in the country and certainly one who understands the respective powers of the carrot and the stick. In the end, the WSE is a reflection of Poland itself, I muse, as I stride firmly to the bus stop, my stretch limo being in for service. It will go where the country goes.