The System

Today I cheated the system and the system almost won. I didn't mean to cheat...it sort of just happened. I got on the bus this morning and I didn't stamp my ticket. Why? Because a group of teenage boys were standing around the stamping machine and I didn't really want to push through them...they had big, bulky backpacks and I figured the bus ride is short and anyway, what are the chances someone will ask to see my ticket? Well...not two stops after I got on, a small, dark-haired woman ascended the steps of the bus and pulled out a little armband that said "controller" on it (or something like that) and asked the obnoxious, bulky-bagged teens to show her their tickets. My heart started pounding...How would I explain it to Peter, who had already reprimanded me once for not punching my ticket (but that was when I didn't know how the process worked!)? At least I had a ticket, though I had not stamped it with the machine (yet?). We were only two stops from Moskva Ter, the last stop at which everyone gets off the bus. If she headed to the back of the bus, I figured I would be safe. But if she came towards the front I was surely screwed. After asking the teens for their tickets - they had passes, as most people who live here do - she headed back and asked a man sitting down for his (phew...). He started to put his hand in his pocket, as if he was going for his pass or ticket, but then (possibly realizing the futility of his charade) pulled his hand out and shook his head. His misfortune was my good luck...because the time it took the controller to write his ticket meant that she was unlikely to ever get to me! Sure enough, Moskva Ter came and I practically ran off the bus...into the train station to buy a booklet of twenty tickets (the one I had not stamped earlier was my last one). Lesson learned, for sure.

A COOL ASSIGNMENT
Yesterday I learned a lot about the Hungarian corporate "setup" and what a set up it is. I learned about it because one assignment I have is to review a proposed new "Companies Act" - a piece of legislation that revises how companies are organized here in Hungary - to make sure its provisions are consistent with the Budapest Stock Exchange's recent corporate governance guidelines. So, needless to say, I need to brush up on the existing corporate structures. Not an easy task, as the structures are a mixture of American and German style governance, neither of which is perfect and the combination of which is both redundant and also insufficient at the same time.

So, in a nutshell, there are three different kinds of companies in Hungary: there are publicly traded companies (Rts), public but not publicly traded(whatever that means) companies (also called Rts and by the way there is no way to tell the difference between them unless you cross-check with the stock exchange), and private companies (Kfts). Confused yet? I am...how is a company public but not publicly traded? How do you buy stock in a company like this? Apparently, you call them and say you want to buy some stock. Sounds fishy to me, but this is how it works. And as for those publicly traded companies, see "The Stock Exchange" below.

Anyway, the companies are set up with different kinds of boards, depending on what kind of company it is. All companies with more than 200 employees have a Supervisory Board (German model) and employees must comprise at least one third of the members of this board. This Supervisory Board, however, is Supervisory in name only. I has no actual power over the other board, the Executive Board, which is made up of company managers who actually make all the decisions. There are no independent directors in this set up, so the company is run by the people who run the company and everyone serves at the pleasure basically of each other. The Supervisory Board can hand down opinions...and they have to be kept in the loop. But that's about it.

Publicly traded public companies have the option to choose an Anglo-style Board of Directors, complete with independent directors, audit and compensation committees, etc. This is apparently preferable to the two-tiered system because they want to keep those pesky employees out of the business of the company!

Something like that.

"THE STOCK EXCHANGE"
There are 50 companies listed on the Budapest Stock exchange. No, that's not a typo...the number actually is 50. Fifty. Five-Oh. And out of these 50, guess how many actually have any trading action... Can't guess? Okay, I will tell you. Four. And, to tell you the truth, even those four don't see much action. Apparently these companies get most of their financing from banks and prefer it that way. I asked, "Don't they realize that their costs of capital can be lower if they use a combination of equity and debt financing (surprising even myself that I learned anything in that awful finance class!)?" Well, apparently they know this intellectually but emotionally, they just aren't there yet. And it is things like this that are reminders that this is, in fact, an emerging - rather than emerged - market.