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This paper discusses the privatisation process in the Czech Republic and its influence on corporate governance. While in 1989 the private sector totalled less than 1 per cent of the GDP, at the end of 1996 more than 70 per cent of the GDP was produced by the private sector. Large‐scale privatisation brought companies out of state ownership, but disperse ownership and lack of regulations created an extremely soft management environment. Since 1995 investment funds have started to reorganise their portfolio and more and more companies have undertaken the task of restructuralisation to become competitive. Though a considerable amount of data is still lacking, it can be concluded that the improvement in the profitability of the surveyed enterprises was due to improvements in corporate governance.