Maria Krasnikova

The Expert RA Rating Agency, together with the Russian Institute of Directors, has conducted research into the quality of corporate governance among leading Russian bond issuers.

Examining the publicly available information from 59 companies demonstrated that they have varying attitudes regarding investor rights, though the overwhelming majority of these companies are actively positioning their shares on the stock market. Despite the diversity in attitudes, some general rules can be traced that are common to all Russian models of corporate governance in early 2004. The Corporate Governance Map (for a complete version go to www.raexpert.ru) demonstrates these rules extremely clearly.
At first glance, the map is depressing. On the map, which shows the strong and week sides of corporate governance, areas reflecting high marks are practically blank. There are several reasons for this: the extreme concentration of shareholder capital, the risks associated with major corporate events (mergers, takeovers, restructuring, additional issues, etc.), and the uncontrolled activities of executive organizations in the context of scant information about financial and economic activities.
First of all, however, Russian investors are not intimidated by the mediocre level of corporate governance. Secondly, Russian companies’ rapid progress is obvious. Densely populated regions on the map are drifting upwards and there is reason to believe that the blank spots will soon disappear. Perhaps this sounds surprising, but current Russian legislation protects minority shareholder rights better than the laws of many other countries. Sometimes this leads to overkill (the story of a certain Irina Egorova who owned five shares of LUKoil and managed via the courts to stop the giant’s oil exports has already become the stuff of legend).
Compared to other developing markets, Russia is one of the most open to investment. 57 of the 59 companies do not have any limits regulating the number of foreign or minority shareholders. The limits that do exist in huge corporations like Gazprom and Transneft have been set by the state, their largest shareholder.
Finally, issuers are actively restructuring their corporate governance systems. This predominately involves carrying out formal procedures in conducting general meetings. The second area of improvement is companies’ increased transparency. Thirdly, companies are perfecting their governance organizations, especially their boards of directors. The first two innovations have been enforced from above, so to speak. The rules for running shareholder meetings are dictated by incorporation laws (in 2003 according to our findings, only 4 of the 59 companies violated these laws to one extent or another), and issuers’ openness with corporate information improved substantially after new standards from the Russian Federal Securities Commission came into effect. The business community is responsible for the third type of changes.
Just a few years ago (at least according to data from 1999) there were absolutely no independent directors on the boards of Russian issuers. According to our current findings, 29 out of 59 companies have representatives of minority shareholders and independent directors on their boards. Eleven companies have set up committees for bonuses and audits, and in the near future another four companies intend to establish similar committees.
Issuers are rapidly learning the ropes of corporate governance. This is why over the last year more than 17 companies have approved codes of corporate behavior and seven companies have created the post of corporate secretary, and around 10% of study participants created investor information services.
The results of this study have allowed Expert RA and the Russian Institute of Directors to develop a National Corporate Governance Rating, which will be conducted this summer and will survey around a hundred prominent Russian companies.

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