Today, CIPE held a roundtable with Dr. Igor Belikov, Director of the Russian Institute of Directors, who discussed the state of corporate governance in Russia — its past, present, and future. In his presentation Dr. Belikov brought to the forefront some issues which are not unique to Russia alone and are applicable to a variety of emerging markets.
Some of the more interesting points on the history and the state corporate governance in Russia:
— The major limiting factors to the spread of corporate governance in Russia are poor business regulation and weak/inefficient court system. In regards to the court system, the major weaknesses are that there is no precedent law (similar cases can draw completely different court decisions), poor understanding of business practices and market concepts by judges, weak sanctions for breaching the law, and, of course, corruption. It was great to see a great emphasis being placed on supporting institutions in the framework of corporate governance.
— Independent directors are not really independent. This point was particularly interesting to me. While the growth in the number of independent directors on boards of Russian companies is evident, there are many questions in regards to their independence. In most cases, they know who puts them on the board, be that a group of minority shareholders or a controlling shareholder, and those directors are heavily influenced by those shareholders. Board members serve for 1 year after which they stand for re-election, yet certain provisions allow minority shareholders to initiate extra-ordinary meetings to re-elect members of the board. In these conditions, board members feel the pressure of shareholders who put them on the board and they respond to those pressures. Dr. Belikov preferred to classify them “outside” rather than truly “independent” directors.
— A side note on this possibility of calling for extra-ordinary meetings to elect new board members. Its been a source of conflict (sometime with use of physical force) in several Russian companies, where firms end up having two boards of directors each of them not recognizing the other as a result of this. And when it comes down to courts to resolve these issues firms face further problems (see the point on the judicial system above).
— Private companies are way ahead of their state-owned counterparts in terms of adoption of and compliance with corporate governance practices.
— Investor’s concerns over corporate governance standards often don’t correspond to their actions. This is particularly true about speculative investors, who disregard corporate governance practices and are mainly concerned with short-term growth prospects. Dr. Belikov provided several examples of when concerns over “questionable” corporate governance practices are seemingly ignored by investors who poor money into companies. Igor Belikov elaborates on this point in greater detail in his Economic Reform Feature Service article “Corporate Governance in Russia: Who Will Pay For It and How Much?”
— The most important point, which may not have been explicitly stated, but was implicitly present in Dr. Belikov’s remarks, is that corporate governance experts from developed countries should allow experts from developing countries an equal seat at the table. Developed economies should not simply teach emerging markets certain principles as in a teacher-student relationship, but they can also learn a thing or two from them. Its a relationship which must work both ways. This means that simply parachuting experts/consultants into the field, providing a set of recommendations based on some abstract set of best practices, and hopping back on the plane thinking that your work is done does not get the job done and can actually be insulting to the intelligence of the experts in these emerging markets. Something to keep in mind, not just in the framework of corporate governance programs, but in regards to all other economic and democratic reform initiatives.
Transcript of the presentation will be made available here.
Published Date: April 13, 2006