Corporate governance: Russia vs. the world

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Corporate governance is a subject still grabbing the headlines, especially as the global economy continues to struggle in the wake of the financial crisis. In understanding corporate governance, it is important to keep in mind that the term itself has different meanings in different parts of the world.

During our early work in the Middle East, for instance, we found that there was no agreed-upon term for the concept of corporate governance in Arabic. This certainly complicated reforms, because unless people spoke English, they’d spend more time arguing about the proper meaning in Arabic rather than specific changes in how companies operate.

Simply put – how can you effect change if you are not sure what is it exactly you are trying to change? Luckily, the Middle East issue was eventually resolved, and a common term with a same meaning eventually took root.

In Russia, similarly, the concept of corporate governance is not exactly the same as we’ve come to know it in Western companies – where it’s focused on broad governance, risk management, and strategic planning. In fact, the Russian translation for governance is closer to “control” and “management” and experts often point out that corporate governance there gets into the daily management of enterprises much more so than in the West.

But beyond the perception and understanding of corporate governance, what is the state of it in Russia? How does it differ from the rest of the world? Has the country’s corporate governance climate improved since the financial crisis? What are some of the areas still lagging?

In a recently conducted interview with CIPE, four Russian corporate governance experts (Igor Belikov, Director of the Russian Institute of Directors; Mark Mobius, Executive Director of the Templeton Emerging Markets Group; Roger Munnings, Independent Director and Chairman of the Audit Committee, JFSC Sistema; and Vladimir Verbitsky
Deputy Director of the Russian Institute of Directors) provide their reflections on the state of governance practices in Russian enterprises.

They touch on some interesting issues, including conflicts between minority and majority shareholders, state participation in the corporate sector, and transparency in decision-making. For instance, Igor Belikov unpacks corporate governance challenges of Russia’s state-owned companies:

The main problems for state owned companies are at both the operational and board levels. At the operational level, the problem is inefficiency and rent extraction. At board level, there are problems when the board is not focused on achieving maximum benefit for the country’s population but on political aims or, worse, maximizing the benefit to individuals involved in governance and management.

Vladimir Verbitsky highlights the problem of selective use of corporate governance tools:

I think the main problem of corporate governance practices in Russian companies is the non-systemic and non-comprehensive nature of these practices. By “non-systemic” I mean the implementation of only certain governance practices from a model for a given company, rather than the use of as many international best practice components as possible.

Roger Munnings points out a key problem – a focus on individuals, not institutions:

Within many Russian companies, therefore, decision-making is “stove piped” to the General Director and personal relationships with the General Director can take precedence over structures, systems, or processes.

Want to know more about how Russia’s corporate governance practices differ from the rest of the world? You can read the article here.