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Iordanidi K.A., Barvenko O.G.
South - Russian State University of Economics
and Service.
Development
of corporate governance in modern Russia and the world’s situation nowadays.
Corporate governance is the set of processes,
customs, policies,
laws, and institutions affecting the way a corporation
(or a company)
is directed, administered or controlled. Corporate governance
also includes the relationships among the many stakeholders involved and the
goals for which the corporation is governed. The principal stakeholders are the
shareholders, management, and the board of directors. Other stakeholders
include employees, customers, creditors, suppliers, regulators, and the
community at large. Corporate
governance is a complicated subject. An important theme of corporate governance
is to ensure the accountability of certain individuals in an organization
through mechanisms that try to reduce or eliminate the principal-agent problem.
A related but separate thread of discussions focuses on the impact of a
corporate governance system in economic efficiency, with a strong emphasis on
shareholders' welfare.
The birth of the Russian
model of corporate governance started with the biggest privatization of the
20th century practiced in 1992–1994 that determined the basic characteristics
of the structure of corporate ownership and governance in Russia, and it also
outlined the major directions for their development: the main part of Russian public
joint-stock companies which exist today emerged as a result of privatization,
and they account for four-fifths of all industrial production. This in turn
predetermined to a great extent the nature and specific characteristics of the
development of the Russian corporate securities market.
Generally speaking,
corporate governance in Russia is regulated by a whole body of laws—the Civil
Code of the Russian Federation, the Federal Laws “On Joint-Stock Companies,”
“On the Securities Market,” and “On Protection of the Rights and Legal Interests
of Investors in the Securities Market,” as well as regulatory acts of the
Federal Commission on the Securities Market and several other agencies.
If we have
a look at the Federal Law “On Joint-Stock Companies” we can
see that it contains basic norms of corporate laws which define shareholders’
rights, and the role, authorities, and liability of those who have been
assigned responsibility for management of a joint-stock company’s operations,
and which also provide protection for shareholders’ rights and interests. The
law has been in force since 1996. Practical experience in its enforcement has
shown the main problem of the Russian legal system – the poor enforcement of
the legislation. The law includes the provision for the right to participate in
a general shareholders’ meeting by a shareholder both personally and through a
representative. This provision gives shareholders broader opportunities to take
part in a meeting. But the Law provides that a proxy must contain the
representative’s passport data, and under the conditions of the struggle for
control this becomes a powerful weapon. A party that does not want to allow an
“opponent” to take part in a meeting may interpret passport data to mean any
entry in a passport. The proxy of the shareholder’s representative is rejected
on the basis of a mere formality, and the representative is not allowed to take
part in the meeting. What is more, a shareholder is not able to take part in a
meeting because the notice that the meeting was going to be held or the voting
ballot were received too late, or were not received at all. It can happen, as
someone simply “forgets” to send them. Another distinctive point of the Russian
model of corporate governance is when Boards of directors of the certain
company, taking advantage of the opportunity afforded to them by the Law to
adopt decisions to increase authorized capital, placed shares especially
through closed subscription to affiliated persons at below-market prices,
frequently without even letting shareholders know. The conditions of the
placement were to make it impossible or extremely difficult for shareholders to
acquire stocks. For instance, the placement of stocks of a large issuer occurred
on just one day and a shareholder had to arrive in person to enter into the
transaction. These circumstances and conditions make our model of corporate
governance inefficient and not as effective as it could be in accordance with
the main idea of the Federal Law “On Joint-Stock Companies”, especially
nowadays in the time of the world financial crisis which started last year.
Corporate
governance has more value now than it had before. There is an increased need to
establish the independence of auditors. Most of the companies are promoters
controlled which make separation of ownership and management difficult.
Therefore, more professional and independent directors should be appointed.
Moreover, good corporate governance cannot be achieved without transparency.
In
order to find the possible solutions which would be useful for the Russian
Federation we should have a look at the world experience. Taking into
consideration the mistakes which were done by the main financial institutions
such as Goldman Sachs and Lehman Brothers and the biggest fraud in the history
committed by Bernard L. Madoff, The Securities and Exchange Commission of the
United States (SEC) performed some measures which are aimed at avoiding repeating
such mistakes. The most important of them, from our point of view, is a requirement for the
public companies to make a slew of new disclosures in their proxy statements,
which are distributed annually to investors. The SEC wants the firms to write a
narrative about how their compensation policies could create risks. The
requirement will apply only to large public companies. Public companies will
also have to give more details about the backgrounds of directors on corporate
boards and nominees for directors and how their experiences and skills would be
valuable to the board.
The SEC is also
demands more information about how boards are organized, revising compensation
disclosures to make clearer the value of stock options and requiring that
companies report the outcome of shareholder votes more quickly.
It would be really
helpful for Russian corporate governance model if all the points mentioned above
could be taken into consideration by our governmental structures for preparing
some amendments to different federal laws in order to make our corporate system
more transparent and effective.
Bibliography:
1.Corporate governance
[Electronic resource] – Access Mode –
http://en.wikipedia.org/wiki/Corporate_governance#cite_note-0#cite_note-0;
2.Foreign
experience of corporate governance [Electronic resource] – Access Mode –
http://www.cfin.ru/investor/ao/codex_foreign.shtml
3. US Securities and Exchange Commission:
official Federal Agency website [Electronic resource] – Access Mode – www.sec.gov