Central Bank to boost minority shareholders’ activity

The Central Bank of Russia has developed initiatives to increase minority shareholders’ commitment to managing joint-stock companies. The regulatory authority proposes both crackdowns on passive minority shareholders (by means of excluding them from the register of shareholders or imposing restrictions on their rights) and soft law influence through stewardship codes. According to experts, severe measures are not effective, but the obligation to vote will have to be included in the statutory documents governing institutional investors’ activities.

The Central Bank believes it necessary to take measures encouraging minority shareholders to participate in the management of Russian public companies. An advisory report addressing this issue was published on the regulatory authority’s website on Monday. In Russia, non-controlling shareholders are typically passive when it comes to voting at general meetings, the report notes. This weakens the owners’ control over such companies, leads to “inability to resist illegal decisions infringing on interests of the company and its owners and hampers the process of making key corporate decisions.” This problem was previously identified in the research carried out by the Higher School of Economics (see the Kommersant issue dated April 19). The research showed that only a small part of minority shareholders (no more than 15-30% of the free float on average) vote at general shareholders meetings. During a discussion of the research results, Elena Kuritsyna, head of the Central Bank’s Corporate Relations Department, noted that this issue required the development of policies for institutional investors and control over their implementation.

The methods of motivation for minority shareholders proposed by the Central Bank are consistent with international practices. The most radical approach assumes the “imposition of legal consequences of the non-participation (or inactive participation) of shareholders in general meetings.” The consequences include exclusion from the register of PJSC shareholders, restriction of rights and mandatory repurchase of shares followed by their cancellation or allotment to other shareholders. These measures, however, are not going to be effective, Alexander Shevchuk, Executive Director of Russia’s Association of Institutional Investors (API), notes. “Our point is that the requirement for institutional, qualified investors to vote at general shareholders meetings should probably be included in local regulations,” he says. NPFs support this initiative. “It is necessary that all the elements in the ‘NPF – asset manager – issuer’ chain fully disclose information demonstrating the logic of what they do to increase capitalization, reduce costs, improve social responsibility of businesses,” NPF Safmar’s Executive Director Yevgeny Yakushev commented.

Another, more lenient remedy is the application of “soft regulation” based on recommendations or stewardship codes. For example, the British Stewardship Code recommends having a well-thought-out policy for managing conflicts of interest associated with the governance of companies invested in and its public disclosure, being ready to act in alliance with other investors, developing a clear voting policy, etc. According to Mr. Shevchuk, the API is already working on a Stewardship Code which could be controlled by investors and the regulatory authority as necessary.

The Bank’s report also highlights the international practice of engaging outsourcers for consulting on voting matters. Institutional Shareholder Services and Broadridge are the world’s best known providers of such services. While no firms perfectly similar to these global pace-setters have so far manifested themselves in domestic practice, such providers are definitely of use to shareholders not possessing the required expertise or resources and can effectively consolidate investors’ opinions. There are no plans to forcefully impose such a provider – the decision will be left to the market. “The API has, to a limited extent, already engaged in voting consultancy providing such services to its members. If we see massive demand, we are ready to extend this practice to the whole market,” Mr. Shevchuk said.
Maria Sarycheva
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