Escaping minorities


Minority shareholders will not contribute to management of state-owned companies
April 19, 2017

Minority shareholders do not show interest in the management of state-owned public joint-stock companies. Foreign investors are apprehensive about the lack of transparency in these companies’ overseas activities and the “Soviet” management style, while Russian institutional investors are primarily interested in cash flows and do not believe it necessary to invest effort in improving issuers’ performance.
Minority shareholders’ commitment to the management of major Russian public companies is low, as concluded by analysts of the Higher School of Economics (HSE) in the research “Evaluation of corporate governance at state-owned Russian public joint-stock companies...” This issue was discussed yesterday and at a round table meeting at HSE. The research covered 13 major state-owned PJSCs. 27 experts of investment companies, subsidiary investment entities of banks and investment fund asset managers were surveyed. According to HSE estimates, no more than 15-30% (on average) of the free float vote at general shareholders meetings. “As follows from a review of international investors’ voting activity, many of them (such as the funds managed by Blackrock) did not vote at any GSMs except for the one held by Sberbank in 2016,” the report notes.
The low activity of “responsible” investors is partially attributable to the overall political environment and the general attitude to the Russian market. In some cases, foreign nominal holders would block voting by their clients, even though the companies are not on any sanction lists. Nevertheless, politics and sanctions are neither the only nor the most important reasons behind foreign investors’ reluctance to contribute to corporate governance. “Most of these companies operating abroad are primarily focused on the Russian market. Foreign citizens are quite rarely seen in governance bodies. Not a single chief executive officer of a state-owned PJSC studied or worked abroad,” Philippe Pegorier, President of Alstom Russia and a Board member of the Association of European Business in Russia, said during the discussion at the HSE. According to Mr. Pegorier, foreign investors tend to believe that state-owned PJSCs hold true to the “Soviet” management style which is non-transparent and unpredictable for them.
According to Alexander Varvarin, Managing Director for corporate relations and legal support of RSPP, companies obviously pay not enough attention to relations with minority shareholders. The recently tightened Russian legislation as regards disclosure of information on shareholders discourages foreign investors’ activity, Varvarin said. Russian institutional investors also participate in corporate activities half-heartedly, but for different reasons. They make a point of a “clear and predictable dividend policy,” Alexander Shevchuk, Executive Director of the Association of Institutional Investors, emphasized. Alexander Golovtsov, Head of the analytical research department at URALSIB Asset Management, shares this opinion reminding that the business of management companies is about buying undervalued and selling overvalued shares, not about improving the issuer’s corporate governance efficiency.
The regulatory authority is also concerned about minority shareholders’ low involvement in corporate affairs. According to Elena Kuritsyna, head of the Central Bank’s Corporate Relations Department, the regulatory bank considers this issue to be “very sensitive” and wants to address it squarely soon. “What is obvious is that some policies need to be developed for institutional investors and that this should be a controlled process,” Ms. Kuritsyna noted. This position was supported by Oleg Shvyrkov, Director for Corporate Governance at Deloitte and Touche CIS, who reminded that this regulation had recently been approved by the European Parliament in the new Shareholder Rights Directive. “Asset managers and institutional investors are now obliged to disclose their voting, which encourages deeper engagement with the company,” he said.
Maria Sarycheva
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