No aces in corporate governance


A monitoring of Russian state-owned companies


The quality of corporate governance at 13 major state-owned companies differs, its estimates ranging from 1.6 to 4.07 on a scale of one to five, according to a report by the Association of Institutional Investors and the Research Laboratory for Business Communications of Russia’s Higher School of Economics. From September to December 2016, analysts studied the scope and quality of information disclosure and carried out 27 interviews with independent directors, institutional and portfolio investors.

According to investors, Sberbank, Bashneft and ALROSA are on top of the ranking scoring 4.07 to 3.76 points, while VTB, Gazprom and Transneft are the worst performers (2.19 to 1.6 points). As of September 2016, the 13 companies accounted for approximately 40% of the total Russian stock market capitalization (RUB 13.6 trillion), the taxes paid by them made up 4.7% of the GDP. The report refers to them as “market leaders” and indicators for evaluating the investment appeal of the Russian Federation. All the companies are recommended to comply with the 2014 Corporate Governance Code published by the Central Bank of Russia, with “much to be done in the way of development and improvement” at many companies, the analysts note. For example, independent directors are elected is less than half of the companies and are sometimes only technically independent from the Government or the key shareholder, minority shareholders are not active enough, and the efficiency of internal audit is open to question at most of the companies. That said, disclosure of information has improved, the API and the HSE admitted.
The research makers recommend, among other things, broader disclosure of qualitative information (including financial data) on the company’s activities as a whole and members of their Boards of Directors, election of the latter with due account for their contribution to the company’s performance (proceeding, among other things, from long-term KPIs), compliance with the Corporate Governance Code requirement to ensure that one-third of the Board members are independent directors. Other requests include the proposals to abandon voting quasi-treasury shares and to distribute profits according to IFRS standards, avoiding the leftover principle. It should be recalled that the API recently presented to the Russian White House calculations showing that companies can afford doing as recommended (see the “Kommersant” issue dated April 13).
It should also be noted that some of the requirements are specified in the Russian Government’s roadmap for corporate governance. The roadmap implementation is expected to improve the position of Russia on the World Bank’s annual Doing Business ranking.
Sofia Okun

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