Transparency level still low at state-owned companies – expert

Large businesses, especially state-owned corporations, are the most unlikely models of corporate governance: they are cumbersome, prone to bureaucracy and insensitive to innovations. But maybe the situation is gradually changing for the better? Invest Foresight asked Mikhail Kuznetsov, Associate Professor at the Corporate Management Department, Graduate School of Corporate Management at the Russian Presidential Academy of National Economy and Public Administration, to share his view on the matter.

– What do you think are the main corporate governance problems at large Russian corporations today?

– In the last 20 years, the corporate governance system in Russia has undergone several transformations. In the early 2000s, amid a high concentration of capital, the main problem was the widespread violation of minority shareholders’ rights. In the mid-2000s, many Russian companies that entered the foreign capital markets adopted the ‘external’ attributes of Western corporate governance, inviting independent directors and enhancing the transparency of their activities. In 2014, an updated Russian Corporate Governance Code was adopted, which generally conforms to international standards. At the same time, the state began to pay much more attention to the quality of corporate governance in the public sector. So today we are witnessing a gradual introduction of corporate governance principles in major public companies. At the same time, the Russian corporate governance system has retained its old problems – a low level of transparency and quality of internal control, violations of minority shareholders’ rights and in some cases, violations in relation to the approval of major transactions and related-party transactions.

– What is the reason for the persisting problems?

– Low growth and stagnation in the economy alongside the concentrated ownership model (the level of ownership concentration in Russia’s largest companies is still over 60%), a high share of the state in the economy and the weak role of the board of directors breed violations. There is no reliable balanced system that would provide control over management activities at the corporate  level, while external sanctions, restrictions and high uncertainty are narrowing the planning horizons and reducing companies’ investment activity.

– Why do major Russian corporations prefer avoiding ‘open innovations’ and external startups, largely limiting themselves to their internal R&D projects?

– The venture capital market has not yet fully formed here in Russia. True, there are many interesting startups; they get several rounds of financing, and then they face the problem of low corporate demand from Russian businesss. Large Russian corporations prefer buying people and teams, not businesses.

– Can the state influence the quality of corporate governance in companies co-owned by the government?

– It can and it does. Since 2013, a lot has been done to improve the quality of corporate governance in state-owned Russian companies. The largest public companies adopted roadmaps to implement the recommendations of the Corporate Governance Code; there were improvements in strategic planning, board structure, quality of corporate procedures, and remuneration systems. At the same time, the level of transparency at such companies remains quite low, with the exception of the largest public companies.

– Which Russian companies have shown any success in improving the quality of corporate governance?

– Sberbank, Alrosa, VTB, Aeroflot, Sistema, MTS and others.

By Konstantin Frumkin

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