#6005
[Second Issue of the Day]
#5
strana.ru
January 4, 2002
Conduct Code Shines a Light for Russian Business Boardrooms
Corporate governance new first on road to world probity
By Michael Stedman
New light may begin to shine this year through the opacity that has been Russia's business world. But for sure, there's an uncertain ride ahead for a new initiative that seeks to be more than mere wishful thinking.
Despite good intentions, the future of Russia's first-ever try at exposing business practice to the glare of transparent corporate governance is largely in the hands of captains of industry for whom the principles of open books, frank disclosure and protection of investor and shareholder rights have been anathema.
Russia has succeeded, though, in putting together a ground-breaking initiative. This seeks to inject into the nation's boardrooms a sense of the disciplines that govern what are effectively the morals that guide business practice throughout much of the world.
The credentials of those behind the move are as bluechip as the authors would like Russian business to become. The code won government blessing in late November after a drafting and consultation process organized by the Russian Federal Commission for the Securities Market (FCSM) and the European Bank for Reconstruction and Development (EBRD).
Their drive for support and credibility fixed sights on much of Russia's business community - but their horizons were far wider. The skepticism of investors, lawyers, business people and journalists was confronted by FCSM chairman Igor Kostikov at presentations in London and at road-shows in Washington, Boston and New York during consultations designed to give interested parties outside Russia a chance to voice their views on the contents of this landmark document.
"It is our primary task to support both public and private initiatives aimed at improving the laws and institutions which support a modern market economy," noted top EBRD specialist Emmanuel Maurice as he unveiled what developed into the bank's largest legal reform project and one backed by 600,000 Euros (nearly $535,000) of Japanese government development money.
Encouraged by the moves of several Russian companies which have introduced changes in their own corporate governance practices, the FCSM went into gear to mop up damage to, and lack of investor confidence in, Russia's investment climate through examples of corporate practice which have defied international norms.
The code was presented in draft form to State Duma deputies, the business world and the media in September, followed by consultations with around 2,000 Russian and foreign companies, banks, investment firms, stock exchange representatives and federal institutions.
Support was significant, according to a commission spokesman. Nearly half of those consulted backed the idea of a code and nearly 30 percent wanted it enshrined in law - a consideration noted by EBRD specialist Maurice when he said, "effective implementation of any legal change…is the crucial test for any legal reform." And here is the rub, the crucial qualification. The code has no statutory force and the extent of compliance has yet to be tested.
Government sees its arrival as an important milestone, however. Prime Minister Mikhail Kasyanov said compliance with the code's provisions "should improve the transparency of Russian companies and increase the flow of investment," referring to its safeguards for those with financial interests in an enterprise's operations.
Ministers' support "was a decisive factor for building the system of corporate relations in Russia," reflected FCSM Chairman Kostikov after the cabinet gave the code its blessing and urged that its principles should be followed.
As Kostinov and his associates contemplated how the code will be received in the coming months, he looked back in an exclusive interview with The Russian Observer on the road traveled so far, and the still rocky route his code might have to take.
"An immense number of companies joined discussion on the code - more than 2,000 opinions of support came from international investment institutions, Russian emitters and professional players on the securities market such as the World Bank, the International Finance Corporation, the EBRD, Gazprom, the Russian Union of Industrialists and Entrepreneurs and Siberian Aluminum company," Kostikov said.
The process was a key pointer to Russian corporate attitudes to higher standards of governance, the chairman believed, noting that "the bigger the company, the greater importance it attaches to developing corporate management and introducing corporate standards." The more transparent a company was, the greater investment it might expect, he said.
Key elements of the code were recommendations for electing an enterprise's corporate secretary, recommendations for electing a defined number of not less than three independent directors to the company's board, proposals for setting up an inspection service in each company, and rules for approving a company's financial plans, Kostikov said.
Government had given what the chairman called "very positive support," and ministers had pledged monitoring of how the code was being applied. "Observance of the code's provisions through representatives of the state on the boards of directors of companies will be introduced," he said.
Despite the absence of statutory backing, "objective economic laws and principles" were incentives for companies to follow the code's provisions, Kostikov said, noting that the Russian companies Yukos and RAO Unified Energy Systems were among enterprises that had already introduced corporate governance codes of their own.
In a November opinion poll conducted among the directors of more than 100 Russian companies, 47 per cent had replied "yes" to the question of whether a corporate conduct code was needed by a company, though only as a recommendation, Kostikov said. Just under 30 per cent said it was needed "as a law" and 20 per cent said it was necessary as a "normative act or a regulating body."
Consultations during European and U.S. presentations of the draft code had been positive, the chairman believed, and a number of recommendations, mainly of a technical character, had been suggested. But the most positive response "was evoked by the very emergence of the code, the first in Russia," Kostikov said. Its main provisions were "based on the Organization of Economic Cooperation and Development principles of corporate management, long used in the West."
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