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Transfer to new economy depends on corporate governance - research

MOSCOW. June 4 (Interfax) - Improving corporate governance plays a vital part in transferring Russia's economy to a new model of growth, based on development of the non-mineral resources sectors and intellectual capital, say the authors of a National Corporate Governance Report presented in Moscow on Friday.

Better corporate governance should reduce the risks of investing in the Russian economy and make it more appealing to investors, said Alexander Astapovich, who coordinated the National Report project.

Polls show that over 80% of investors say corporate governance quality is the determining factor in investment decisions. The level of corporate transparency, as research shows, is closely linked with the market cost of shares.

Investors see the main problems in Russia's corporate governance as conflicts of interest between major and minority shareholders, a lack of transparency in ownership structures, withdrawal of assets, concealment of information and inequality in access to information and a lack of independent and efficient boards of directors.

Starting in 2000 "transparency of information increased considerably in big business, many company-borrowers transferred to international accounting standards and the names of shareholders were revealed," the report says.

In the fall of 2003, information was revealed on 33% of private ownership in 45 major Russian companies, compared with 29% in 2002. One sign that corporate governance standards are climbing is that some companies have started acquiring liability insurance policies for their boards of directors and top managers.

The results of research over the past two to three years show improvement in the practice of revealing company information. Standard & Poor's concluded in 2002 that the level of information transparency in Russian companies coincided with that of Latin American countries. The quality of information disclosure in Russian companies studied increased to 39% in 2003 from 34% in 2002.

However, insufficiently high standards in corporate governance continue to be among the factors holding back market capitalization growth for Russian companies, the report says.

In classifying elements of corporate governance, investors put information transparency, board efficiency and independence, a lack of conflicts of interest between shareholders, and maintaining corporate procedures and shareholder rights, in first place.

The National Report was presented during the two-day conference on "Corporate Governance and Economic Growth in Russia." It will now be submitted to the president and the government. It is made up of four parts: corporate governance in economic growth strategy; Russian legislation and judicial practice in corporate governance; corporate governance in Russian companies and investors and corporate governance.