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Ministry for Economic Development Proposes Extended Rights for Boards of Directors

25.08.2014 15:43 / vedomosti.ru

The Ministry for Economic Development has published a draft law granting Board of Directors members access to controlled company information. The draft has been commissioned by Prime Minister Medvedev following his meeting with the Government expert board.

Current law does not allow Board members to access controlled company information, states the Ministry, however, this right is essential for the Board, since most of the large joint-stock companies are holding, and controlled companies may be responsible for important business. Besides, Board members’ right to access subsidiary and other controlled companies information is stipulated in the new Corporate Governance Code.

The Ministry for Economic Development proposes to amend the Joint-Stock Companies Act with the right of Board members to access any information pertaining to the business activities of controlled companies, including accounting reports. Parent company management shall report to the director as much information as it can access. If documents contain confidential information, the director may be required to sign a non-disclosure agreement.

Information shall be disclosed to a Board member within 7 days after request. However, if parent company requires more time under circumstances, the deadline for disclosure may be extended for an unspecified period, according to the draft.

Controlled company documents requested by the director may not be readily available, thus the delay is justified, comments Denis Spirin, Corporate Governance Director at Prosperity Capital Management: “Companies probably will use it as a loophole, but if the seven-day rule is the only option, it may become a built-in impossibility in a number of situations”.

Repeated failure to submit requested information or submitting false information to the Director leads to proposed fines of RUB 500 000-700 000. This concerns only repeated offences in the course of one year, and the penalty amount is not too steep, says Spirin: the threat of penalty will motivate the company CEO to look after disclosure timelines.

More rights for the Board will primarily benefit minority shareholders’ representatives on the Board of Directors and independent directors, who are rarely allowed access to documents of that kind, continues Spirin. Enacted on 1 September, a Civil Code norm will stipulate the Board Members right to access their company documents, says the expert. If this right is extended to controlled companies, members of the Board will truly be able to access all information, he concludes.

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