It was a groundbreaking document at the time, recalls Corporate Governance Director at Prosperity Capital Denis Spirin: many of its stipulations have since become statutory norms. However, today the potential of the old Code has expired, he continues, while corporate governance in Russia has progressed and now requires a new set of objectives.

The document is a recommendation, and its goal is to define an ideal model, explains Spirin. Companies do not have to run the approval procedure, they can just start adhering to the code and mention this in the quarterly report, for instance. If a company does not comply with certain norms of the Code, the report may include reasons for non-compliance.

The Code will promote OECD corporate governance standards, says Spirin: it is a complete reversal of the current version — for instance, the Board of Directors will have more control over subsidiaries, the role independent directors will be more prominent. The required minimum of one-third will form the pool of CEO candidates.

The key objective is minority shareholder rights protection, say Code authors. These rights are frequently violated today, one of the main reasons foreigners lose interest in the Russian market, say foreign fund representatives. Among other things, they are at odds with unpredictable dividend policy. The Code forbids to restrict shareholders’ dividend rights.

Companies often forego mandatory offer on formal grounds. The Code encourages to approach offer not just as a statutory norm, but with principles and recommendations in mind, preventing the use of loopholes to avoid it, says Spirin.

Investors do not expect a revolution. State-owned companies are the most malicious abusers of minority shareholders rights, and these companies are unlikely to volunteer for the Code, says a foreign investment fund employee. The Code will not solve all problems due to its non-mandatory nature, admits Spirin. Head of Financial Markets Service Sergey Shvetsov proposed to Prime Minister Dmitry Medvedev that the Code be forced on state companies to push their share quotes up. Medvedev sat on the fence at the time, musing on the method of ‘forcing’ the Code — ‘through law enforcement agencies?’ The State has clout with the Board of Directors as a shareholder, explained Shvetsov.

“We do not think the Code should be forced on state companies: approaches must vary”, says head of department at Federal State Property Management Agency Viktoria Semerikova. Federal State Property Management Agency, however, will pay extra attention to the Code recommendations, including management transparency, says Semerikova: the agency plans to ‘synchronize’ its recommendations to state companies with the Code. Crucial norms are: setting up special Board of Directors committees (audit, strategy), increasing transparency, assigning a more prominent role to the Board of Directors, set up a Company Secretary, says Semerikova. Some Federal State Property Management Agency recommendations are Code-compliant, she remarks: such as implementing KPIs, putting development strategies in place, organizing the Board of Directors.

Margarita Papchenkova

Improvement of corporate governance, Project Group №2