History and current state
The global economic crisis marked off the entire era in corporate governance development in Russia in 2001-2008. The hallmark of this era was the establishment of the corporate governance infrastructure in the country’s leading companies, mastering basic elements of the modern global practice, laying the foundations of corporate law.
However, high profits yielded by Russian companies, primarily in the raw materials sector, favorable market environment made their shares all the same attractive to investors, which finally overweighed the existing drawbacks in corporate governance, and made up for insufficient attention to its improvement and filling with real content. Some business owners and top managers believed they had achieved the required level and no longer needed to invest any additional resources in this business development aspect.
Global credit crunch has revealed the most obvious shortcomings in Russian corporate governance practice: formal and “window dressing” nature of a whole range of corporate procedures; lack of the necessary professionalism and skills by many board directors, shortage of experts in financial markets among top management, weakness of the risk management system, inadequate transparency, selectiveness in corporate information disclosure practices.
Many of the stereotypes that were common in theory and practice of corporate governance have been refuted; many truths that used to be regarded as copy-book maxims have been challenged. In particular, with the narrow Russian stock market and its heavy reliance on global factors, the link between a company’s corporate governance and its capitalization became hardly discernible.
In a new macro-economic environment, corporate governance is to pass through a series of ordeals. The influence of external and internal positive factors that used to encourage its development has weakened significantly. IPOs by Russian companies have virtually flattened out. The stock market fell to an all times low. Certain owners who abandoned the day-to-day management of their businesses a couple of years ago, resume their managerial functions again. Some companies (not only Russian but also foreign) slashed their dividend payments; others postponed them until better times. There is a trend towards lower business transparency. The cases when minority shareholders’ rights are violated by forced redemption of their shares at the understated value or by illegal dilution of their stakes in a company’s equity became more frequent.
On the other hand, the factors that will push the companies worldwide to upgrading and generalizing corporate governance standards are already evident. This is the need to overcome the commonly recorded loss of trust in the corporate good, and the quest by international institutions and national regulators for new approaches to formulate the rules of behavior in financial markets. There are many uncertainties, which arise in connection with the corporate debt restructuring that would supposedly lead to a greater government involvement in corporate processes.
The Russian business community embarks on a critical rethinking of previous experience, searching for the configuration of the new corporate governance model that meets actual business interests, with a greater emphasis on financial management and risk management, improvement of the internal audit functions, transparency, stepping up requirements to recruitment and professional level of the board of directors. The economic recession is to give momentum to evolution of the qualified independent directors’ and professional managers’ services market that is still underdeveloped in Russia.