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Corporate governance practice in Russia: Defining the boundaries of the national model

Corporate governance practice in Russia: Defining...

KPMG and the Russian Managers Association have published the results of research on the problem of developing corporate governance in Russia.


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The development of corporate governance is a strategic objective of every company. Achieving this goal can help a company not only to improve its image and comply with stakeholder expectations and regulatory requirements, but also to achieve greater economic efficiency in its processes and facilitate the sustainable development of the company.

The report presents an overview of the main corporate governance models used in foreign countries and analyzes the level of development of corporate governance structures in Russia as dependent on the ownership structure, industry and revenues of the company. On the basis of the results, recommendations were issued on the areas requiring development and the tools that can be used to improve the quality of corporate governance in Russian companies.

“In this research we sought to provide answers about what Russian business, the state and investors should do after the financial and economic crisis and identify the new corporate governance drivers, and clarify whether old models of corporate governance should be cast aside and whether there is a specific Russian model of corporate governance”, notes Igor Korotetskiy, Director, Corporate Governance and Sustainability Group, KPMG in Russia and the CIS. He added: “One of the key values of this research relates to the interviews that we managed to conduct with recognized corporate governance experts in Russia.”

Executive Director of the Russian Managers Association Sergei Litovchenko, commenting on the results of the research, noted: “Corporate governance practice at Russian companies reflects the socio-economic instability in the country: the planning horizon in 85% of the surveyed companies representing large and medium-sized business amounts to no more than three-five years; only half the surveyed companies translate long-term strategic goals into measurable indicators that they want to achieve. At the same time, however, the corporate governance perceived in survey responses is focused on the establishment of a corresponding investment climate in the country, as the development of corporate governance is directly related to the establishment of the image of the company to attract investors.”

The following can be highlighted as some the key results of the research. 

Improvements in regulation and standard setting in the area of corporate governance.

Active standard-setting is sometimes detrimental to the interests of investors, even though the legislators and regulatory authorities are driven by good intentions when they adopt various regulatory acts. To all intents and purposes, this is attributable to insufficient dialog between stakeholders. Additional efforts need to be taken to actively engage all stakeholders (in particular investors and business representatives) in the discussion of standard-setting initiatives.

There is a need to increase the transparency of the activities of expert commissions and expert councils established under the state authorities. In addition, the expectations and hopes of stakeholders should be clarified more actively by increasing the level of their representation on expert councils and commissions, so that businesses and investors are heard at the earliest stages of the initiation of regulatory and legal acts. Existing initiatives to improve the quality of standard-setting, such as Regulatory Impact Assessment (RIA) implemented by the Ministry for Economic Development of the Russian Federation and public consultations, should be perceived as best practice and recommended to other state authorities.

Form and substance of corporate governance.

At the time of the crisis the mechanistic approach to corporate governance demonstrated its ineffectiveness: the corporate governance attributes introduced merely to comply with investor requirements did not help companies cope with difficulties, and so simply discredited themselves.

Up until the financial and economic crisis form prevailed over substance in the area of corporate governance developments in our country. In other words, the potential PR impact played at times a decisive role when companies decided whether to introduce corporate governance provisions.

Expediency should come first: companies should implement individual components of corporate governance, taking into account their business goals and objectives, the development stage of the organization and also the expectations of the company from the perspective of all its stakeholders.

The adopted corporate norms and rules should be communicated to employees and feedback should be obtained in respect of the application of these norms, to make sure that regulatory provisions are adjusted promptly if they become technologically obsolescent or are at variance with the terms for doing business. The strengthening of the compliance function represents another mechanism.

Role of shareholders in management.

The presence of minority shareholders in Russian companies, characterized by a high concentration of ownership, is a key driver for the development of corporate governance. Introduction of the practice of actively engaging portfolio investors in the corporate governance of investment assets would help to improve the development of corporate governance in Russia. The principles for responsible investment, which take into account corporate governance factors, and also environmental and social aspects, have yet to be developed by Russian institutional investors, which underscores significant potential in this sector.

Increase in the role of the board of directors and independent directors.

The work of the institution of the Board of Directors in Russian companies has certain imperfections, first and foremost the token nature of the decisions adopted by many boards of directors and the control of the board of directors by the main shareholders of the company. In order to improve the situation relating to the work of the Board of Directors, there is a need for professional independent directors who are ready to assume responsibility, accord a sufficient amount of time to the exercise of these functions, possess the requisite skills and be capable of defending their viewpoint. A regular performance appraisal of the board of directors as a whole, the committees of the board of directors and also individual members, represents an additional tool to stimulate the active work of the board of directors.

Development of internal controls, audit and risk management systems.

The internal audit function is becoming more and more common at companies. At the same time, however, the surveyed experts noted that senior corporate management still lacks understanding about the role and objectives of the internal audit function in the organization. The situation is less optimistic in the area of risk management.

A solution in this area could be provided by the implementation of targeted comprehensive programs aimed at counteracting fraud and increasing business efficiency, which should include a whole set of initiatives, from organizational administrative measures to software and hardware packages. Strengthening the risk management function in respect of the organization as a whole, ensuring its independence, increasing the level of qualifications and automation is the next key area.

Interaction of the company with stakeholders.

When determining priority development areas for corporate governance, at present Russian companies focus least on establishing dialog with all stakeholders. An increase in the quality of interaction with stakeholders is essential. In particular, improvements need to be made to the content of the financial statements aimed at increasing the quality of notification of different stakeholder groups about the company. One should from time to time simply ask key stakeholders: “What do you expect from the company?”

Igor Korotetskiy, Director, Corporate Governance and Sustainability Group, KPMG in Russia and the CIS, noted: “Management of Russian companies needs to recognize that individual corporate governance tools should be implemented proceeding from business objectives, the development stage of the company and also stakeholder expectations. Simple compliance with requirements is no longer an effective means of creating and maintaining value. Every structure and process of corporate governance should be rethought from the perspective as to how they actually contribute to an increase in the effectiveness of managing risks and realizing opportunities. And on this basis a corporate governance development program should be adopted that is clear and understandable to all participants in the process.”

Sergei Litovchenko, Executive Director of the Russian Managers Association, noted specifically: “According to the results of the survey, at present competition in a particular industry and on the capital markets can be considered the main drivers of improvements in corporate governance in Russia: doing business in a competitive environment makes the management of companies more aware of the significance of not simply declaring but actually implementing effective governance tools in a company’s work practices, which leads in the final analysis to a rapprochement of the form and substance of corporate governance.”

About the research

The report is based on the results of a unique quantitative study involving over 100 executives and corporate governance directors of leading Russian companies. We also used expert assessments obtained during some 20 interviews conducted specially for the project.

Expert meetings were used as a mechanism to assert the hypotheses and conclusions of the research, which were conducted in March 2010 and April 2011. The representatives of professional expert organizations and companies participated in the work of the meetings.

About the Russian Managers Association

The Russian Managers Association is a nation-wide independent non-governmental organization whose purpose is to provide comprehensive help to the Russian business community as it transitions to international standards and ethical standards of doing business, aid the integration of Russia into the international economy, promote constructive dialog between the government and businesses and create a positive image for Russian businesses at home and abroad.

The members of the Russian Managers Association represent the most active segment of the business community. They are chief executives of Russia’s leading companies as well as small and medium sized businesses. At present the members of the Russian Managers Association represent over 2,500 chief executives of companies operating in 59 Russian regions.

© 2021 KPMG refers  JSC “KPMG”, “KPMG Tax and Advisory” LLC, companies incorporated under the Laws of the Russian Federation, and KPMG Limited, a company incorporated under The Companies (Guernsey) Law, as amended in 2008, member firms of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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