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Survey: Most Firms Still in Dark

Maria Levitova
The Moscow Times
29th April 2005

Only one in 10 Russian companies sheds light on its remuneration practices for executives, and just one-quarter discloses its ownership structure, the Russian Institute of Directors, or RID, found in its second annual report on corporate governance.

RID, a research organization, used questionnaires and publicly available information to assess corporate governance practices of 80 private and public companies, spanning energy, telecommunications, steel, transportation and other sectors.

«We studied four topics to which Western investors pay the most attention,» RID director Igor Belikov said Thursday during a presentation of the report, which was also supported by Expert ratings agency and USAID.

The report found a slight improvement in all areas — shareholder rights, company management and control structures, information disclosure and corporate social responsibility — from last year, when 59 listed companies listed were surveyed.

Greater ownership disclosure is important in light of the nervousness that prevailed among businesspeople last year, Belikov said. Twenty-six percent of this year’s survey participants disclosed information about shareholders controlling more than 5 percent stake in the company, compared to15 percent of companies surveyed last year.

Existing shortcomings in corporate governance, nevertheless, remain staggering. Forty-nine percent of the surveyed companies do not demonstrate respect for shareholder rights, the report found. For example, 81 percent of surveyed companies had no documents detailing their dividend policy.

Only 9 percent disclose information about the remuneration of each board member and top executive, and slightly less than half, 40 percent, do not in any way regulate the flow of insider information, according to RID.

«A significant increase in the cost of attracting capital [occurs] when there is a threat of insider trading,» the report said. While a bill to regulate insider trading is being drafted, it is not yet law, Belikov said.

Control over company boards’ decisions and other important indicators do not present investors with a rosy picture. Only 27 percent of surveyed companies fill at least one-quarter of the board’s seats with independent directors, the report found.

«Very few companies understand corporate governance the same way Western investors understand it,» Gleb Davidyuk, managing partner of Mint Capital, a private equity investment fund, said during the presentation of the RID report.

Standard & Poor’s analyst Oleg Shvyrkov, speaking on the sidelines of the RID presentation, said the report’s findings agreed with those of S&P’s.

Last year, S&P’s study of Russia’s 50 largest companies found information disclosure lagging behind, with the ownership of three-quarters of privately held shares not publicly known.

The booming telecommunications sector is the most transparent, Svyrkov said, while the oil and gas sector is the least transparent because, among other reasons, it is less dependent on attracting cheap capital.

«Investors are ready to pay more for shares of companies with high standards of corporate governance,» Igor Ladygin, director of BrokerCreditService Consulting, said at the presentation.

While local standards leave much room for improvement, the fact that RID and other organizations are studying the topic is important, Ladygin said.

«This shows investors that this type of work is carried out … [and that] we want to be civilized,» Ladygin said.

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