Step Made to Replace State Board Members

First Deputy Prime Minister Igor Shuvalov on Friday presented President Dmitry Medvedev with a list of independent directors to replace state officials on the boards of 11 fully state-owned companies, following through on a campaign pledge made by Medvedev earlier this year.

By November, the government will also compile a roster of potential nominees for the boards of at least 50 other majority state-controlled companies, Shuvalov and Deputy Economic Development Minister Alexandra Levitskaya said at a Moscow conference on independent directors later Friday, according to the ministry's web site.

Those nominations would be put forward to companies' annual shareholders meetings from January, Shuvalov said, Interfax reported.

"We have introduced independent directors who will vote not according to the state's instructions but according to what they think will be best for the development of the company," Shuvalov said in televised remarks Friday.

A number of the directors nominated for wholly state-owned companies are former government officials or former directors of other state-controlled companies, Interfax reported.

The 11 state companies whose boards will be reorganized include oil pipeline operator Transneft, oil firm Zarubezhneft, Russian Railways, Sheremetyevo International Airport and the Mortgage Housing Loan Agency.

High-profile names on the list include Rair Simonyan, chief executive of Morgan Stanley in Russia, nominated for Transneft; Vladimir Rashevsky, CEO of Siberian Coal Energy Company, nominated for Russian Railways; and Surgutneftegaz general director Vladimir Bogdanov, nominated for Zarubezhneft, according to materials prepared for the conference, Interfax reported.

Medvedev's pledge to reduce the influence of state officials on state-run companies' boards came in a major speech at the Krasnoyarsk Economic Forum in February, where he also pledged to fight corruption.

"I think that the majority of state officials in these companies' boards of directors have no real reason to be there. They should be replaced by genuinely independent directors hired by the state to realize its interests," Medvedev said, according to a transcript of his speech posted on the Kremlin web site.

At the time, Medvedev was serving as first deputy prime minister and Gazprom board chairman. Medvedev formally stepped down as Gazprom chairman last month and was replaced by Deputy Prime Minister Viktor Zubkov.

Last month, Medvedev said that state-controlled companies should retain at least one government official, who should serve as board chairman.

Replacing government officials with independent directors is a "big change" for Russia, said Andrew Somers, president of the American Chamber of Commerce in Russia.

"States tend to think that it's natural that a state-owned body should do what the state says. However, historically and around the world, state-owned companies are much less efficient," Somers said.

Independent directors can make state-run companies more efficient and transparent as long as they are listened to and fully engaged in the companies' operations, Somers said.

Replacing government officials with independent directors could reduce suspicions of conflicts of interest, said Vladimir Yuzhakov, an analyst at think tank the Center for Strategic Research. Yuzhakov emphasized, however, that such a step was not enough for meaningful reform.

"If it's a company with 100 percent government ownership, then everyone is hired with the government's involvement. How can you talk about independent directors?" Yuzhakov said.

Paul Goncharoff, a member of the supervisory board of the country's Independent Directors Association, said Friday's announcements were "a very real step forward, although we will hear discussions concerning the vigor of the step and its size. … In time, it should become recognized that having nonexecutive directors from the private sector performing independent director roles in state-owned enterprises may serve the national interest better."

Training such independent directors on their responsibilities would help to "exclude nepotism, cronyism, and untoward associations, provided it is scrupulously followed," Goncharoff said.