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. Last Updated: 07/27/2016

Cabinet Says Yes to Corporate Governance

The government gave its support Tuesday to the creation of a single, uniform corporate governance code, thus addressing one of the major concerns of foreign investors in Russia.

A code is needed to improve transparency in management, defend minority shareholders’ rights and prevent companies from diluting shares by emitting additional shares of subsidiaries, according to the Federal Securities Commission, which has been lobbying for it.

At its session Tuesday, the Cabinet asked the commission, the executive branch and a number of ministries — Economic Development and Trade, Property and Justice — to come up with a list of measures for improving the standards of corporate governance by Feb. 1, the government press office said in a statement.

The Securities Commission then has until March 1 to propose regulations to put such a code into force.

The government’s endorsement of the project was greeted in investors’ circles with a mixture of approval and skepticism.

"Corporate governance is the basic problem for foreign investors in Russia, and if the government chooses to support the code, it’s in itself a positive thing," said Denis Rodionov, an analyst with Brunswick Warburg.

"But what we’ve heard so far is a statement of intentions, and the market demands action," he added.

Even once a code is developed, the Securities Commission is suggesting that it be advisory at first and become legally binding only in three to four years time.

"This means nothing will change: Those who understood the importance of good corporate governance will keep on developing it; those who didn’t will still be able to ignore it," Rodionov said.

Few Russian companies have introduced their own corporate governance code. "It’s extremely difficult to function in Russia with Western-standards transparency," said Mikhail Umarov, spokesman for mobile telephone operator Vimpelcom.

"It makes us an easier target on the market, where most of the companies still keep their documents under lock and key," he added.

But Vimpelcom, whose controlling stake is held by Norwegian state telecom operator Telenor, managed to successfully place around 35 percent of its shares on the New York Stock Exchange this summer — to a large extent thanks to its Western-style transparency.

Other public companies have started to introduce some changes.

Unified Energy Systems, for example, has pledged to introduce its own corporate governance code before the Dec. 14 government session at which its restructuring plans are to be discussed, UES spokesman Yury Melekhov said Tuesday.

Tom Adshead, political analyst at Moscow brokerage Troika Dialog, was skeptical that a new code could change companies’ behavior.

"There are already laws governing this area, and for a start it would be good if they could be enforced," Adshead said. "The problem is nobody ever gets punished for breaking them."

Last week, top officials of Gazprom and Yukos oil giant slammed the idea of a corporate governance code, saying it would change little and waste money.

Both the European Bank for Reconstruction and Development and the World Bank have said they would be ready to finance the code’s development.