By OGJ editors
HOUSTON, Oct. 5 -- Slow progress on corporate governance and the government crackdown on OAO Yukos have shaken investor confidence in Russia, concludes a study by a global association of financial institutions.
Released Oct. 2 in Washington, DC, the study, by the Institute of International Finance's Equity Advisory Group (EAG), notes some progress since a similar assessment 2 years ago but calls corporate governance in Russia overall "weak."
IIF, with 330 members in 60 countries, assessed Russia in relation to the investment environment EAG members hope to see develop in so-called emerging-market countries.
Its new study says investors have been disturbed by the Russian government's seizure of the core oil and gas assets of Yukos and efforts to reassert control over the energy business. These developments, it says, "have underscored the weakness and fragility of Russia's institutional framework that underscores corporate governance practices."
Assurances by Russian President Vladimir Putin about the government's commitment to property rights "have not been confirmed by realities in the marketplace," it says.
The consequence: "Investor confidence has been shaken on a scale not seen since the Russian 1998 financial crisis."
Progress in Russian corporate governance since 2002 includes the increased use of cumulative voting and improvement in board composition and management expertise. Also, the study salutes new requirements for shareholder approval of major asset sales and standardization the calculation of dividend payments.
But it makes these recommendations:
-- Toughen enforcement of rules on disclosure of ownership, control, and related-party transactions.
-- Adopt international financial reporting standards promptly.
-- Require equal treatment in buy-out offers for shareholders in corporate takeovers.
-- Take further steps to prevent forcible takeovers or minority squeeze-outs.
"Although some progress has been made in improving the infrastructure of corporate governance, Russia still has a relatively weak equity culture that tends to undervalue minority shareholders' rights," the study says.
And problems within the government persist.
"The combination of large-scale direct involvement in the economy and persistent state corruption has been a major obstacle to improving corporate governance," the study says.
