The Development and Challenges of Russian Corporate Governance I

The Roles and Functions of Boards of Directors

Despite increasing attention toward Russia’s economy and capital market, corporate governance norms of Russian public firms are rarely analyzed. This project presents and interprets evidence regarding various governance practices followed by Russian firms covering almost the entire period of the existence of the Russian stock market. Its findings run counter to some widely held beliefs according to which Russia is a country with high resistance to corporate innovations due to socialist legacies.

Part one of this two-volume study focuses on the role that boards of directors play in reducing intra-corporate agency conflicts. Russian companies have adopted progressive governance mechanisms including director independence, nationality and gender diversity on the board, dismissal of poorly performing CEOs, and cross-listing of companies on foreign markets with stringent reporting obligations. Some of these innovations have had notably positive impact on firms’ performances and market valuation. Others, such as nationality diversity on boards of directors, enhanced the image of Russian companies but made little contribution toward improving internal governance. Unresolved issues impeding further progress include limited liability of directors before shareholders due to imperfections of the Russian legal system, a taboo on disclosures of executives’ compensations, and generally high risks of conducting business in Russia. Despite impressive improvements in internal practices, Russian firms still have a long way to go to achieve the governance levels of their peers in developed countries.