Survey reveals weak governance in Russian firms - Update

Internal Auditor, Oct, 2003 by D. Salierno

CORPORATE GOVERNANCE within Russian organizations appears to fall short in several key areas, according to a recent survey. The research, conducted by the Investor Protection Association, a non-commercial organization aimed at protecting investor rights and improving corporate governance in Russia, points to deficiencies among Russia's domestic firms in terms of transparency, auditor and director independence, and shareholder protection.

Almost three-fourths of respondents to the survey, which consisted of 62 firms across nine industries, indicated they do not publicly disclose information regarding their major investors' and board members' ownership of company stock. Moreover, more than half said they do not let stockholders know the terms of contracts with senior executives, board members, and the external auditor. Only 36 percent said they release audit reports.

When asked about methods of improving corporate governance, three-fourths of respondents indicated that appointing independent board members would increase trust among investors and creditors. Many expressed concern, however, over the prospect of obtaining qualified directors. More than half of the respondents said directors might be ignorant of the company's industry, and one-third said the directors might not be truly independent, citing that board members could secretly hold stock in the firm or maintain alliances with competitors.

More than three-fourths of all participants said the role of corporate governance in attracting capital would increase after Russia's accession to the World Trade Organization, further suggesting the need for increased attention in the governance arena. Moreover, many participants indicated that managers at most Russian companies do not understand what constitutes effective corporate governance.

For more information on the Investor Protection Association survey, titled The Role of Corporate Governance and Protection of Properly Rights During Globalization of the Economy and the Russian Accession to WTO, visit www.corp-gov.org.