Publication: Monitor Volume: 7 Issue: 176

On September 18, Russia’s Federal Securities Commission (FSC) released the latest draft of its Corporate Governance Code, a much-awaited document likely to be instrumental in improving the country’s investment climate. The new code is to be based on a set of international best practices. Although this document is not designed to be legally binding, there will be strong incentives for publicly traded companies to follow its provisions. The seventy-page, ten-chapter draft code describes in detail principles of corporate conduct, sets rules for shareholders’ general meetings and defines the functions of a company board and executive bodies, as well as the procedures for their election or appointment. It also covers corporate information disclosure, payment of dividends and settlement of corporate conflicts. In the future, the code will be modified as new standards of best practice are introduced.

The FSC suggests that the code should be applicable to joint stock companies with more than 1,000 shareholders, that is, essentially all publicly traded corporations. Smaller companies that cannot afford to implement all of the best practices will be encouraged to follow as many of the code’s provisions as possible. The FSC is planning to monitor violations of the code and to publicize them. In addition, each publicly held corporation will be expected to publish on a regular basis (for example, in annual reports) a list of the code’s requirements that it has not met, with explanations of the reasons for not complying with those rules. The FSC is thus confident that there will be strong incentives for publicly traded companies to follow the guidelines of the code.

Legislation that currently regulates corporate governance includes the Law on Joint Stock Companies and the Law on Securities Markets. During the autumn session of the Duma, the FSC will continue to push for the adoption of amendments to the Criminal Code that would allow criminal charges to be brought for violation of information disclosure rules affecting shareholder value (Renaissance Capital, September 19). According to FSC head Igor Kostikov, the main focus of the commission at present is to make sure that companies provide complete and reliable information about themselves to the public. The Corporate Governance Code was drafted with the help of the international law firm Coudert Brothers. The code will be up for public discussion for the next two months and is to be submitted for the government’s approval by the end of November (United Financial Group, September 19).