Russia: building a governance community
In this first article in our ‘Peer to Peer’ series, CSj talks to Alexander Kamensky, corporate secretary of one of the largest power companies in Russia, about the way corporate secretaries in Russia, in the absence of a dedicated professional body, are building their professional community.
Thanks very much for talking to us today, can we start with some background about yourself?
‘Certainly. I am 29 years old. I am a Russian citizen living in Moscow. I studied law at Moscow State University and started my career in 2003 with an insurance company, AlfaStrahovanie, one of the main insurance companies in Russia. I started working as a lawyer and then I specialised in corporate matters. In 2005, I joined the corporate secretary department of one of the biggest oil and gas companies in Russia – TNK-BP, a joint venture between British Petroleum and the AAR consortium in Russia. This gave me a good introduction to working in a complex corporate structure with a huge number of subsidiaries. Then I worked as corporate secretary for one of the major privatelyowned banks in Russia, MDM Bank, and now I am corporate secretary of Enel OGK-5, an energy-generating company and member of Enel Group – one of the biggest energy companies in the world.’
You mention that you studied law, are you currently mainly involved in legal or corporate secretarial work?
‘In my current position I am a corporate secretary and I am fulfilling the duties of a corporate secretary. In Russia legal and corporate matters are closely connected, but mainly I am involved in corporate rather than legal matters.’
What are the major challenges you face as a corporate secretary in Russia?
‘The role of the corporate secretary is not very well established and different companies have varied attitudes to this role. In practice the role exists only in public companies and is mostly still a technical and procedural position. I have been lucky enough to work for companies where the role is given its due recognition as a stand-alone and very important role.
Also, Russian legislation changes every year. For sure, it is a good thing to seek continual improvement of legislation but this is certainly a challenge for corporate secretaries and for all stakeholders in corporate governance. The constantly changing rules are also not very good for the investment climate here.’
Is the corporate secretarial role mentioned in Russian law?
‘No, it is not mentioned in legislation but many provisions of our ‘Code of Corporate Conduct’ [Russia’s corporate governance code – see ‘Russia: a governance profile’ on page 17 for more information] relate to the role of corporate secretaries. This is a formal document which was recommended by the Federal Commission for the Securities Markets (FCSM) [the Russian regulatory authority]. It is mostly based on the UK corporate governance code and the main provisions were incorporated from there, so it provides a good guidance model for best practice.’
Is there a professional body or association of corporate secretaries in Russia?
‘We have a professional community of corporate secretaries in Russia. Many well-established local institutions promote the roles of independent directors and corporate secretaries in Russia – these include our Business Club of Corporate Secretaries of the Russian Institute of Directors, the Independent Directors Association (www.nand.ru/en) and the National Council on Corporate Governance (http://nccg.ru/en). These institutions, together with some Russian universities, provide training opportunities for independent directors and corporate secretaries. In fact, the Independent Directors Association has an agreement with the British Institute of Directors for the training and certification of Russian corporate secretaries.
These training courses tend to be targeted at helping companies keep up to date with amendments to Russian legislation. You can find other more general subjects of relevance to corporate secretaries, such as ethics, etc, but legislation is the main focus of the training, in particular the amendments requiring obligatory disclosure of public information. The requirements relating to the disclosure of information have been changing every year in an attempt to make Russian companies more transparent. The training helps us to follow all these changes and amendments to be fully in line with the legislation.’
Did you learn the corporate secretarial role through your work experience, or did you have help from these institutions you mention?
‘I learned about the corporate secretarial role through my work but I also took training courses provided by the Russian Institute of Directors. I didn’t do the specialised courses for corporate secretaries but I did directors’ training courses which focused on the higher-level issues. For me it was more valuable to do these courses since the corporate secretary courses focus more on technical issues.’
Did you find these courses useful? Is there a need for more training specifically for corporate secretaries?
‘There are specialised courses for corporate secretaries and those courses are very good. Of course, the Institute of Directors’ courses are focused on providing directors training, but, in the end, all of the courses are focused on corporate governance.’
Do you think the role of the corporate secretary is well understood in the business community and the wider public in Russia?
‘The public is still not very well informed about the role of the corporate secretary. In fact, the whole concept of corporate governance is relatively new in Russia. One anecdote I heard from my colleagues is that a group of foreign investors came to Russia in 1995 for a meeting with the owners of Russian businesses. The foreign investors asked about the corporate governance system in these companies, but the management and shareholders didn’t understand the question. The interpreter found it hard to translate the term ‘corporate governance’ correctly into Russian.
In the 17 years since then, however, there has been rapid growth in the understanding of the importance of corporate governance and this is one of our successes in corporate governance. With that understanding has also come an appreciation of the role of the corporate secretary and more companies are now paying attention to this role.
For a while, Standard and Poor’s offered corporate governance services in Russia but unfortunately they closed this business down last year, probably because of its unprofitability. Its ‘corporate governance score’ service was used only by listed companies and those with listings in the UK or US, so for this reason it was not a big business, but I know that Deloittes is planning to launch its own corporate governance business in Russia. I have been invited to the opening of their Corporate Governance Centre, which will be opening at the end of May. So I hope the fact that another company will handle these issues will lead to improvements in this area.’
Have you found that the directors of the companies you have worked for recognise the importance of good governance?
‘In my personal experience, yes, board members have taken the importance of good corporate governance very seriously and they understand their roles and responsibilities very well, but I also know examples of companies where this is not the case. I think generally directors’ understanding of these issues is growing. One indication of that is the fact that D&O liability insurance is a growing business in Russia.’
Why do you think attitudes to corporate governance have been changing?
‘There are a number of drivers of these changes. I think the authorities have recognised the importance of improving corporate governance in Russia and their adoption of the Code of Corporate Conduct, for example, has had a lot of influence on the market. Another driver has been the growing number of expatriates on Russian boards of directors. Many companies have recognised the value of having additional competencies in their management and on their boards, and this has led to growing numbers of foreign directors on Russian boards. They have brought with them best practices since many have come from well established markets with good corporate governance standards.’
Is the role of the corporate secretary changing in Russia?
‘Yes. In the early 2000s, this was just a technical role in most cases delegated to corporate lawyers. Currently it is increasingly becoming a stand-alone function with its own staff and with its own responsibilities and duties. More companies now see the corporate secretary, together with independent directors, as the gatekeeper of good corporate governance. Our job is to bring best practices to the board and promote a new attitude to corporate governance in companies.’
You mention independent directors, I understand that in Russia most companies follow a two-tier board structure. That is interesting for us in Hong Kong since companies here have unitary boards comprising both non-executive and executive directors. In your experience does the separate supervisory board work well?
‘Well, first I need to explain better what we have in Russia. We have different tiers, at the highest level is the shareholders’ meeting for all types of companies. The second level is the board of directors [the supervisory board] which is obligatory for joint stock companies (which equate to public companies in foreign countries), and can be established, though they are not obligatory, in limited liability companies.
In joint stock companies you can voluntarily establish an executive board. This is basically the management of the company. The CEO must be the chair of any executive board, this is prescribed by law, and they can be elected to the board of directors but they cannot be the chair of the board of directors.
The board of directors usually consists of representatives of shareholders (including minority shareholders) and, in most cases, independent non-executive directors (INEDs). The INEDs shouldn’t have any operational influence or have a close relationship with the company. Boards of directors usually create a number of special committees, such as the audit, HR and remuneration committees. In some cases sustainability committees are also established, depending on the type of business the company is involved in. Usually only [supervisory] board members are represented on these committees. They carry out a preliminary review of items submitted for the board’s review, and they provide their recommendations to the board on these items.
I think this system is good and appropriate for Russia. The executive board is a meeting of the management of the company. It is established where shareholders want operational issues to be decided in a collegiate form rather than by one person. For many companies this is a good way to run the business since shareholders can’t manage company activities on a day-to-day basis, but they want to have representatives at the operational level able to control some of the core decisions that need to be taken by the management of the company.
Of course the appropriateness of these structures will depend on the size and business of the company. Where you have a big company with a lot of employees, and where a lot of decisions need to be taken on a day-to-day basis, it works well to have a separate board delegated to make operational decisions on a collegiate basis. You can’t ask the supervisory board to review those operational decisions since this is the responsibility of management. The supervisory board, by the charter, can delegate some of its authority to the executive board, but it is supposed to review strategic decisions.’
What would you say are the main corporate governance challenges and successes in Russia?
‘I think the governance system is not very well established and it varies from company to company. You might look at one company that manages it very well and then look at a bigger company that has no corporate governance system at all. Sometimes, of course, as a corporate secretary, it is a good challenge to establish a corporate governance system in such companies.
Also, as I mentioned earlier, the ever-changing legislation in Russia is a challenge. For sure, ongoing improvement of legislation is a good thing, but if the legislation changes every year it means that we cannot manage our compliance and governance systems in a stable way. As soon as you have adapted your internal controls and your internal processes to the new legislation, you find that you have to change it again because the legislation has already changed.
These are the main challenges, but I would add also that we don’t have many options to influence the way legislation is changed. Basically the relevant government bodies follow their own agenda. They may take into account some ‘public’ interest, but mainly from a state perspective. As you probably know, we have a number of very large state-owned companies and some of the legislative changes are driven by their interests, not by the interests of all participants in the market. This situation is improving, though. This year, for example, there have been good developments that I hope will lead to wider participation in these processes, but the whole process is still not very transparent or inclusive.’
And the successes?
‘The establishment of a community of corporate secretaries in Russia is one of our corporate governance successes. As I mentioned, we now have a number of institutions working to improve the corporate governance system in Russia and this year they have started to influence Russian legislation. That, I would say, is the main success, but I would also like to mention that a growing number of companies are now listed both overseas and in Russia and they are having a growing influence on corporate governance standards in Russia. Many of the companies that went to the US or UK to list are now seeking IPOs in Moscow. The fact that they are coming back to the Russian market indicates that they have regained trust in the Russian market and stock exchange.’
Thank you for a very interesting interview, that covers my questions – would you like to add anything?
‘No, I think we have covered everything. I hope I have been able to give you a sense of the corporate governance environment in Russia, and it has been interesting to hear about our differences with foreign practices including those in Hong Kong.’
Alexander Kamensky, Corporate Secretary, OJSC Enel OGK-5, was interviewed in late April 2012. Our new ‘Peer to Peer’ series introduces you to your peers in the global corporate governance profession.
If you have any suggestions of interest to this column, please get in touch with the CSj editor. Any suggestions on jurisdictions we should cover, or useful contacts you may have, will be highly appreciated. You can contact the CSj editor, by email: kieran@ ninehillsmedia.com; by phone: + (852) 2982 0559; or by post: The Editor, CSj, PO Box 9963, General Post Office, Hong Kong. Comments on this column can also be posted on the Institute’s new weblog (www. governancemaze.com).
SIDEBAR: Russia: a governance profile
Civil law. Law enforcement in Russia, however, is a concern to the OECD in its current Roundtable on Corporate Governance in Russia. ‘Highest priority should be given to strengthen the legal and regulatory framework to ensure effective implementation and enforcement of existing laws and regulations needed for the proper functioning of companies as well as securities markets,’ states the OECD’s White Paper on Corporate Governance in Russia.
The Law on Joint-Stock Companies, Civil Code, Law on Securities Market, Law on Investor Protection, Bankruptcy Law and Tax Law. The corporate secretary is not mentioned in these codes, but features highly in the Russian corporate governance code – the Code of Corporate Conduct introduced in 2002 by the Federal Commission for the Securities Markets (FCSM). The code is voluntary, but the FCSM requires stock exchanges to enforce compliance with the code, or certain parts of it, for larger firms.
Financial reporting standards:
Currently Russia has its own statutory accounting standards, though it is considering transitioning to international financial reporting standards (IFRS) and imposing international standards of audit for publicly listed and non-private companies.
Key statutory/ regulatory bodies:
The Federal Commission for the Securities Markets; the Ministry of Finance; the Ministry of Economic Development and Trade; and the Russian Stock Exchange.
Predominant ownership structure:
Mostly closely held. The former state-owned enterprises of the soviet union were mostly privatised from 1992 to 1994. In the ensuing struggle for control, managers and insiders gained dominant shareholdings in the majority of companies. Minority shareholdings are growing, however, and protection of minority shareholders has become a governance priority. State interference, particularly in large strategic companies such as enterprises in the petroleum and gas industry, the electric power industry and telecommunications, is still a factor. The state’s stake in such companies is usually around 40–50 percent.
Corporate secretary job title:
Company or corporate secretary, or secretary of the board of directors.
Corporate secretary duties:
Give or take some changes in terminology, the corporate secretary job description is almost identical to company secretaries elsewhere. These include: regulatory compliance; information disclosure; organising board meetings (called ‘supervisory board meetings’ in Russia on account of the two-tier board structure of most Russian companies); organising the AGM (called the ‘general meeting of shareholders’ in Russia); supporting the (‘supervisory’) board; induction of new directors; investor relations and record keeping. As with other jurisdictions, there has been a shift of emphasis more recently away from the administrative to the advisory aspects of the role.
Corporate secretarial community:
Informal. While there is no professional corporate secretarial body in Russia, there are a number of different bodies providing networking and training opportunities. These include the Business Club of Corporate Secretaries of the Russian Institute of Directors; the Independent Directors Association (www.nand.ru/en); and the National Council on Corporate Governance (http://nccg.ru/en).
The OECD Roundtable on Corporate Governance in Russia will meet again in October 2012. More information on its work is available online at: www.oecd.org.