2003-11-05
On November 5, 2003 The Institute of Corporate Law and Corporate Governance presented an updated Rating of leading Russian companies judged for the quality of their corporate governance at July 1, 2003

On November 5, 2003 the Institute of Corporate Law and Corporate Governance published the new corporate governance rating of Russian companies (the CORE-rating). The rating reflects the result of the survey of the quality of corporate governance in 25 leading Russian companies in the 2^nd Quarter of 2003, including the analysis of preparation and holding of general shareholders meetings in the reviewed companies. 

The CORE-rating leaders still are "Vympelcom", "Norilsk Nickel" and "North-West Telecom". GMK "Norilsk Nickel" this time has significantly improved its position, by gaining an additional 6,8% in the rating. This is primarily due to the fact that for the first time the company's annual report includes the information about beneficiaries of off-shore companies owning the controlling interest in the company. Experts also believe that the election of three independent directors to the Board of Directors of the company contributes to the improvement of the quality of the company's corporate governance.

Ratings were also improved for OAO "AEROFLOT" and OAO "TNK": "AEROFLOT" moved up from the 13^th place to the 6^th, and "TNK" – from the 20^th to the 15^th. However, this improvement is just a recapturing of positions lost by these companies in Q1 2003, when they failed to provide the majority of materials and information requested by the Institute. In Q2 companies provided all the requested information, including minutes of Boards of Directors' meetings.

The improvement of the rating of OAO "AEROFLOT" is also partly due to the fact that an independent director, representative of the Investor Protection Association, was elected to the company Board of Directors. In addition, the company's web site became more informative,  in particular, it now provides access for the first time to the company's Charter. However, the analysis of provided materials revealed violations of information disclosure requirements in the part of material fact of the company's operations. The election of the representative of the top management to the position of the Chairman of the Board of Directors also does raise some questions.

Improved rating of OAO "TNK" is also explained by the fact that for the first time the new Board of Directors, elected at the annual general shareholders meeting, does not include representatives of State authorities. In the experts' opinion this lowers the influence of the Government on the company. At the same time, the analysis did reveal some facts, that hindered the ability of shareholders to express their will at the annual general meeting. In addition, the company failed to disclose the Quarterly Report. All this combined, the company's rating could not reach the level of Q4, 2002.

In Q2, 2003 OAO "Severstal" had  a significant deterioration of the corporate governance quality (by 7% of the rating). The company sloped down from 11^th place to the 20^th first of all because the amount of information disclosure about large shareholders shrank dramatically. Besides, the company did not provide virtually a single document at the request of the Institute as a shareholder, with the exception of the Quarterly Report and materials for the annual general meeting. On top of that the analysis revealed some violations of information disclosure requirements in the part of material facts of the company's operations.

Overall, the rating of Q2, 2003 shows a widening gap between best and worst ratings of Russian companies, mainly through further improvement of the quality of corporate governance in the leading and average-scoring companies.

The analysis of 2003 general shareholders meetings allows to conclude that only two companies out of 25 (OAO "Gazprom" and OAO "Irkutskenergo") held their AGMs without violations and/or facts, hindering shareholders' ability to adequately express their will. The most typical violations  of legitimate shareholders' interests include: (1) merging several items of the agenda into a single one (OAO "Tatneft", OAO "MGTS", RAO "UES of Russia" etc.); (2) the absence of "AGAINST" and "ABSTAINED" options for the item on election of the Board of Directors in the voting ballots (OAO "Kuzbassenergo", OAO "Rostelecom", OAO "Severstal" etc.); (3) review of both the personal composition of the Board of Directors and the number of seats under a single item of the Agenda (OAO "TNK", OAO "Slavneft-Megionneftegaz").

A separate analysis was conducted to evaluate the completeness of information materials provided to shareholders for the annual general meetings. The list of required documents was extended after the introduction of the Additional Requirements of the FCSM regarding the AGM procedure. One of the most typical violations in 2003 is the failure to include into the materials for the AGM recommendations of the Board of Directors regarding the distribution of profits, as well as the statements of agreement of candidates to be elected to the company's governing bodies. In spite of the fact that the requirements to the disclosure of financial statements remained unchanged, over 50% of companies failed to disclose some specific statements, for example, the Explanatory Notes. The following companies did, however, provide information and materials in full: RAO "UES of Russia", OAO "LUKOil", OAO NK "YUKOS", OAO "North-West Telecom", OAO "Kuzbassenergo".

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