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Gap Between 'Bad ' and Good' Firms Grows

By Torrey Clark

STAFF WRITER

Russian companies, in general, are treating shareholders better. But the disparity between the defenders and the offenders is growing more pro­nounced, a leading advocate of good corporate governance said Tuesday.

Dmitry Vasilyev, the former chair­man of the Federal Securities Commis­sion who now directs the Institute of Corporate Law and Governance, said that a survey of 30 companies' behavior in the first three quarters of 2001 found overall improvements, "but the gap be­tween the best and worst companies in terms of the quality of corporate gover­nance has grown."

Vasilyev said, however, there is a group of companies that has obviously "chosen a policy of gradually increas­ing corporate governance practices."

The ICLG holds a super-minority stake of less than 1 percent in each of the companies it rates.

Most of the 30 companies rated fared better than in previous ratings, thanks mainly to fuller disclosure, higher quality financial statements and a decrease in the number of company employees sitting on boards.

Some companies, such as Yukos, LUKoil   and   Kubanelectrosvyaz, slipped in the rating because of the ad­dition of six new companies, despite boosting their scores.

Others, such as Aeroflot, MGTS, Sibnefl and Tatneft, dropped in the rat­ing and lost points because of problems such as disclosure, violations at general shareholder meetings or voting an in­dependent director off the board.

The traditional corporate gover­nance bugbears of transfer pricing and asset-stripping, especially in the oil in­dustry, remain, Vasilyev said.

Two of the worst offenders, Rosneft subsidiaries Purneftegaz and Sakhalinmorneftegaz, both newcomers to the rating, rated 27th and 29th, respec­tively, largely because of transfer pric­ing and asset stripping risks.

Telecommunications company St. Petersburg Telephone Network, or PTS, dropped four places on the list af­ter transferring a lucrative construction project to Petersburg Transit Telecom, which the ICLG suspected could push down PTS' earning power.

Even companies that are improving overall took some steps backward last year. Leader Vimpelcom and most improved Uralsvyazinform, for example, are among an increasing number of companies that added clauses to their charters giving majority shareholders more rights and influence than minor­ity shareholders, Vasilyev said.

Such clauses increase the risk that one shareholder can limit other share­holders' access information or gain control over management.

"These clauses are legal. They can't he disputed, they can only he criticized and they should be known before an investment is made into the company," Vasilyev said.

Another negative tendency has been for managers to illegally expand their rights through changes to the company charter or through internal documents.

The ICLG added to its analysis an assessment of companies' audited financial statements, as "auditors did not always give investors a full  and objective picture of the ... slate of affairs," he said.

[Governance Rating Table]