A new study shows most Russian companies are improving their corporate management – while some well-known businesses violate the law and shareholder’s rights.

The corporate management rating for Russian companies (CORE rating) was published Oct. 22 by the Institute of Corporate Law and Management.

The rating reflects the results of studies on the quality of corporate management in 25 Russian companies in the second quarter of 2002.

The study included information on company accounting and reporting according to international procedures.

Tatyana Ivanova, director of the Business Development Institute, said the list of companies in the study included the biggest Russian public companies that together account for 95 percent of the Russian stock market’s capitalization.

Ivanova said the general trends over the quarter show that an absolute majority of the companies in the rating have brought their founding and internal documents in line with the law.

The number of companies making consistent efforts to improve corporate management has increased, and the situation with disclosure of information has improved.

Overall, 19 companies improved their rating in the second quarter of 2002. They include Surgutneftegaz (up by 10.9 percent), Avtovaz (up by 9.8 percent) and Aeroflot (up by 6.2 percent).

At the same time, the quality of corporate management dropped at the Tyumen Oil Company (down by 7.3 percent), Nizhegorodsvyazinform (down by 5.2 percent) and Purneftegaz (down by 5.3 percent), which is last on the rating. Only six companies saw their rating drop over the second quarter.

FACTBOX Some typical violations of shareholders’ rights at annual general shareholders’ meetings in 2002: 1. Dividends for ordinary and preferential shares were decided as part of the same item (GAZ, Rostelecom, Tatneft). 2. The voting paper for electing the board of directors did not contain "against" and "abstain" as possible answers (Irkutskenergo, Samaraenergo). 3. Voting was done by the whole list during elections to the revision committee (Vimpelcom). 4. Approval of deals in which there was an interest did not meet all the law’s demands (Surgutneftegaz). Source: Institute of Corporate Law and Management

The leader in the new CORE rating was Vimpelcom. Valery Goldin, Vimpelcom’s deputy president for international communications, said his company has been working on improving corporate management for six years.

"In 1996, we were preparing to become the first Russian company to be listed on the New York Stock Exchange," Goldin said. "This gave us the double responsibility of representing our own company well, and of breaking the ice of distrust investors felt toward Russia in general.

"Corporate management issues were therefore important to us right from the beginning. Throughout this period, the work between the company management, the board of directors and the shareholders has met all the requirements set by [Russia’s] Federal Securities Commission, the U.S. Securities and Markets Commission and the New York Stock Exchange."

Looking at general shareholders’ meetings in 2002, Ivanova from the Business Development Institute noted that only three of the 25 companies in the rating held their annual general meetings without violations of the law or difficulties for the shareholders in having their say.

These were Gazprom, Kuzbassenergo and Bashkirenergo. Other companies either violated the law or violated shareholders’ rights. Some of these violations could have been due to the vagueness of certain legal provisions.

Vimpelcom’s Goldin said that corporate management must become an important issue not just for the country’s "blue chip" companies but for the economy as a whole. He said this would be possible only if the Russian stock exchange grows, if confidence in it increases, and as a result, it becomes a key element in financing economic development.