In recent years Russia has seen repeated changes to its corporate governance legislation. Only two months in, 2018 is not an exception.

On January 12, 2018, in the second reading, the State Duma approved the bill no. 204628-7 “On Amendments to the Federal Law on Joint Stock Companies”, which is expected to contribute to the improvement of the level of protection of minority shareholder rights and quality of corporate governance in Russian companies.

Board Nominations

  • The bill would bring the board nomination process in line with most other markets, by giving the board the power to nominate candidates to the board of directors, management board (including management board chair, i.e. CEO) and audit commission. Currently, the board may propose candidates only when shareholders failed to do so, or the shareholder nominated candidates are not enough to fill the relevant body.

Minority Shareholder Rights

  • Among the changes aimed at protecting minority shareholder rights are an increase of the notice period for shareholder meetings from 20 to 21 days, and the establishment of a 30-day deadline before the annual meeting for approval of the annual report by the board of directors.

Audit & Internal Controls

  • The bill would formalize in legislation provisions on the board audit committee and the organization of the company’s internal audit and internal control and risk management system. If the bill is adopted in the third reading, the establishment of the board audit committee will be legally required and its role will include preliminary consideration of issues related to control over the operations and financial activities, including assessment of the independence and lack of conflict of interest of the external auditor, as well as the assessment of the quality of the audit of financial statements.
  • The legal obligation to have an audit committee will not result in significant changes as almost all Russian companies currently have such a committee operating; the listing rules require an audit committee for companies in the List 1 and List 2 listing segments. With the duties of the audit committee defined, companies will have the option not to establish the separate audit commission, which is currently in charge of controlling the operations and financial activities of Russian companies.

The bill is in line with Russia’s Corporate Governance Road Map, drafted by the agency for strategic initiatives and approved by the government in 2016. The road map intends to improve corporate governance in Russian companies in relation to the protection of minority rights. It is expected that the implementation of the road map will lead to the improvement of Russia’s positions on the World Bank’s Doing Business “Protecting minority investors” indicator. In 2017 Russia advanced to 40th of 190 countries in the World Bank’s 2017 business rankings from 51st in 2016. President Vladimir Putin set the goal to enter the top 20 by the end of the decade.

Listing Rules Update

This year, Moscow Stock Exchange (“MOEX”) is amending its listing rules. The changes concern the enhancement of collaboration with investors and shareholders. The MOEX’s expert council recommends introducing the requirement to create a specific IR-page on the companies’ websites, to include information on dividend policies, dividend payments within the last five years as well as contact details for IR staff. Moreover, the council recommends that companies with foreign investors holding at least 5% of issued share capital disclose their materials in IR-sections mentioned above in English. These recommendations are expected to become the requirements and be included in the listing rules in the first quarter of 2018.

While the country still has room to improve, and not all of the recent legislative changes may be considered positive, in recent years Russia has made significant progress on its corporate governance framework. Following the adoption of the updated code of corporate governance in 2014, with some of its recommendations becoming listing rule requirements, Russian companies are moving to the next level of corporate governance.

Yulia is an analyst covering the Russia market.