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WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK Another, in fact, formal difference is availability (or non-availability) of detailed provisions of corporate law rules in special legislation. Special laws (apart from the Codes) concerning corporations have been adopted by most of the countries, for example, in France (Law on Commercial Partnerships of 1966), Germany (Law on Corporations), Switzerland (Law on Liabilities), Japan (Law of 1951), and others. Contrariwise, in Italy activities of corporations are regulated by the Civil Code.

One more difference is in the weight of a special law in relation to the code. The French law On Commercial Partnerships of 1966 in combination with the Decree On Commercial Partnerships of 1967 is in fact an independent new code providing a comprehensive regulation of corporations.

In other countries such a special law may repeat or provide some more detail of the corporate norms that are already envisaged by the Civil (Commercial) Code.

Finally, codes might be further developed through adoption of a special law on corporations or a law providing additional regulation of activities of various types of business partnerships and societies.

Practically in every transition economy corporations are subject to some type of legal regulation.

Hungary was the first to follow the French way to adopt a special detailed company law (Law on Business Societies of 1988 with Amendments of 1991). Naturally, the Law (300 Articles) was slightly less detailed than the similar French one. In addition to corporations it regulates also limited liability partnerships and other types of partnerships. Similar laws (that regulate corporations alongside other types of societies or partnerships) have been adopted in Albania, Bulgaria, Kazakhstan, Mongolia and Ukraine.

In 1991, Czechoslovakia (Czech Republic and Slovakia later) chose another way by adopting a Commercial Code covering a wide range of issues related to commercial law. Rights of partnership occupy an important place in the Code but do not dominate it as is the case in Hungary. The Code also regulates activities of cooperatives, contractual relations, some types of commercial obligations, competition, keeping of trade registers and accounting. Commercial codes have been adopted also in Poland, Macedonia and Estonia. The Bulgarian Trade Law can be in a certain sense also viewed as a commercial code.

According to some estimates, regulation of the rights of partnerships within the framework of commercial codes is not as detailed as in special laws. As is seen from the practice (including that in France and Germany) such regulation is characteristic of the initial stage of corporate law development. At a later stage provision of more details becomes necessary especially in view of the fact that in this area regulation by by-laws branch guidelines is extremely unadvisable (Corporation., 1995, . XII).

By the end of 1996, special company laws were adopted (irrespective of availability of civil codes) had been adopted in Russia, Armenia, Lithuania, Moldova, and Tadjikistan. Overall, RomanGerman traditions of law obviously dominate in the transition economies under the study.

However, there are certain objective differences at the level of fundamental trends in law evolution.

When comparing corporate law (in the wider sense of the notion, as a set of rules on behaviour of organizations, companies) in Russia and economically developed countries some researches point to the general tendency related to the specific character of transition from centralized to market economy (Kashanina, 1995, pp. 367-369). In developed nations corporate law has a tendency to narrow down while the body of laws is increasing steadily. Contrariwise, in Russia a process of an intensive widening the area of corporate law is observed.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK Apparently, the above formal differences in principles of codification and extension of corporate legislation do not testify about significant real progress in the area of corporate governance and protection of investors rights in the countries reviewed.

Nevertheless, an evaluation performed with the use of formal criteria shows that to a certain degree progress has been made in the transition economies (see EBRD, 1997-2001 for more detail).

Moreover, surveys by the Max Plank Institute of Comparative Law Studies (Hamburg) demonstrate that at the moment the CIS countries, unlike CEE and Baltic countries, have a stable tendency towards moving to the English-American model of protection of shareholders rights. Forming the system of protection characteristic of the common law norms takes place in the CIS in spite of the traditions of civil law. At the same time in Central Europe adherence to the German model with its greater emphasis on protection of the creditors rights persists (Pistor, 1999). It would be enough to look at the law On Corporations (and the Amendments of 2001) and to analyze the norms that make it possible for minority shareholders to officially defend their rights to get evidence this really happens.

Transition to new conditions of corporate development is accompanied by changes in the mechanisms of delegation of authority and direct and indirect monitoring. Development of the corporate governance system often generates processes that can not be considered optimal. One of such examples is, perhaps the wave of conglomerate mergers in the USA in the late 60s - early 70s private shareholders. However, active operation of forces of competition on various markets not only delineates (in the long term) possible limits of such deviations but most often triggers the mechanisms of de-centralization that correct the identified irregularities. Consequently, functioning of a developed system of competitive markets of goods, capital and labour markets remains to be the most important prerequisite to efficiency of corporate governance.

3.2. Specific features of potential harmonization of company law in Russia 3.2.1. Formal criteria As was demonstrated in section 1.2 above none of the existing models of corporate control is perfect. In the same manner, none of the countries has reached the 100% level of implementing the 1999 OECD Principles of Corporate Governance 1999 (/OECD, 1999). The most developed countries, first of all those belonging to the English-American legal system (USA, Canada, HongKong) have made the greatest progress along the way. They are followed by the countries of continental law, first of all by those that retain traditions of the Napoleon Codes (see IKPU, 2001).

For Russia most relevant would be a comparison with the so-called emerging markets. The first myth that should be demolished is that of the unique scale of violation of shareholders rights in Russia.Originally, the interest towards corporate governance in Russia emerged only after the 1992-mass privatization process was over, although the importance of the long-term nature problem for Russian companies had been understood by some economists and legal experts before. The law On Corporations (N 208-F of 26 December 1995) was an important legal benchmark. However, one can argue that the discussion about corporate governance (or rather about outsiders discrimination) acquired a practical dimension as a result of the 1996-1997 stock-exchange boom. The conflicts The issue is not only that of discrimination of shareholders (investors) rights in the framework of civil/corporate law.

The criminal aspect of the problem (a threat of using force, murder, occupation of company premises by force, defense of company premises, use of law-enforcement agencies to resolve corporate conflicts) remains to be important although the authors lack data to make a by-country comparison.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK widely covered by the media at that time (involving Noyabrneftegas, Yukos, Yuganskneftegas, Samaraneftegas, Purneftegas, Sidanko, Nosta, Barjeneftegas, Chernogorneft, Vyksunsky Metalworks, Magnitogorsk Metallurgical Plant, Baltics Ship Lines, Leningrad Metalworks, Akron, many companies in telecommunications and energy fields, etc.) signaled that the problem had become chronic and widespread. To a large extent the discussion was initiated by foreign portfolio investors that had not yet grasped the standards of Russian corporate culture. The 1998 financial crisis brought about a new wave and new instruments of ownership redistribution thus giving the discussion a new impetus. The situation developed as a result of strengthening of the positions of managers and the arrival of new shareholders who managed to buy out blocks of shares at cheep prices in the post-crisis period.

Although corporate governance of the late 90s has a negative image, in 2000-2001 effective corporate governance became one of the most widely discussed topics at dozens if not hundreds of conferences and symposia in Russia. Biggest corporations which 2-3 years ago were known as hard-core violators of shareholders rights urgently adopt codes of corporate governance, set up department of shareholder relations, bring in independent directors to the boards, make effort to ensure transparency. The Federal Securities Commission developed its own code of corporate behaviour that has an uncertain status and purpose given the presence of the law On Corporations. In 2000-2001 some private organizations offered to the market their own competing ratings of corporate governance. Bureaucrats have learned how to operate the term and are turning it into a new bailout fetish.

The epidemic proportions of the passion for corporate governance have several reasons. First, at the moment the government has been left with a narrow set of tools to demonstrate activity in the area of institutional reforms. Second, for the Western institutional investors corporate governance is an idee fix from the wild 90s embodied in recommendations by the international financial organizations. Finally, the largest Russian issuers (what is most important) finalize consolidation of share capital using the opportunities opened after the 1998 crisis. Besides, expansion and formation of new integrated structures (groups) demanded additional resources while formal standards of corporate governance became an essential prerequisite for creating a conflict-free image of reorganization programmes and getting access to the external (foreign) sources of investment.

The 2002 survey by the Association for Protection of Investors Rights showed that assets stripping and transfer pricing are the most typical violations of shareholders rights (39 % of the respondents) followed by intentional and fictitious bankruptcy (20 %), dilution of shareholders stake (20 %), and non-payment of dividends (17 %).53 However, shareholders face the same risks in many countries:

Indonesia, Republic of Korea, Brasilia, Mexico, Argentina, Turkey, Czech Republic, India, and others (Table 3).

Table 3. Main risks of corporate governance in Russia Risk Importan Unique character of the risk Presence in other ce of risk for Russia developing economies in Russia in (+++ - maximum ) Dilution of ++ No (but progressing quickly Korea authorized capital before 2001) Assets stripping +++ No (but wider used) Indonesia, Malaysia, and transfer Korea, Mexico See: www.corp-gov.ru.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK pricing Information ++ Yes (but much worse that in - disclosure other countries) Reorganization +++ No (but conditions are often Malaysia, , (mergers and arbitrary and non-transparent) Indonesia takeovers) Bankruptcy +++ No (but often used as a means Practically everywhere of takeover or asset stripping) Managers ++ No (but for inadequate Many examples in various behaviour perception of corporate countries governance is characteristic of many companies) Limitations to share + No (in Russia the limitations Korea, Mexico, Thailand ownership and are relatively rare) using the voting rights Registrar + No (rare cases in the recent India (partially) years) Source: Brunswick Warburg and authors re-eveluation.

The second myth reflected by many evaluations is that Russia lacks a developed corporate law.

Although elements of law specific of the transition economy and wide gaps do exist (see p. 3.1) the effective Russian legislation in the area can be viewed as highly developed from the point of view of the presence of formal universally accepted measures aimed to protect shareholder rights (Table 4). At the same time, real problems of corporate governance in Russia should be evaluated from a different angle (see p. 3.2.2):

- economic limitations and contradictions in forming a national model of corporate governance - presence of legal forms of violating shareholder rights (within the framework of the law On Corporations, other acts) that have emerged and are widely used due to the imperfection of the legislation and unambiguous interpretation of its norms;

- specific character of law enforcement.

Table 4. Comparative by-country analysis of shareholder rights Shareholder rights Positive (+) or G7 countries 15 largest emerging Russia negative markets (-) effect 1. One share one (+) None Malaysia, Greece, Chile, Present vote Republic of Korea 2. Voting by post (by (+) Great Britain, Argentina, Republic of Present ballots) USA, France, Korea Canada 3. Lack of blocking (+) Japan. Canada, Brasil, Chile, Portugal, Present of shares before USA, Great Republic of Korea, voting Britain Phillipine, Indonesia, Malaysia, Thailand, , Turkey, South Africa 4. Cumulative voting (+) USA Thailand, Argentina, Present Phillipine, Taiwan 5. Minoritys right to (+) Great Britain, Argentina, Brasil, Chile, Present revoke to overrule USA, Canada, Phillipine, Malaysia, managements Japan, Germany Taiwan, Thailand, India, decision South Africa Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

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