This process was a relatively important phenomenon of 1997 – the first half of 1998, however, at that time it could be regarded first of all as a protective centripetal reaction of the micro-level in individual non-competitive or depressed branches of the Russian real sector. In the end of 1998-1999 we can speak about a larger-scale process of the strengthening of the role of the state – both the federal center and the regional authorities.
In the military-industrial complex the idea to organize the sector in the form of several state concerns is currently predominant. One of the first steps in this direction taken in 1999 was the merger of the two existing holdings for the production of military aircraft: VPK MAPO (of which ANPK “MiG” is a part) and AVPK “Sukhoy” with the issue of single share. The government of Moscow has been actively trying to get a share in this holding and in general it’s been very active lately in its policy of establishing control over the state shareholdings in the export-oriented branches of the Russian military-industrial complex.
In the oil industry in the end of 1998-1999 active discussion has been going on concerning the establishment of a large public company on the basis of Rosneft (100% of shares owned by the government), ONAKO (89%) and Slavneft (75%). The public company Zarubezhneft (100%) and pipeline operator Transneft may be added to this list. There are also numerous counterproposals from the existing oil companies which are not interested in the appearance of a powerful competitor or are simply trying to get something for themselves during the redistribution of ownership in the branch.
Thus, proposals were made to include into this state holding. ANKH from SIDANKO, TNK from the Alpha-Group, Vostsibneftegaz from Sibneft. The Alpha-Group, allegedly has offered interesting terms: instead of TNK (where the government already has49%) Alpha wanted to get the blocking interest in the new holding, the right to appoint to managers, the right to develop all the financial and technological flows in the holding, transfer of all the accounts of all companies in the holding to the “Alpha-Bank” and, correspondingly control over the financial flows. TheLUKoil (26% of shares belong to the government) on the contrary, suggested to exchange a part of publicly-owned assets (ONAKO and Slavneft) for its own shares providing guarantee, in particular, that the fuel will be supplied to the northern territories. YUKOS, also in exchange for the part of its own shares, expressed its willingness to take Rosneft and ONAKO. TNK also considered the option of merging with Rosneft and SIDANKO (in the latter case, presumably, by taking over the control in advance).
All these proposals may be regarded as a sort of the “Trojan horse” since in the final analysis they may come down to the dumping of illiquid assets or to the search for non-trivial ways to establish their influence in the new holding or simply the desire to use the government-owned assets to improve their own financial situation (as, for example, new objects to be pledged against loans). Taking into account the number of issues which need to be resolved and extremely controversial interests of the participants of this process we can hardly expect that the holding would be established in 1999.
In general the establishment of large public holdings may, apparently, become an important trend within the framework of the continuing redistribution of ownership. It’s worth mentioning that formation of the new entities of such type is possible only to the detriment of the existing corporations, established ownership relations and rights of shareholders. Thus the degree of importance of this trend would depend exclusively on the pragmatism and common sense of the executive authorities.
4.6. “People’s enterprises”
Among the novelties of 1998-1999 we should also mention the attempts to reanimate the ideology of pseudo-ownership of labor collectives (employees) which most often in real life serves the interests of the enterprises’ managers.3
In 1998 federal law No 115-FZ of July 19, 1998 “On the specific features of the legal status of employee’s joint-stock companies (people’s enterprises)” was enacted which is rather exotic for the realities of to-day's Russia. The first version of this law approved by the Federal Assembly was rejected by the President in May of 1998 since it unjustifiably introduced a new type of a joint-stock company different from both the open and closed companies envisaged by the RF Civil Code and also because of the number of inconsistencies with the labor law.
As a result, according to the adopted new law the provisions of the law “On joint-stock companies” pertaining to the closed joint-stock companies are applicable to the people’s enterprises. There is only one way to establish such people’s enterprises, i.e., transformation of any commercial organization with the exception of the public unitary enterprises, municipal unitary enterprises and open joint-stock companies the employees of which own less than 49% of the authorized capital. The basic (and difficult to fulfill) conditions of such a transformation are the following:
- consent of the participants of the commercial organization (i.e. qualified majority of the general meeting is needed to adopt the decision about the transformation);
- the right of participants who voted against such a move to claim their shares (stocks) and redeem them in full or in part;
- consent of ¾ of employees of the commercial organization (as per the staffing table of the organization);
- agreement of participants and employees of the commercial organization concerning the terms of establishment of the people’s enterprise;
- upon the expiration of 5-10 years after the transformation the employees of the people’s enterprise should own such a number of the enterprise’s shares that their nominal value should exceed 75% of its authorized capital. Otherwise the people’s enterprise would have to be transformed into another form or liquidated.
The above-mentioned requirements allow us to draw a conclusion about the predominance of the ideological motives in the adoption of this law. As regards the practical aspects the experience of the redistribution of ownership in Russia during 1990s provides arguments in favor of maintaining or strengthening the positions of the enterprises’ directors (at least for the small enterprises which, formally, are at the focus of this law). This means that such a form may be used primarily in those cases when the administration, for whatever reasons, would find it expedient in order to change the already existing pattern of control (in order to alleviate (formally) social tension, or as the last argument during the defense against corporate raiders, etc.). But in general there are no practical reasons whatsoever to believe that this form may be viable.
The most general conclusion which can be drawn from this study is that Russia has not become a unique exception from the rules which are valid for the majority of the transition economies. All more or less typical trends accompanying the emergence of the corporate control and governance model including the problems of the fight for control are in one way or another characteristic for Russia as well. We believe that Russia, all its problems notwithstanding, is among the pioneers and, compared to the other transitional countries, a significant progress has been achieved in Russia in this field.
All the above-mentioned means that in terms of the further objectives in formation and regulation of the national model of the corporate governance a very “simple” idea can be formulated: there are neither “special obstacles” nor “special recipes” for the formation and emergence of such a national model. All the transition economies encounter the majority of these problems. Both the major problems and the mechanisms of their resolution are well known in the international experience. The formation of the national model of the corporate governance presumes that it’s necessary (first of all for the state) “only” to recognize the need for the following requirements (preconditions) to be satisfied:
- understanding of the special role of the state in a transition economy (as a “creative destroyer”);
- understanding of the long duration of this process comparable with the whole transition period;
- need for the political will in order to develop and enforce efficient legislation to “screen” any narrow interests of any group of any type (political, populist, criminal etc.);
and, finally, the need not for radical interventions but for the daily regulatory operation of a single body capable of pursuing rigid centralized policy.
In many transitional countries the privatization didn’t result in any sizable investments for the enterprises. This means a heavier press on the emerging model of corporate governance, however, in the legislation of many countries the necessary mechanisms are insufficiently developed so far (problem of additional issues, transparency, protection of different categories of shareholders etc.).
At the same time in the majority of these countries at present the “external” mechanisms of the corporate governance do not work (control on the part of the financial market, takeovers, bankruptcies). Such a situation is typical both for the countries with the concentrated ownership and for those with an amorphous (non-transparent) structure of the corporate control. This means that the active control by shareholders (voting) should become the predominant form (as compared to the passive control through the sale of shares). This also creates a special burden for the “external” legislative and “internal” (boards of directors) mechanisms of the corporate control and the problems of enforcement become especially relevant.
The progress in overcoming of many of these problems to a large degree depends on the volumes, efficiency and intensity of the institutional regulation. Sharp stepping up of the activity for the protection of investors’ rights (including infrastructural measures) is necessary under the current conditions of the financial crisis and the new stage in the redistribution of the ownership rights as a crucial factor in restoring the investment attractiveness of the country. It’s obvious that the real effect can be achieved only in conjunction with the other anti-crisis measures of the macroeconomic and institutional character.
1 We mean the numerous interpretations of “insiders” and “outsiders” existing in the literature: (a) internal (employees, managers) and external (banks, funds, other corporations) investors of a corporation; (b) from the standpoint of their involvement in the system of inter-corporate ownership (in holdings or in crossownership schemes); (c) from the standpoint of the diffusion of the ownership (insiders as large controlling shareholders and outsiders as the small portfolio shareholders); (d) as “internal executives” and “.”independent” directors in the unitary or two-chamber governing body. Some researchers of the Russian legislation include into the “insiders” category all the board members, members of the collegiate executive body of the company, the person performing the function of single-person executive boy, and majority shareholders who can shape the decisions made by the company.
2 In general to compare the progress in the institutional changes in the transition economies as a rule we review privatization, legislation, status of the banking system and the role of the government (the World Bank, 1996) which under certain conditions can be also applied to the evaluation of the corporate governance and control model in the transition economy.
3 For more details on the subject of the first (voucher) stage of the Russian privatization see: Ðàäûãèí, 1994; Boyko, Shleifer, Vishny, 1995, Radygin, 1995 a-b; Vassliev, 1995; ÈÝÏÏÏ/IET, 1998b. For the details on the second (money) stage see: Boehm, ed., 1997, Radygin, 1996a; IET, 1992-1999.
4 The new law “On privatization of the state property and the guidelines for the privatization of the municipal property in the Russian Federation” formally went into force on August 2, 1997. Among its major innovations the following may be singled out: the emphasis was put (even in the name itself) not on enterprises but on the property (the state’s share of the property); the program of privatization envisaged the list of objects which were to be privatized during the year (depending on the current market situation) and the list of strategic objects prohibited for privatization (they can be privatized only on the basis of a federal law); a wider range of privatization methods was offered (through legalizing the sale of derivatives which had already happened); the benefits for the employees were still allowed (a 5% or 10% discount from the selling price of stocks) but could be revoked or could become more flexible, the value of the property (“property complexes”) was to be calculated on the basis of their capital, balance sheet value and market price together; commercial tenders with investment conditions were introduced while the investment tenders were cancelled, the notion of "leasing with the right of redemption” was reintroduced but “at the market price”.