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5 Let’s give some examples of the violations of the shareholders rights typical for the managers of the Russian joint-stock companies in 1994-1996: the minimum size of a shareholding was introduced which allowed to its owner to pretend to be elected into the governing bodies of the company; the information about the general shareholders meeting was either withheld on delayed on purpose; different high charges and commissions were introduced (for the participation in the meeting, for the registration of transactions, for the purchase and sale of stocks, for the provision of the copies of documents etc.); instead of voting according to the principle one share – one vote voting by raising hands was introduced; special (different from the envisaged by the law privileged stocks) shares were issued entailing the right to special dividends; pocket boards of directors were set up consisting of the director (manager), chief accountant and other top people of the company; sales of the stocks to the outsiders were obstructed, these stocks were bought up at the expense of the company from small shareholders at a law price, new issues were floated and placed with the persons serving as fronts without informing the shareholders and at a low price; there were manipulations with the register of the shareholders before the shareholders meetings, registration was denied; the assets of the company were sold through persons (companies) serving as fronts without notifying the shareholders

6 It should be remembered that some of the methods lost their usefulness with the completion of privatization procedures and the others became impossible to implement in practice in 1996-1998 d

due to the appearance of legal restrictions.

7 According to the poll conducted by FCSM (FCSM, 1996b) in 1995 out of 172 polled joint-stock companies 41% of respondents mentioned buying up their own shares. 62% of the companies which were buying their own shares indicated that the shares were subsequently sold to their employees and administration. According to the official figures of the RF Goskomstat as of January 1,

1997 5.474 surveyed joint-stock companies (only with the government stake, including RAO UES of Russia and Rostelekom) issued 67.6 bln shares out of which 0.02% (16.8 mln shares) were redeemed by the company from the shareholders, 1% (656 mln shares) were transferred into a trust or holding, 0.005% (3.5 mln shares ( used as a collateral (, 1997).

8 For more details see: Radygin, 1997. According to the data of the Russian Central Bank in the beginning of 1998 3.9% of the commercial banks total assets were invested into the corporate securities and equity of the other organizations. It’s impossible to precisely estimate the investments made through the subsidiaries of the banking holdings (first attempts to introduce consolidated statements were made in July of 1998). The most serious problems are encountered when a bank is not the parent company of the holding but just one of the members of the financial-industrial group at some level of control.

10 For more details see: FCSM, 1997.

11 For more details see: IET, 1998; Radygin, 1997.

12 In this context we do not have in mind any real achievements in the field of enforcement or positive shifts in the judicial system but rather the declarations about turning the screw on the violators and the use of demonstrative measures (because of the objective impossibility to control all the violations).

13 The increase of the employee’s share in 1995-1996 indicated in the poll (3) (Table 2 of the Addendum) was probably the result of the policy consciously pursued by the management in order to disperse the additionally issued shares among the employees to prevent the establishment of an outside control.

14 The tendency towards the formal decrease of the managers’ share pointed out in poll (1) (Table 2 of the Addendum) most probably is also connected with the dispersion of equity in 1995-1996. We can also presume that part of the stares obtained by the managers under the closed subscription or at the secondary market was transferred to other companies in order to avoid social tension (or in part was really sold to the outside shareholders). However, in general that doesn’t mean that the managers lost control.

15 According to the existing expert estimates the real purpose of the issue was exactly to dilute the shares of the state and of TWG. The SaAP managers who initially were appointed by TWG (which altogether controlled more than 50% of shares) nevertheless also acted against the company, although, it seems, they also purchased a part of TWG shares (not diluted them).

16 The theory also doesn’t give any single answer to this question. According to some existing evaluations the results of the study of correlation between the concentration of ownership, control over the management and the growth of the prices of company’s stocks even in the countries with the stable market economy are very ambiguous (Gray, Hanson, 1994). Some of them confirm that the concentration of ownership results in the better operation of corporations in the developed branches with relatively simple technologies. The other researches who study the presumed cause and effect relationships put forward the hypothesis that the structure of ownership is rather a dependent than independent variable. There is also a supposition that in some branches of industry the highly concentrated ownership is useful while in the others vice versa but the market would always push the company towards the optimum solution. There are also certain nuances, which depend upon the size of a corporation (Demsetz, Lehn, 1985). At the same time there are drawbacks to the concentration of ownership in a corporation as well which we connected to the potential conflicts of interest between the large and small shareholders (the problem of general and particular interest described in literature). Thus we can hardly draw any unambiguous conclusion especially as regards the unstable transitional economy.

17 Of course certain limitations of this study should be taken into account: in each country only 5 or 10 companies with the largest capitalization were analyzed, only nominal ownership of shares was considered and not all the mechanisms of control taken together, etc.

17 Contribution of this factor to the sharp decrease of the market capitalization in 1998 is estimated to be between 30% (FCSM of Russia) and 100% (Brunswick Warburg) although it’s obvious that such estimates are very artificial.

18 In reality this was, in essence, a psychological factor because it was not realistic to expect that the foreigners’ share can be legally brought down to the required level. There is only one legal way to decrease this share – to have an additional issue which becomes possible only after the decision of the general meeting (foreigners have the blocking interest, government – controlling), after that the issue is to be registered with FCSM which has to right to refuse to do so in accordance with the RF Civil Code. According to some data by February of 1999 the share of foreign investors increased to 33% which was explained by the expectations (apparently mistaken) that the prohibitive quota would be cancelled and the stock prices of the company’s share would significantly increase.

19 For more details see , 1997, 1998, 1999; Radygin, 1999b, 1998, /IET, 1998b.

20 For detailed analysis of the market situation and development of the financial crisis see: , 1998a.

21 Broker’s and dealer’s activity was combined respectively, by 1.102, 1.207 and 1.110 professional market participants. The credit institutions received in 1998 930 licenses of the Bank of Russia for engaging in the professional activity at the securities market (in accordance with the general license of FCSM).

22 The market revival in February-March of 1999 is probably explained by the expectations of the potential conversion of the non-residents funds received within the framework of the new solution in respect of GKOs into the corporate paper. This factor can hardly be regarded as influential as regards the medium-term market revival.

23 According to the Single State Register of the enterprises and organizations of all forms of ownership the number of the registered businesses in Russia as of January 1, 1999 (including affiliates and removed subdivisions) was about 2.7 mln units including more than 1.6 mln joint-stock companies and partnerships (RF Goskomstat, 1999).

24 For the detailed descriptions of the different schemes of taking the property away through the appointment of the arbitration managers see: , , , 1999.

25 At the same time the shares of the oil company itself remained relatively attractive and liquid (for more details see: , 1998) which was similar to the number of cases involving full takeover with the withdrawal of shares of the company taken over (Surgutneftegaz), but it’s not typical for the takeovers when the controlling interest only is purchased )oil company SIDANKO which has taken over Chernogorneft, etc.).

26 In January of 1999 upon the proposal of the RF Procurator General’s Office the government suggested to the Ministry of State Property to review the legality of sale of 8.5% of shares of RAO UES of Russia at the special money auction in 1996.

27 For more details on the Russian formal and informal financial-industrial groups see, for example: TACIS, 1998.

28 Here and below we indicate the actual hierarchical links between banks, enterprises and groups and not their formal allegiance.

29 According to the available data these shares (Sukhoy designing bureau, Magnitogorsk steel plant, confectionery companies Rotfront and Babaevskaya) were resold to the affiliated entities and then – to outside companies. In this context so far it’s difficult to say whether it was really a double sale for the purpose of stabilizing the bank’s finances or a transfer of assets to the new replica-banks (entities) or simply withdrawal of assets serving purely private objectives. Nevertheless similar developments are typical for all banks undergoing a crisis.

30 For details see: Arnold, 1999.

31 The assessment by the president of Troyka-Dialog R.Vardanyan (from Internet Securities Inc.).

32 It’s necessary to point out one more trend typical both for the federal and regional levels in 1998: formation of family (clan) relationships within large corporations or within the system: regional authorities – regional company.

33 Decree No 65 of the RF President of January 19, 1996 On granting a deferment to the enterprises and organizations in respect of their arrears of payment of taxes and fines for the violation of tax legislation accumulated until January 1, 1996, Decree N 685 of the RF President of May 8, 1996 On the major guidelines of the tax reform in the Russian Federation and measures to strengthen the tax and payment discipline, Presidential Decree No 1203 of August 17, 1996 On the issue of bonds by organizations for the purpose of restructuring their arrears of mandatory payments to the federal budget and the state extrabudgetary funds, Decision of the State Duma of the Federal Assembly of the Russian Federation No 1171-11 of February 21, 1997 On measures for the restructuring of the organizations arrears of mandatory payments, the RF Government Decision No 254 of March 5, 1997 On the terms and procedure of restructuring of the arrears of payments to the federal budget, etc.

34 In the opinion of the RF General Procurator’s Office in this case there were violations of the law on executive procedure; signs of collusion; there was no open bidding; prices were undervalued, the sanctions were unlawfully applied against shares only and not against monetary and other assets. This case demonstrated that the new mechanism of the court’s orders enforcement involving the court’s bailiffs doesn’t provide a guarantee against abuses (see: , 1998).

35 Evaluation by deputy Chairman of FCSM Mr. A.Kolesnikov (from Internet Securities Inc.).

36 During the check of the Magnitogorskaya Stal financial and industrial group in 1998 it was found out that 2 registers were maintained: one – by the company itself and another – by the registrar at the request of the Board of Directors. Two registrars maintained the register of the stocks of the Kachkanar mining and reduction plant Vanadiy. During the examination of the registrar ZAO RK-Reestr serious violations of one shareholders rights were uncovered (OAO Moskovsky zavod Sapfir). The stocks were written off its account without the formalized transmission order.

37 One of these options is the takeover of Sviazinvest by Rostelekom or vice versa through an exchange of the additional issue for the shares of the company being taken over; another one envisages Sviazinvest paying for part of the shares of Rostelekom with the shares of its subsidiaries and the shareholders of Sviazinvest would exchange the shares of Sviazinvest for the shares of Rostelekom.

38 It looks like a direct analogy of the American ESOP schemes as the way of corporate managers’ protection against hostile takeovers (Williamson, 1985). It’s interesting that the amendments

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