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12 Dec, 2006 16:33

Good governance practice grows popular with Russian companies

Good governance practice grows popular with Russian companies

Good corporate governance is widely recognised as an essential part of financial management and an attractive characteristic for investors. Russian companies try to improve corporate governance and guide future reform.

Russia has made significant progress in corporate governance over the past few years. This includes independent directors, shareholders’ rights, dividend policy, communication strategy and accounting standards. Legal and regulatory frameworks have been adjusted to provide for better protection against abuse.

The market demands it as well, as the companies that operate according to the highest standards attract more allowable capital and their shares tend to do better. This can be seen in new branches of the economy, such as media and telecoms, housing and other non-traded sectors.

Corporate governance in Russia still lags behind global standards though, especially regarding transparency, which frustrates foreign investors. But companies are implementing new trends, such as attracting independent members to the Board of Directors.

Corporate governance ratings are of specially use to investors. According to the Investor Protection Association, the companies with the best corporate governance are RAO UES and VimpelCom and the worst company in this regard is Surgutneftgaz.

For the companies themselves, good governance can harmonize the interests of shareholders, managers and other stakeholders, and improve the quality of decision-making.