Independent directors for state company boards

With senior government officials stepping down from the boards of state-run companies, Business RT spoke with Aleksandr Ikonnikov, Chairman of the Supervisory Board of the Association of independent Directors about the impact.

RT:So, top officials are leaving state corporations. At the bottom line, is it a good or a bad thing for the companies?

AI:“Definitely it is a positive.State run enterprises still represent significant parts of GDP and market capitalization, and the government must play a very important role in improving the country economic efficiency and competitiveness.That’s why this decision, in line with OECD guidance, and also the best practices which we can see in Germany, France, and the Scandinavian countries.And it also divides the responsibility of the government as an owner and as a shareholder, and it increases transparency and reduces the level of risk related to corruption at the company level, so we are fully supportive of it.”

RT:Will the move do what the president wants- improve corporate governance and thus make the market more attractive to foreign investment?

AI:“Yes definitely we think that the improvements will increase the value of these companies in the long term, and also will remove the so called discount on corporate governance discount, which is applied by international investors.And if we look at the P/E ratio of countries in companies in BRIC, we can find that, in China for example, they have the ratio which is two times higher than Russia has.And it means that if we improve investor confidence the Russian market could be double its present value.”

RT:If top officials are replaced with independent directors, how is the state going to control its corporations?

AI:“First of all we think that the state run companies should have independent directors with a clear role of responsibility of director, and also annually the company should conduct assessments and review of the assessment of independent directors, including their participation in board meetings and their votes and contribution to the company.And based on this analysis the government and shareholders should make decision about the reelection of these directors.”

RT:A lot of initiatives have ended up in the grave- Do you think this one holds more promise?

AI:“Yes, we think that there is very interesting initiatives now.The government I think we should focus on the execution, and he government may face a few challenges in this respect, in how to create a transparent and open mechanism for the election of independent directors, because nowadays directors are often picked up from a tied group of people who have a link with officials.And in this respect we think that government should appoint directors with relevant experiences, senior executive, and board members with a high level of experience, of corporate governance of course, and who understand the value and the contribution of the board of directors and independent directors.The second challenge which is also important is definition of the independent director which we think should be further clarified because now they represent investment banks, for example, or other stakeholders which provide services to companies, they are considered independent directors, which we think is totally wrong and not in line with best corporate governance, and we should work on this, and we think this is the area for improvements.”