Corporate Governance: Responding to the Challenges Posed by Sanctions

Key conclusions

Russia has taken the necessary legal measures to support businesses and corporations

“The Ministry of Economic Development and the Government have been shaping new corporate governance using the maximum number of tools and the best global practices that could be available to Russian business and our economy. Over the past 4–5 years, we have adopted about 20 fundamental changes in corporate law and other laws. New institutions have appeared... in which you can use anything, any developments of international law you like. We have formed the maximum set of tools for businesses to be able to say that they can appreciate what corporate law has become in our country. And for the last year or two, I haven't heard any business people say that our corporate law is not good enough. Everyone says that corporate law in the Russian Federation is of a high standard, maybe one of the best in the world,” Ilya Torosov, First Deputy Minister of Economic Development of the Russian Federation.

"Business in general appreciates the work of the Ministry of Economic Development in preparing anti-crisis and anti-sanction measures. We are satisfied with the bills that are now being passed. In some respects, the Ministry of Economic Development is going further than our proposals. On the whole, I think the initiatives are correct," Alexander Varvarin, State Secretary, Vice President for Legal Regulation and Administration, Russian Union of Industrialists and Entrepreneurs (RSPP).

“Now, corporate governance should be discussed from two angles – here and now and generally from a strategic point of view. Measures to put out the fire and prevent businesses from simply shutting down were taken by the Government, the State Duma, and the Bank of Russia. We responded to all challenges very promptly,” Elena Kuritsyna, Director of the Corporate Affairs Department, the Central Bank of the Russian Federation (Bank of Russia).

Corporate law has great potential for development

“Corporate governance and corporate law in general are a field, which has been a bit stagnant in recent years and even a bit boring, has suddenly become quite dynamic and active this year. I would say on behalf of myself and my colleagues, corporate lawyers, that this year we have been doing just about everything as pertains to corporate law: saving businesses from sanctions, drastically changing the structure of ownership and operations, exploring questions of how to live in the face of counter-sanctions,” Ilya Bolotnov, Partner, Head of Corporate Practice, Pepeliaev Group.

“We see that we have 26 companies moving in over these coming months, since February. That's more than for the whole of 2021. We understand that these are large, complex companies. What we have been doing is clear. We made temporary provisions to simplify corporate procedures to save businesses. We were making decisions right away,” Ilya Torosov, First Deputy Minister of Economic Development of the Russian Federation.

PROBLEMS

External factors and sanctions hamper the development of corporate law

“If we talk about something that has already become clear to us, it requires to be resolved in the long term perspective. In this case, we can mention the status of the outgoing board members. It was only this year that we realized how explosive [this topic] could be. When you have one board member quit, it is still possible to regulate, to achieve a quorum. <...> This time, we have had companies that just fell apart, no deals, no board meetings were possible,” Elena Kuritsyna, Director of the Corporate Affairs Department, the Central Bank of the Russian Federation (Bank of Russia).

“When we got together, it seemed like there was a pile of laws that actually also come from businesses due to the unprecedented sanctions pressure. We carefully consider every idea. Sometimes, they come from our colleagues from the Federation Council and the State Duma. We respond to them and look for compromises. <...> Business likes laws to change as less as possible so that everything is clear. Our colleagues in the FEBs [Federal Executive Bodies] have KPIs for the number of laws. It is their essence, their necessity [that matters] for business,” Ilya Torosov, First Deputy Minister of Economic Development of the Russian Federation.

Imperfect corporate governance laws

“I would like to point out the forced buyout procedure, which practically does not work now. Today, in order to qualify for a forced buyout, it is necessary to acquire more than 10% of shares under the mandatory offer and acquire more than 95% of shares. It is clear that many companies, acquiring these 90% of shares for some reason other than a forced buyout, do not have the possibility to purchase the remaining shares,” Andrey Kovalenko, Acting Deputy Director of the Department of Economic and Civil Legislation, Ministry of Justice of the Russian Federation.

“Regarding the disclosure of information, the drawback [is that] it was not done by a government decree. I have spoken to many colleagues and lawyers. They say, 'So, I may not disclose and provide this information to shareholders and the members of the board of directors?' Not necessarily. It isn’t clearly stated in the text of the decree. There is a certain procedure in there which implies that some of the information can be withheld. In any case, nobody has cancelled the norm of the law on joint-stock companies. The issue has to be solved at the legislative level by prescribing in more detail in which situations companies can act this way because otherwise they will face a huge number of problems and difficulties,” Andrey Klishas, Chairman of the Committee on Constitutional Legislation and State Building of the Federation Council of the Federal Assembly of the Russian Federation.

SOLUTIONS

Corporate law needs to be further improved

“The structure of what we do exists. I would divide it into three blocks that we are working on. The first block is the simplification of corporate procedures. <...> The second block is support for the financial system. <...> One of the important initiatives, is the next main block... the transfer of businesses into our jurisdiction. Our main task is [to make the process go on] as simply, quickly, and smoothly as possible. You can even use copies of documents to apply to move out of there within two years. In other words, everything has been done so that you can now move your business to a Russian jurisdiction,” Ilya Torosov, First Deputy Minister of Economic Development of the Russian Federation.

“It seems to me that in any case it is very important for us, parliamentarians, to give the Government the maximum set of tools in order to respond quickly to a situation that is changing very quickly given the situation in which our economy and state are now. It is up to the Government to use these tools or not. In other words, there has to be a tool, but whether to use it or not is partly a political and partly an economic decision, depending on the specific situation for which this tool is applied. This is why creating all kinds of options is our task when it comes to legislation for the near future,” Andrey Klishas, Chairman of the Committee on Constitutional Legislation and State Building of the Federation Council of the Federal Assembly of the Russian Federation, said.

In the face of sanctions, it is important to maintain legal standards of doing business

“If we talk about the sanction challenges that are out there now, we need to understand how in this current situation that we are in on the one hand, to maintain certain standards of doing business that we have. Many of our companies are at a very high level of corporate governance of these very standards. On the other hand, not to allow these rules, which have been adopted in other conditions, make companies weaker and more vulnerable to the market situation and those who impose sanctions. We are discussing this issue very thoroughly with the Government,” Andrey Klishas, Chairman of the Committee on Constitutional Legislation and State Building of the Federation Council of the Federal Assembly of the Russian Federation, said.

“Before we talk about what corporate laws in general will be next on the strategic horizon, we have to answer the question internally for ourselves – what the economy, the economic system, will be like. We need to see whether these quick regulation measures that are being taken now work well. If we see that nothing changes by the end of the year, and companies still face the same problems and will face them next year, all these temporary support measures will be extended,” Elena Kuritsyna, Director of the Corporate Affairs Department, the Central Bank of the Russian Federation (Bank of Russia).

Read more in the Roscongress Information and Analytical System roscongress.org.

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