Encouraging investor involvement in corporate governance: Bank of Russia releases consultation document

In the consultation document, the regulator explores various cases of shareholder involvement in corporate ownership management; included are global case studies illustrating how investors are encouraged to participate in corporate governance. The report also sets out possible solutions to the problem of persistently passive shareholders, mainly institutional investors in Russian companies.

Shareholders actively involved in corporate governance, including in matters requiring a vote, may well enhance corporate governance processes, leading to greater operational efficiency and helping to strike the right balance among all involved parties. Conversely, inactive shareholders, or situations where they take random actions, have mainly negative implications for joint-stock companies’ long-term development, undermining corporate efficiency and sometimes even stalling decisions and business development.

The Bank of Russia intends to have a discussion with the business community about potential measures aimed at encouraging shareholders’ interest in governance based on fair practices and rationality. Under the most radical of approaches, shareholders’ failure to take part in company meetings (or their exclusively passive involvement) would entail certain legal consequences.

Based on global experience, the report proposes the increasingly wide application of soft law tools built on principles and recommendations most suitable to Russia. In particular, these tools would include a good governance code with recommendations on how to build relations between investors and a public company, grounded in the ‘comply or explain’ principle.

Following discussions, the Bank of Russia will determine further policy actions in this field and specific steps to address the problem of passive shareholders. These would include, among others, drafting the guidelines and initiating the relevant regulatory changes.

The Bank of Russia seeks feedback on the issues discussed above and suggestions regarding the report’s subject matter. Please contact us no later than 29 December 2017 at vda1@mail.cbr.ru specifying your classification as a respondent: individual shareholder, joint-stock company shareholder, financial institution shareholder (also specify line of business), professional association or self-regulatory organisation, or one not indicated here.