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The Role of a Board of Directors within the Russian System of Corporate Governance: Post-crisis Transformations

Priority areas of development: management
2014
The project has been carried out as part of the HSE Program of Fundamental Studies.

The report of the Institute for Industrial and Market Studies investigates the evolution of Boards of directors in Russian companies under global transformations of the economy and corporate governance after the crises of 2008 year. Special attention was turned on the role of a board in companies with the high concentration of stock ownership which is typical for developing markets. The peculiarity of the project is the implementation of the research case-study based on the Russian large company.

The goal of the research is to analyze the dynamics and the diversity of a Board of Directors’ contribution into resource capacities of Russian companies, the development of their strategies and organizational structures. Besides, key factors of this dynamics are revealed.

To achieve this goal the following tasks were solved:

  1. the theoretical background for studies of a Board’s contribution into a company development was created based on the survey of theoretical and empirical literature;
  2. the program of in-depth survey oriented on the investigation of the evolution of a Board of Directors’ role in Russia was elaborated;
  3. the in-depth survey of the public Russian company and activities of its Board was conducted. The survey covered ten years interval (2004-2013) including pre- and post-crisis years;
  4. the extended case-study based on the survey data was presented for the development of resource-based approach. Also the case was adapted for the dissemination of best practice within Russian business community;
  5. the methodology for qualitative research of the role of a Board of Directors and determinants of this role in Russian firms were formulated based on case-study results.

The object of the research is boards of directors of Russian firms and – in the analysis of previous studies – boards of companies from developed and developing countries.

Methodology: research case-study method, in-depth interviewing, content-analysis and literature systematization.

The main empirical base for the analysis was created within the project. Information was collected inside the joint-stock-company AFK “Systema.” We conducted 10 in-depth interviews with members of the company’s Board of Directors and top-managers (members of the management body). We collected annual and quarterly reports data and information from stock exchanges, SPARK data system, and business media. We also used Internet-sites and media collecting biographic data on all the persons were being directors during 2003-2013.

To prepare the report we also used top-managers surveys conducted in Russia and other transition countries, OECD papers, reviews of analytical and consulting agencies. The wide range of contemporary foreign theoretical and empirical literature was studied.

The main research results of the project are the following:

  1. We suggested the concept characterizing the evolution of a Board of Directors’ role within transformations of the global model of corporate governance after the crisis investigating its determinants and consequences.
  2. We revealed two main theoretical explanations of a Board of Directors’ role. The first one is the agent approach oriented on typical conflicts among agents and principals (and specific for companies with the high level of ownership concentration conflicts “principal-principal”). The second explanation is the resource-based approach putting on a Board as a source of resources for a company’s resource potential and development.
  3. We systematized the wide range of the empirical research of Boards of directors’ role and their impact on companies’ performance at developed and developing markets. This work gave the importance of some significant features of a Board and determinants of corporate evolution (i.e. thresholds of a firm’s development – the increase of business scale, the potential exit of an owner – founder from the company) on business development;
  4. We conducted the first in corporate governance studies in-depth survey based on the Russian case. The investigation of the work of the Board of Directors brought important and new results.

a) We saw the deviation of Boards’ role from narrow agent task as signals for stock markets after the crisis. We confirmed the increasing resource role of the Board of Directors in Russian company especially oriented on internationalization. In this case, not both industrial expertise and functional competence are important but we can observe the key role of directors’ reputation on global markets.

b) We defined the impact of board capital (social, personal and political) and compared the importance of these types of capital for Russian realities. We demonstrated the key role of the majority owner in transformations of the Board composition and the increase of its role in the company’s management.

c) The fact which was not investigated yet in modern literature was revealed. We could find specific entrepreneurial role of the Board of the company “Systema”. The Board is oriented on search and evaluation of investment projects, and this supports Board’s involvement into decision-making on business development.

d) We found out new aspects of the activities of corporate governance instruments in company groups (holdings). Possibilities for intense use of subsidiaries Boards of directors as corporate management tool for development of the group strategy and for the defense of the mother company’s interests were demonstrated.

As a result, this research permits to dispute widely spread point of view on signal character only of Russian corporate governance practices. We suggested the case of the post-crisis phenomenon demonstrated the transition to the new model of a Board. This Board is aimed on business strategy, new projects and risks estimation, and this work is based on serious involvement of directors in decision-making.

Based on the results of the qualitative case-study, we elaborated hypotheses and tools (sample, respondents, and questionnaires) for further quantitative research of board capital with special attention to entrepreneurial contribution. Also factors influenced on the role of various resources in Russian conditions should be found out.

The field of application of the research combines applied economic studies, informational and analytical support of the government legislative activities. Also the results are useful for legal regulations (voluntary norms, Charters, Codes) suggested by corporations or business associations. The results of the research help to the development of Russian companies and to improve corporate governance and managerial practices tools in them.

 

Publications:


Libman A., Dolgopyatova T. G., Yakovlev A. A. The Birth of an Entrepreneurial Board in Emerging Markets: A Russian Case / NRU Higher School of Economics. Series MAN "Management". 2014. No. 29.
Долгопятова Т. Г., Либман А. М., Петров И. О., Яковлев А. А. Усиление роли совета директоров как ответ на потребности развивающегося бизнеса: пример АФК «Система» / НИУ ВШЭ. Серия WP1 "Институциональные проблемы российской экономики". 2015. № WP1/2015/01.
Долгопятова Т. Г., Либман А. М., Петров И. О., Яковлев А. А. Роль совета директоров в российских растущих компаниях: опыт АФК "Система", часть II // Российский журнал менеджмента. 2015. Т. 13. № 2. С. 129-148.
Долгопятова Т. Г., Либман А. М., Петров И. О., Яковлев А. А. Роль совета директоров в российских растущих компаниях: опыт АФК "Система", часть 1 // Российский журнал менеджмента. 2015. Т. 13. № 1. С. 91-112.