The target of the research is large and medium enterprises, including public companies, in Russia and other transition economies.
The purpose of the research is to identify and analyze the impact of key factors of business demand in the transition economies on corporate governance development and the use of its norms in day-by-day activities as well as to analyze the supply of these norms by the state.
In our opinion, the main factors are the agency problem (internal factors), adaptation to stock market requirements (combination of internal and external incentives) and the impact of globalization (external factors).
Based on a wide range of quantitative and qualitative data, we set and achieved the following tasks:
1) Analyzed the main corporate governance problems in transition economies that surfaced during the crisis of 2007–2009 and the main approaches to their resolution, established during global and national discussions.
2) Investigated the possible mechanisms of linking top management motivations to the long-term goals of enterprise development and determined the factors that influence the length of the interest horizon among enterprise owners in transition economies.
3) Investigated the trend of employing hired managers, stimulating the use of corporate governance tools of managing the solution to the agency problem and balancing interests of various groups of shareholders. Defined specifics of the trend in the crisis environment.
4) Evaluated the role of good corporate governance as a factor of corporate listings in emerging and transition economies and their efficient fund raising in stock markets.
5) Determined the specifics of the state as an owner and regulator of corporate relations in transition economies, while evaluating the scale of state participation in these countries.
6) Analyzed the role of foreign direct investments and availability of foreign co-owners in corporate governance and management practice, taking into account the impact of transnational mergers and acquisitions with participation of companies from transition economies (using the example of Russia).
7) In addition to the above-mentioned tasks set in the Terms of reference, we tackled the problem of identifying differences and similarities in national models of corporate governance, using BRIC countries as example.
Based on the research, we made the following conclusions:
Analysis of general principles of corporate governance demonstrated that the global financial and economic crisis of 2007-2009 revealed significant shortcomings of corporate governance institutions that generated false incentives for development, characteristic of the current public corporation model focused on companies’ short-term financial performance. We noted escalation of the agency problem, but distortions in the system of incentives are inherent not only in management, but also in major shareholders. The problem of the short-term horizon of interest is seen among business owners that have been cut off from the company through equity dilution.
To overcome this contradiction, it is necessary to move from short-term target setting and stimulating to long-term ones that are commeasurable with the length of economic cycle, and widening of the corporate governance space to include all key stakeholders rather than only traditional participants, such as shareholders and managers.
The crisis demonstrated the need to search for new models of how large business is organized. In our opinion, at the moment, corporate governance is bound to look for the incentives that bind personal interests of managers to the long-term interests of the company, including new mechanisms for managers to become shareholders – stimulating their entrepreneurial motivation. Another area of change may be associated with the increased stability of the companies as a result of various alliances with key stakeholders, not only across the “shareholders-managers” line, but also along the lines of “shareholders – the state” and “shareholders – employees”.
In the light of the considered global trends, companies in transition and emerging economies may benefit from certain advantages – they still typically have a concentrated ownership structure (keeping control in the hands of one dominating shareholder), which empowers a quick reaction to changes in market environment. This instant response of the companies to the global crisis was one of the factors that supported high economic dynamics in China, India and Brazil.
Unlike its global peers, Russian companies operate in a slightly different institutional environment, and the problems are mostly related to instability of the institutes and frequent changes in laws rather than the quality of Russian laws. Increased uncertainty in the markets and instability of the rules, set by the state, and regulation selectivity triggered a shortening in the interest horizon of keyshareholders and stakeholders. Amid persisting dominance of the state in the economy, the main stability guarantee for Russian companies would be their further attempts to promote formal and informal integration with the state.
Based on the fact of gradual unification of corporate governance standards in different countries, we determined the specifics of national corporate governance models, using BRIC countries as example, and found similar and specific factors that affected development of these models. Our analysis showed that these countries are characterized by high ownership concentration and a prevalence of holding structures, insider control and weak protection of minority shareholders’ rights. At the same time, each of the countries has its own specific traits.
Insider control that is endemic to Russia is displayed by the direct participation of large owners in executive management. However the trend of owners’ gradual withdrawal from executive management originated back in the mid-2000s, prompting demand for internal instruments of corporate governance from businesses. Empirical analysis demonstrated that manufacturing enterprises maintained this trend during the crisis period, supported by companies’ transactions in the corporate control market that resulted in the change in ownership. Regression analysis of the factors affecting the use of hired management indicates that companies’ participation in corporate integration as ordinary members of holdings and groups facilitates bringing in hired management.