Inheritance and donation 

Corporate governance system. Corporation management Labor functions and interests of subjects of corporate governance

Corporate History

For the first time corporate associations arose in ancient Rome. During the Republic, it was allowed to freely create new corporations. It was enough that the charter of the corporation did not contradict the laws. But in the days of the empire, in order to create a corporation, it was necessary to obtain a special agreement from the Senate. From among the members of the corporation, persons were elected who conducted its affairs. If the corporation ceased to exist, then its property was divided among the entire composition of its participants.

Today it is believed that the oldest corporation in the world is the Stora Kopparberget copper mine. It is located in Sweden in the city of Falun. In 1347, this corporation received a charter from King Magnus Eriksson. Many countries in Europe in the seventeenth century received the right to do business with the colonies. These organizations are considered to be the prototypes of modern corporations. Examples include the Dutch East India Company and the Hudson's Bay Company.

Modern corporations

Currently, in industrialized countries where the market economy is well developed (United States of America, Japan, Canada), corporations are the key form of entrepreneurial activity. Nearly 50% of corporate cross-industry groups control industrial production and trade of these countries. The United States of America, Japan and Canada hold most of the patents and licenses for new equipment and technological developments (about eighty percent).

The existence of a corporation is not limited, because the share of capital (shares) can be transferred to other owners. The Corporation raises equity and debt capital on its own behalf. That is why the liability of shareholders for the debt obligations of the corporation is limited. Their biggest loss can only be the money that was invested in stocks. In the event that a corporation needs additional equity capital, it has the right to issue a new block of shares and attract outside investors. Among other things, a corporation may be a general or limited partner in a partnership. The corporation may also own shares of other joint-stock companies. For these reasons, establishing a corporation is more difficult than organizing other forms of business.



There are several types of corporate associations. These types are determined by the legislation of the state. Corporate associations may vary from country to country.

The most common types of corporate associations in most countries are:

Limited Liability Company;

Closed Joint Stock Company;

Joint stock company of open type;

Cartel;

Syndicate;

Holding;

transnational corporations;

Concern;

Financial and industrial group.

The legislation of each country determines the rights and responsibilities of all types of corporate associations. The legislation of most countries of the world defines restrictions on the composition of corporate associations and forms of their activities. In addition, there are special measures that prevent the transformation of a corporation into a monopoly. If a corporate association violates the restrictions, the state and regional authorities will put forward certain sanctions. Also, the case will be considered in court, and as a result, the corporate association may be disbanded into smaller organizations.

Almost always, enterprises that are part of a corporation are economically dependent on it. One happens that enterprises that are part of a corporation have their own shareholders. Of course, these shareholders expect to receive dividends on their invested capital. The board of shareholders of the enterprise and the management of the corporation interact in accordance with the legislation of the country. From this it becomes obvious that economic relations in corporate associations are very diverse and quite complex.

The most common cases of relations between an enterprise and a corporation are:

1.Absorption. In this case, the company becomes economically dependent. On all matters of management and functioning, it is subordinate to the management of the corporation.

2. The corporation begins to carry out financial management of the enterprise. In this case, the company can independently resolve other issues. It is obligatory only to fulfill the approved budget of the corporation in the part that concerns it.

3. Acquisition of an organization or part of it. In this case, the corporation simply acquires an enterprise that was put up for auction for sale due to inefficient functioning or in the process of privatization.

4. A joint venture is created with another corporation.

5. By restructuring the enterprise, which is carried out according to the plan of the corporation and during its sale. The structure of the enterprise and the type of its main activity are changing in order to increase economic efficiency.

6. By selling enterprises (parts thereof) that belong to the corporation.

7.Some enterprises transform into branches. The corporation determines the main direction of activity of the branches and controls it. The location of the branch determines the area of ​​its operation, i.e. a particular branch is a representative office of a corporation in a certain territory.

8. By creating a consortium. A consortium is a temporary association of enterprises, firms, concerns in order to solve an important industrial, scientific and technical problem.

Management in a corporation

The charter of a corporate association is determined by its governing bodies. For example, in LLCs and CJSCs, the supreme governing body is the general meeting of shareholders. Cartels, syndicates, pools, trusts, holdings, concerns, financial groups most often have a management apparatus, which is formed in the form of two main bodies. The first is the Board of Directors, which carries out strategic management. The second is the executive body, which consists of the president and vice presidents. They carry out operational management with the help of special bodies.

Capital owners can influence the economic policy of corporate associations with the help of the Board of Directors. But hired employees (presidents, vice presidents, general directors, managers by types of management) carry out direct management. This separation of ownership and management functions has a positive effect on the management apparatus.

O main management structures:

1. Highly centralized vertical functional structure.

2. Decentralized (divisional) structure with high coordination of horizontal links between units of the same level.

Summing up, we note the main thing. A corporation, in other words, is nothing more than a joint-stock company. The share of capital invested in the business grants and limits the right of ownership. To achieve a high concentration of capital, a corporation may issue more shares. Also, a corporation may have a complex management organization. American business is dominated by corporations. Corporations control significant capital flows and have a huge number of employees. Corporations provide the population with a wide range of goods and services and have a huge impact on the social and political life of the country.

Page 18 of 27


General principles of corporate governance

The corporation is managed in accordance with its corporate acts and legislation. At the same time, it itself determines the structure of management, the costs of it. The owner manages the corporation independently or through special management bodies provided for by the charter.

Functions of corporate governance. Management is one of the hardest things to do. It consists of a series of independent management functions:

Planning, i.e. development of the program, procedures for its implementation, implementation schedules, analysis of situations, determination of methods for achieving goals, etc.;

Organization, i.e. elaboration of the enterprise structure, coordination between structural divisions, etc.;

Motivation, i.e. stimulating the efforts of all employees to fulfill their tasks;

Coordination;

Control.

The increasing complexity of modern manufacturing has added two more features:

Innovative, associated with the development and implementation of the latest achievements in the field of engineering and technology, methods of organizing and managing people;

Marketing, expressed not only in the sale of manufactured goods, but also in research and development that affect the sale of goods, the purchase of raw materials, production, marketing, after-sales service.

Principles of corporate governance. The corporate governance system is based on a number of general principles. Among them, the following can be singled out as the most important.

1. The principle of centralization of control, i.e. concentration of strategic and most important decisions in one hand.

The advantages of centralization include: decision-making by those who have a good idea of ​​the work of the corporation as a whole, occupy high positions and have extensive knowledge and experience; elimination of duplication of work and the associated reduction in overall management costs; ensuring a unified scientific, technical, production, marketing, personnel policy, etc.

The disadvantages of centralization are that decisions are sometimes made by persons with little knowledge of the specific circumstances; a lot of time is spent on the transmission of information, and it itself is lost; lower-level managers are virtually eliminated from making those decisions that are enforceable. Therefore, centralization should be moderate.

2. The principle of decentralization, i.e. delegation of powers, freedom of action, rights granted to a lower corporate body, structural unit, official - to make decisions or give orders on behalf of the entire company or unit within certain limits. The need for this is due to the growth in the scale of production and its complication, when not only one person, but also a whole group of people is not able to determine and control all decisions, and even more so to implement them.

Decentralization has many advantages, among the main ones: the possibility of quick decision-making, involving managers of middle and lower levels in this; no need to develop detailed plans; weakening bureaucracy.

And at the same time, with decentralization, there is a lack of information, which inevitably affects the quality of decisions made; the scale of thinking is changing and the range of interests of managers is narrowing - in these conditions, feelings can take precedence over reason; the unification of rules and decision-making procedures becomes more difficult, which increases the time required for coordination and “shaking”.

A large corporation must be largely decentralized, because the number of decisions that have to be made in the center and the number of their approvals grows exponentially and, in the end, exceeds the technical capabilities of the management system, getting out of control.

The need for decentralization is also increasing in geographically dispersed firms, as well as in an unstable and rapidly changing environment, since there is often simply not enough time to coordinate with the center the necessary actions that must be taken immediately.

Finally, the degree of decentralization depends on the experience and qualifications of the managers and employees of the respective departments. The more experienced and qualified the people on the ground, the more rights they can be given, greater responsibility placed on them, and instructed to make difficult decisions on their own.

3. The principle of coordination of activities structural divisions and corporate employees. Depending on the circumstances, coordination is either entrusted to the units themselves, jointly developing the necessary measures, or may be entrusted to the head of one of them, who therefore becomes the first among equals; finally, most often coordination becomes the lot of a specially appointed leader, who has an apparatus of employees and consultants.

4. The principle of using human potential. It lies in the fact that

The majority of decisions are made not by the entrepreneur or the chief manager unilaterally, but by employees of those levels of management where decisions must be made:

The executors are primarily focused not on direct instructions from above, but on clearly limited areas of action, powers and responsibilities;

Higher authorities solve only those issues and problems that the lower ones are not able or do not have the right to take on.

5. The principle of effective use, and by no means neglect of the services of business satellites.

Business includes a whole range of related activities within its sphere of influence. The specialists who perform them are called business satellites, i.e. his accomplices, companions, assistants. They contribute to the relations of corporations with the outside world: contractors, the state represented by its numerous bodies and institutions. These include: financiers and accountants; lawyers; economists-analysts, statisticians, compilers of economic and other surveys; marketing specialists; public relations specialists.

These principles are the basis for corporate rulemaking.

Objects of corporate management.

A. Shareholders. These are the main investors of the corporation.

B. Creditors. The financing of the corporation is carried out both at the expense of equity capital and at the expense of borrowed capital, and hence the difference in the interests of shareholders and creditors.

B. Employees (employees, staff). They are also called non-financial investors, since they invest in the form of providing corporations with specific skills and abilities that could be successfully used not only within this corporation, but also outside it.

D. Suppliers are also classified as "non-financial" investors.

D. Buyers. Ultimately, the profitability of the corporation depends on them, but it, in turn, can shape the taste and preferences of buyers.

E. Local governments can invest in corporate activities by developing infrastructure or creating favorable tax conditions for the corporation in order to attract new companies and increase their competitiveness.

As you can see, the number of "interested persons" in the corporation is quite significant. The interests of which group of corporation participants and to what extent should be represented in management? This is a task for managers to solve.



Table of contents
Corporate law. Special part
DIDACTIC PLAN
Corporate Finance and Management
Financial manager: his legal status and functions
The authorized capital of the corporation

In today's rapidly developing world, companies and corporations are beginning to play an increasingly important role. They have broad financial and economic opportunities to influence the economy of one particular country and the world as a whole. Corporate Governance is the key to their successful development and, as a result, an increase in capital inflows, as well as macroeconomic growth.

The concept of corporate governance in modern economic and legal spheres

Despite the wide applicability of this term in practice, there is no single interpretation of the concept that would include all aspects and directions in the labor sphere. In the legal and economic literature, corporate governance is a set of systemic principles and mechanisms through which shareholders exercise their rights to own property. The institution of corporate control itself is presented in the form of a pyramid with three interconnected subordination cells.

Corporate governance by its nature is not comparable to the systems of operational and tactical management of the company, however, the trends of recent years indicate its strategic importance. The object of corporate governance is the monitoring of actions that are performed during the management of the corporation.

Relevance and Specifics of Corporate Governance in Russia

In many sectors of the domestic economy, the leading positions are gradually being taken by corporations, which play a very important role in its formation. In this regard, there is an increase in the interest of experts in the problems of the institution of corporate governance in Russia. It touches upon issues related to the formation of corporations as an independent unit and a member of the global economic community. Corporate governance significantly affects the investment climate, therefore, it correlates with the following global processes:

  • in the context of the widespread globalization of the economy, the entry of corporations into a single world economic and financial space causes an increasing resonance;
  • the growth of the influence of corporations on world processes and the gradual monopolization of the market;
  • creation of favorable conditions in the company to attract foreign capital and improve the investment climate for investors;
  • all assets belonging to the corporation are transferred under a common management mechanism, the development of which is being developed by an increasing number of specialists;
  • shareholders of the corporation participate equally in the functioning of the organization, thus maintaining a financial balance between all parties to the relationship;
  • for more effective corporate management and control, there is a distribution of responsibilities within the organization;
  • active participation of corporations in the issues of establishing lost contacts between industrial economic entities;
  • investing large amounts of funds to create and develop a modern Internet economy, cryptocurrencies, blockchains, which will allow the corporation to increase the amount of profit received and modernize standards by modern standards.

Methods of corporate governance of a legal entity

A legal entity in Russia, in accordance with Article 53 of the Civil Code of the Russian Federation, is endowed with a special list of civil rights and obligations. They carry out their legal activities within the framework of the current legislation, special constituent documents and other legal acts. Thus, there is a transfer of rights and obligations from the state to a legal entity through its bodies.

Management methods are designed to classify the features of corporate governance of a business entity and are divided into:

  • administrative;
  • economic;
  • legislative and regulatory legal;
  • organizational.

It should be borne in mind that the above management methods are also divided into three levels:

  • corporate;
  • the level where the main activity of the corporation is the business area;
  • a separate class of some enterprises and their subsidiaries.

Corporate governance provides for the combined management of all types of entities in one single prescribed field of governance.

Maneuvering in this control cycle can occur and change only when taking into account the special conditions of the objects to which it is directed, as well as to increase production volumes.

An important aspect of the whole process of corporate governance is the fact that the assets of the corporation are localized in the hands of monopoly owners or investors, and the creation of such substructures in it as a board of directors, a board of trustees or management is conditioned by the transfer of property management rights in order to avoid a ban on market monopolization. The end result is the emergence of inconsistencies in the information supplied, disagreements between management and owners.

Features of corporate governance and its participants

It is not a fact that reasonable decisions made in the process of corporate governance will necessarily bring the corporation an increase in financial profit and a stable growth of shares in the world market. There are many examples where fairly large "family" organizations that do not have a certificate of compliance with corporate governance standards are quite competitive in the product market.

One of the main features of CG is considered to be its invulnerability in the context of management abuse, but it leads to less flexibility in company policy.

However, companies that have been tested for compliance with corporate governance standards have a list of advantages over their competitors.

With the help of a modern IPO system, they more often establish contacts with foreign investors, which has a better effect on their financial reserves.

Investors are inclined to cooperate with such organizations, as they believe that an effective approach to the implementation of corporate governance by its management does not give reason to doubt the honesty and transparency of the policy pursued by the company.

Thus, the probability that an investor may lose the funds invested in projects is approaching a minimum.

Corporations that represent the interests of developing countries in the global financial market have a special interest in moving under corporate governance.

The results of research by numerous experts in the field of economics show that corporations with a corporate governance system have a large amount of capital compared to the average established mark in the market. This trend is inherent in the Arab countries, states from the Latin American region (with the exception of Chile), Russian Federation, Indonesia, Turkey and Malaysia.

The efficiency of operations and the constant growth of companies is the result of a commonality of subjects of corporate relations who are interested in the following:

Labor functions and interests of subjects of corporate governance

The main financial reward for employees, in particular, managers of companies, is the payment in full of the amounts of wages prescribed in their employment contracts.

Their main interest is to feel comfortable and be sure of the stability of their position. They also want to protect themselves against certain situations, such as funding the company from retained earnings rather than from the company's external debt.

The priority direction for the growth of companies in the market is the creation of an equilibrium risk-reward ratio.

Managers are one of the main components of the overall pyramid of subordination.

They depend on the actions of the shareholders represented by the board of directors, and are most interested in prolonging their existing labor contracts for a longer period.

Their primary task in the corporation is constant interaction with representatives of other groups who are directly related to the company itself or wish to cooperate with it. Among them: employees, shareholders, official state structures, clients, investors, importers.

However, there are a number of aspects in which company managers become hostages of their position. So, they cannot influence the decision to expand the scope of the company's activities and its structure, to participate in various charitable events in order to increase corporate prestige and status.

Another subjects of labor relations in the system of corporate governance of the company are shareholders, whose income from its activities is expressed in the receipt of dividends or those funds that were received on the account after the sale of shares on the market.

Often, the owners of the company's shares express their support for the management and board of directors of the organization in making decisions aimed at a possible increase in profits, even if they are very risky.

Therefore, they, no less than managers, strive to contribute to the development of the company. But for them, there are also several situations with an increased level of risk, for example:

  • their personal income will not increase if the goods and services that the company sells on the market are not in demand among buyers, and, accordingly, the organization does not receive stable high profits;
  • if the company declares itself bankrupt, the shareholders will be able to receive all their compensation payments only as a last resort.

Shareholders have some advantages in investing and holding shares in several companies at the same time, so if they lose funds in one, they always have a fallback option. In addition, they can exert some pressure on the board of directors:

  1. in the course of regular meetings of holders of shareholdings, a certain composition of management is elected and shareholders, based on their own interests, vote or not vote for a particular decision;
  2. the transaction for the sale of shares that they own affects the quotes of these securities on the market for goods and services, thereby becoming a possible lever for putting pressure on the current composition of the board of directors that is unfavorable to them.

There is a third group of subjects of corporate relations - accomplices or interested persons. These include:

  • Lenders. Their profit is stated in the contract concluded as a result of negotiations between them and the company. They oppose the adoption of decisions in the implementation of which there is a certain risk, they insist that the profit received in the future be able to cover the amount of the loan provided in time and in full, they own a block of shares in several companies at the same time.
  • Employees and staff of the company. They show a primary interest in decent wages, their timely payment, good working conditions, job retention and sustainable development of the organization. Unlike shareholders, they are in constant contact with the composition of the board of directors, are completely subordinate to its decisions and have no leverage to put pressure on its activities.
  • Partners of the company (customers, importers, etc.). They are in constant contact with the board of directors to obtain information on the state of the company's functioning.
  • State official structures. They regularly monitor the activities of the company, check the implementation of safety regulations, the availability of all certificates and accreditations, monitor the timely payment of taxes, the creation of jobs and the provision of various benefits to employees of the organization. They can influence the company by increasing taxes and changing accounting documentation.

Principles and mechanisms of corporate governance

At regular meetings with the participation of shareholders, questions and proposals may be put forward regarding:

  • reforming the organization;
  • disposal of assets owned by the company;
  • conducting transactions for the purchase and sale of shares;
  • disclosure of reporting information on profits received;
  • changes in the composition of the management and the main constituent bodies of the corporation, etc.

The main principle of corporate governance provides for the establishment of the responsibility of the board of directors to the shareholders. Minority shareholders have unequal rights among themselves, and, consequently, a different number of votes that they have the right to dispose of, since they are directly related to the amount of shares in the company.

The norms of Russian legislation provide for the following division of rights, according to the share held:

Such an imbalance leads to the infringement of the economic rights of shareholders by withdrawing the company's profits in non-dividend ways, after which it is distributed among members of the board of directors and shareholders owning controlling stakes.

This shortcoming of the corporate governance system can be compensated for by establishing a market for corporate control. With its help, holders of small shares in the company can sell their shares if they do not agree with the policy pursued by the company's management.

Main models of corporate governance

For a long time, such fundamental models of corporate governance forms have been formed that are used in different countries of the world:

  • Anglo-American (outsider) model - provides for the management of a corporation based on the use of external or market levers of management control, or monitoring by a collegial body of a corporation, organized in accordance with all requirements. Its defining link is the presence of a large number of independent small investors who represent the interests of minority shareholders. In such a system of relations, the influence of the stock market sharply increases, which serves as a tool for controlling the activities of the corporation's management;
  • The German or insider model - takes as a basis the control of the corporation from the inside. The basis for the successful functioning of a corporation is multilateral cooperation between all entities that have anything to do with it. Unlike the Anglo-American model, the stock market does not affect the company's activities and the value of its shares. This is due to the fact that independent monitoring of the results of products and the situation in the common market of goods and services is carried out;
  • Japan's corporate governance model was designed to raise the country's economy from the ruins after its defeat in World War II. Thanks to its application, the state managed to perform an “economic miracle” in the 1960s, associated with annual economic growth rates of 10%;
  • Family model of corporate governance - can be applied in almost every country. Full control of the corporation belongs to one family, and a controlling stake, as a rule, passes from generation to generation. The most striking example of this model is the American oil company Standard Oil, which has been under the control of the Rockefeller family for more than 130 years.

The formation and application of the corporate governance model depends on the specifics and is focused on the domestic economic situation in each country. Three main factors influence this:

  • a system for protecting the rights of minority shareholders;
  • functions and tasks of management;
  • the level of information provided.

The corporate governance system in Russia is not implemented in accordance with any of the presented models, as it is focused on their symbiosis and the use of the best features and advantages of each.

Gracheva Maria Senior Financial Expert, ECORYS Nederland, Davit Karapetyan - IFC Corporate Governance in Russia
Magazine "Management of the company" No. 1 2004

Strange as it may sound, the practice of corporate governance has been around for centuries. Recall, for example: Shakespeare describes the unrest of a merchant who is forced to entrust the care of his property - ships and goods - to other persons (in modern terms, to separate property from control over it). But a full-fledged theory of corporate governance began to take shape only in the 80s. the last century. True, at the same time, the slowness of comprehending the prevailing realities was more than compensated for by research and the intensification of regulation of relations in this area. Analyzing the features of the modern era and the two previous ones, scientists conclude that in the XIX century. entrepreneurship was the engine of economic development, in the 20th century - management, and in the 21st century. this function is moving to corporate governance (Fig. 1).
A Brief History of Corporate Governance
1553: The Muscovy Company, the first English joint-stock company (England), was established.
1600: The Governor and Company of Merchants of London Trading into the East Indies was established and became a permanent joint stock limited company from 1612. In addition to the meeting of owners, a meeting of directors (consisting of 24 members) with 10 committees was formed in it.
The owner of shares in the amount of not less than 2 thousand pounds could become a director. Art. (England).
1602: The Dutch East India Trading Company (Verenigde Oostindische Compagnie) is created - a joint-stock company in which the separation of ownership from control was first implemented - an assembly of gentlemen (i.e. directors) was created, consisting of 17 members who represented shareholders 6 regional chambers of the company in proportion to their shares in the capital (Netherlands).
1776: A. Smith warns in a book about weak control mechanisms over the activities of managers (Great Britain).
1844: Joint Stock Companies Act (Great Britain) passed.
1855: Limited Liability Act (Great Britain) passed.
1931: A. Burley and G. Means (USA) publish their seminal work.
1933-1934: The Securities Trading Act of 1933 becomes the first law regulating the functioning of the securities markets (in particular, the requirement to disclose registration data is introduced). The 1934 law delegated enforcement functions to the Securities and Exchange Commission (USA).
1968: The European Economic Community (EEC) adopts a corporate law directive for European companies.
1986: The Financial Services Act passed, which had a huge impact on the role of stock exchanges in the regulatory system (USA).
1987: The Treadway Commission submits a report on financial reporting fraud, confirms the role and status of audit committees, and develops the concept of internal control, or the COSO (Committee of Sponsoring Organizations of the Treadway Commission) model, published in 1992 (USA).
1990-1991: The collapse of Polly Peck corporations (losses of £1.3bn) and BCCI and the fraud of Maxwell Communications' pension fund (£480m) highlight the need for improved practice corporate governance to protect investors (UK).
1992: Cadbury committee publishes first Corporate Governance Code (UK).
1993: Companies listed on the London Stock Exchange are required to disclose compliance with the Cadbury Code on principle (UK).
1994: Publication of the King Report (South Africa).
1994 -1995: publication of reports: Rutteman - on internal control and financial reporting, Greenbury - on remuneration of members of boards of directors (Great Britain).
1995: publication of the Viénot report (France).
1996: Publication of Peters report (Netherlands).
1998: Publication of the Hampel Report on Fundamental Principles of Corporate Governance and the Consolidated Code based on the Cadbury, Greenbury and Hampel Reports (UK).
1999: Publication of the Turnbull Report on Internal Control, which replaced the Rutteman Report (UK); publication, which became the first international standard in the field of corporate governance.
2001: Publication of the Miners Report on Institutional Investors (UK).
2002: publication of the German Corporate Governance Code - the Kromme Code (Germany); Russian Code of Corporate Conduct (RF). the collapse of Enron and other corporate scandals lead to the passage of the Sarbanes-Oxley Act (USA). Publication of Bouton Report (France) and Winter Report on European Corporate Law Reform (EU).
2003: Papers published: Higgs on the role of non-executive directors, Smith on audit committees. Introduction of a new version of the Consolidated Code of Corporate Governance (Great Britain).
Source: IFC, 2003.

Corporate governance: what is it?
Now in developed countries the foundations of the system of relations between the main actors of the corporate (shareholders, managers, directors, creditors, employees, suppliers, buyers, government officials, residents of local communities, members of public organizations and movements) have already been clearly defined. Such a system is created to solve three main tasks of the corporation: ensuring its maximum efficiency, attracting investments, and fulfilling legal and social obligations.
Corporate management and corporate governance are not the same thing. The first term refers to the activities of professional specialists in the course of business transactions. In other words, management is focused on the mechanics of doing business. The second concept is much broader: it means the interaction of many individuals and organizations related to the most diverse aspects of the functioning of the company. Corporate governance is at a higher level of company management than management. The intersection of the functions of corporate governance and management takes place only when developing a company's development strategy.
In April 1999, in a special document approved by the Organization for Economic Cooperation and Development (it unites 29 countries with developed market economy), the following definition of corporate governance was formulated: 1. The five main principles of good corporate governance were also detailed there:

  1. The rights of shareholders (the corporate governance system should protect the rights of shareholders).
  2. Equal treatment of shareholders (the corporate governance system should ensure equal treatment of all shareholders, including small and foreign shareholders).
  3. The role of stakeholders in corporate governance (the corporate governance system should recognize the statutory rights of stakeholders and encourage active cooperation between the company and all stakeholders in order to increase social wealth, create new jobs and achieve financial sustainability of the corporate sector).
  4. Information disclosure and transparency (the corporate governance system should provide timely disclosure of reliable information about all significant aspects of the functioning of the corporation, including information about the financial position, performance results, composition of owners and management structure).
  5. Responsibilities of the board of directors (the board of directors provides strategic guidance to the business, effective control over the work of managers and is obliged to report to shareholders and the company as a whole).
Quite briefly, the basic concepts of corporate governance can be formulated as follows: fairness (principles 1 and 2), responsibility (principle 3), transparency (principle 4) and accountability (principle 5).
On fig. 2 shows the process of forming a corporate governance system in developed countries. It reflects the internal and external factors that determine the behavior of the company and the effectiveness of its functioning.
In developed countries, two main models of corporate governance are used. The Anglo-American operates, in addition to Great Britain and the USA, also in Australia, India, Ireland, New Zealand, Canada, and South Africa. The German model is typical for Germany itself, some other countries of continental Europe, as well as for Japan (sometimes the Japanese model is distinguished as an independent one).
The Anglo-American model operates where a dispersed share capital structure has formed, i.e. dominated by many small shareholders. This model implies the existence of a single corporate board of directors, which performs both supervisory and executive functions. The proper implementation of both functions is ensured by the formation of this body from non-executive directors, including independent directors (), and executive directors (). The German model develops on the basis of a concentrated shareholding structure, in other words, when there are several large shareholders. In this case, the company management system is two-level and includes, firstly, the supervisory board (it includes representatives of shareholders and employees of the corporation; usually the interests of the personnel are represented by trade unions) and, secondly, the executive body (board), whose members are managers. A feature of such a system is a clear separation of the functions of supervision (given to the supervisory board) and execution (delegated to the board). In the Anglo-American model, the board is not created as an independent body, it is actually in the board of directors. The Russian model of corporate governance is in the process of formation, and it shows the features of both models described above.

Effective corporate governance: the importance of implementing the system, the cost of its creation, the demand from companies
Companies with high corporate governance standards tend to have better access to capital than poorly managed corporations and outperform the latter in the long run. Securities markets, which are subject to strict requirements for the corporate governance system, help to reduce investment risks. Typically, such markets attract more investors who are willing to provide capital at a reasonable price, and are much more effective in bringing together capital owners and entrepreneurs in need of external financial resources.
Efficiently managed companies contribute more significantly to the national economy and the development of society as a whole. They are more financially sustainable, creating more value for shareholders, workers, local communities and countries as a whole. This is in contrast to poorly managed companies such as Enron, whose failures cause job losses, loss of pension contributions, and can even undermine confidence in the stock markets. The stages of building an effective corporate governance system and its advantages are shown in fig. 3.

Facilitating access to the capital market
The practice of corporate governance is a factor that can determine the success or failure of companies when entering the capital market. Investors perceive well-managed companies as friendly, inspiring more confidence that they are able to provide shareholders with an acceptable level of return on investment. On fig. Figure 4 shows that the level of corporate governance plays a special role in countries with emerging markets, where there is no such a serious system of protecting the rights of shareholders as in countries with developed markets.
New share registration requirements adopted by many of the world's stock exchanges make it necessary for companies to comply with increasingly stringent corporate governance standards. There is a clear tendency among investors to include corporate governance practices in the list of key criteria used in the process of making investment decisions. The higher the level of corporate governance, the more likely it is that assets are used in the interests of shareholders, and not stolen by managers.

Reducing the cost of capital
Companies that adhere to proper corporate governance standards can achieve a reduction in the cost of external financial resources used by them in their activities and, consequently, a reduction in the cost of capital in general. This pattern is especially typical for countries such as Russia, where the legal system is in the process of formation, and judicial institutions do not always provide effective assistance to investors in case of violation of their rights2. Joint-stock companies that have managed to achieve even small improvements in corporate governance can receive very significant advantages in the eyes of investors compared to other JSCs operating in the same countries and industries (Fig. 5).
As you know, in Russia the cost of borrowed capital is quite high, and there is practically no attraction of external resources through the issuance of shares. This situation has developed for many reasons, primarily due to the strong structural deformation of the economy, which creates serious problems with the development of companies as reliable borrowers and objects for investing shareholders' funds. At the same time, the spread of corruption, insufficient development of legislation and weak judicial enforcement and, of course, flaws in corporate governance3 play a significant role. Therefore, an increase in the level of corporate governance can have a very quick and noticeable effect, ensuring a decrease in the cost of a company's capital and an increase in its capitalization.

Promoting Efficiency
Good corporate governance can help companies achieve high performance and efficiency. As a result of better management, the accountability system becomes clearer, the oversight of the performance of managers is improved, and the link between the reward system of managers and the company's performance is strengthened. In addition, the decision-making process of the board of directors is being improved by obtaining reliable and timely information and increasing financial transparency. Effective corporate governance creates favorable conditions for succession planning and sustainable long-term development of the company. Conducted studies show that high-quality corporate governance streamlines all business processes occurring in the company, which contributes to the growth of turnover and profit while reducing the volume of required capital investments4.
Implementing a clear accountability system reduces the risk of managerial and shareholder interests divergence and minimizes the risk of company officials cheating and making transactions in their own interests. If the transparency of a joint-stock company increases, investors get an opportunity to penetrate the essence of business operations. Even if the information coming from a company that has increased its transparency turns out to be negative, shareholders benefit from a reduction in the risk of uncertainty. Thus, incentives are formed for the board of directors to conduct a systematic analysis and risk assessment.
Effective corporate governance, which ensures compliance with laws, standards, rules, rights and obligations, allows companies to avoid the costs associated with litigation, shareholder claims and other business disputes. In addition, the resolution of corporate conflicts between minority and controlling shareholders, between managers and shareholders, as well as between shareholders and stakeholders is improving. Finally, executive officials are able to avoid harsh penalties and imprisonment.

Reputation improvement
Companies that adhere to high ethical standards, respect the rights of shareholders and creditors, and ensure financial transparency and accountability will develop a reputation as zealous guardians of the interests of investors. As a result, such companies will be able to become worthy and enjoy greater public confidence.

The cost of effective corporate governance
The organization of an effective corporate governance system entails certain costs, including the costs of attracting specialists, such as corporate secretaries and other professionals, necessary to ensure work in this area. Companies will have to pay remuneration to external legal advisers, auditors and consultants. The costs associated with disclosing additional information can be significant. In addition, managers and board members will have to devote a lot of time to solving emerging problems, especially at the initial stage. Therefore, in large joint-stock companies, the implementation of a proper corporate governance system usually occurs much faster than in small and medium-sized ones, since the former have the necessary financial, material, human, and information resources for this.
However, the benefits of such a system far outweigh the costs. This becomes apparent if, when calculating economic efficiency, we take into account the losses that may be faced by: employees of firms - due to job cuts and loss of pension contributions, investors - as a result of the loss of invested capital, local communities - in the event of a collapse of companies. In an emergency, systemic corporate governance problems can even undermine confidence in financial markets and threaten the stability of a market economy.

Demand from companies
Of course, a system of proper corporate governance is needed primarily by open joint-stock companies with a large number of shareholders that do business in industries with high growth rates and are interested in mobilizing external financial resources in the capital market. However, its usefulness is also undeniable for open joint stock companies with a small number of shareholders, closed joint stock companies and limited liability companies, as well as for companies operating in industries with medium and low growth rates. As already mentioned, the introduction of such a system allows companies to optimize internal business processes and prevent conflicts by properly organizing relations with owners, creditors, potential investors, suppliers, consumers, employees, representatives government agencies and public organizations.
In addition, any company seeking to increase its market share sooner or later faces limited internal financial resources and the impossibility of a long-term increase in debt burden without increasing the share of equity in liabilities. Therefore, it is better to start implementing the principles of good corporate governance in advance: this will provide a future competitive advantage for the company and thus give it the opportunity to stay ahead of rivals. In other words, the soldier who does not dream of becoming a general is bad.
So, corporate governance is not a fashionable term, but quite a tangible reality. In countries with economies in transition, it is characterized by very significant features (as well as other attributes of the market), without understanding which it is impossible to effectively regulate the activities of companies. Consider the specifics of the Russian situation in the field of corporate governance.

Research results
In the fall of 2002, the Interactive Research Group, in cooperation with the Association of Independent Directors, conducted a special study of corporate governance practices in Russian companies. The study was commissioned by the International Finance Corporation (International Finance Corporation, a member of the World Bank Group), with the support of the Swiss State Secretariat for Economic Relations (SECO) and the Senter International Agency of the Ministry of Economy of the Netherlands5.
The survey involved senior officials of 307 joint-stock companies representing a wide range of industries and operating in four regions of Russia: Yekaterinburg and the Sverdlovsk region, Rostov-on-Don and the Rostov region, Samara and the Samara region, St. Petersburg. The uniqueness of the study lies in the fact that it focuses on the regions and is based on a solid and representative sample. The average characteristics of the respondent firms are as follows: the number of employees - 250, the number of shareholders - 255, the sales volume - $1.1 million. , general directors or their deputies.
The analysis made it possible to reveal the presence of certain general patterns. In general, companies that have achieved some success in terms of corporate governance practices include those that:

  • more in terms of turnover and net profit;
  • feel the need to attract investment;
  • hold regular meetings of the board of directors and the board;
  • provide training for members of the board of directors.
Based on the data obtained, several key conclusions were made, grouped into four large groups:
  1. commitment of companies to the principles of good corporate governance;
  2. activities of the board of directors and executive bodies;
  3. shareholder rights;
  4. disclosure and transparency.

1. Commitment to the principles of good corporate governance
To date, only a few companies have made real changes in corporate governance (CG), so it needs serious improvement. Only in 10% of companies the state of CG practice can be assessed as, at the same time, the share of companies with unsatisfactory CG practice is 27% of the sample.
Many companies are not aware of the existence of the Code of Corporate Conduct (hereinafter - the Code), which was developed under the auspices of the Federal Commission for the Securities Market (FCSM) and is the main Russian standard corporate governance. While the Code is targeted at companies with more than 1,000 shareholders (more than the average number of shareholders in the sample), it applies to companies of all sizes. Only half of the respondents are aware of the existence of the Code, of which about one third (i.e. 17% of the entire sample) have implemented its recommendations or intended to do so in 2003.
Many companies plan to improve their CG practices and would like outside help to do so. More than 50% of the firms surveyed intend to use the services of CG consultants, and 38% of respondents intend to organize training programs for board members.

2. Activities of the board of directors and executive bodies
Board of Directors
Boards of Directors (Boards) go beyond the scope of their competence under Russian law. The boards of directors of some companies are either not aware of the limits of their powers, or deliberately ignore them. Thus, every fourth Board of Directors approves an independent auditor of the company, and in 18% of respondent firms, the boards of directors elect members of the Board of Directors and terminate their powers.
Only a few members of the SD are independent. In addition, the problem of protecting the rights of minority shareholders is a matter of concern. Only 28% of surveyed companies have independent board members. Only 14% of respondents have the number of independent directors in line with the recommendations of the Code.
There are practically no committees in the structure of boards of directors. They are organized only in 3.3% of the companies participating in the study. Audit committees have 2% of respondent firms. None of the firms has an independent director as chairman of the audit committee.
Almost all companies meet the legal requirements for a minimum number of directors. 59% of companies in the Board of Directors do not have women. The average number of SD members is 6.8, and only one of the SD members is a woman.
Board meetings are held fairly regularly. On average, board meetings are held 7.9 times a year, which is slightly less than the Code, which recommends such meetings to be held every 6 weeks (or about 8 times a year).
Only a few companies organize training for their board members, and very rarely do they turn to independent consultants on corporate governance issues. Only 5.6% of respondents provided training to board members during the previous year. Even fewer companies (3.9%) used the services of CG consulting firms.
The remuneration of the members of the Board of Directors is at a low level and, quite likely, is incomparable with the responsibility assigned to them. 70% of companies do not pay the work of directors at all and do not compensate them for the expenses associated with their activities. The average size the remuneration of a member of the Board of Directors is $550 per year; in companies with less than 1,000 shareholders - $475, and in companies with more than 1,000 shareholders - $1,200 per year.
The corporate secretary in companies with this position, as a rule, combines his main job with the performance of other functions. 47% of respondents indicated that they have introduced the position of corporate secretary, whose main duties are to organize interaction with shareholders and help in establishing cooperation between the Board of Directors and other management bodies of the company. In 87% of such companies, the functions of a corporate secretary are combined with the performance of other duties.

Executive bodies (board and CEO)
Most companies do not have collegial executive bodies. The Code recommends the formation of a collegial executive body - the board, responsible for the day-to-day work of the company, but only one quarter of the respondent firms has such a body.
In some companies, collegial executive bodies go beyond the scope of competence provided for by Russian law. As in the case of the Board of Directors, collegial executive bodies either do not fully understand or deliberately ignore the limits of their powers. Thus, 30% of collegial executive bodies make decisions on conducting extraordinary audits, and 14% approve independent auditors. Further, 9% elect senior executives and board members and terminate their powers; 5% elect the chairman of the board and the general director and terminate their powers; 4% elect the chairman and members of the Board of Directors and terminate their powers. Finally, 2% of the collegiate executive bodies approve an additional issue of the company's shares.
Board meetings are held less frequently than recommended by the Code. Meetings of the collegial executive body are held on average once a month. Only 3% of companies follow the Code's recommendations to hold meetings once a week. At the same time, the results of the study show that the more often board meetings are held, the higher the profitability of companies.

3. Rights of shareholders
All surveyed companies hold annual general meetings of shareholders in accordance with the requirements of the law.
All respondent firms comply with legal requirements regarding the information channels used to notify shareholders of a general meeting.
The majority of survey participants inform shareholders that the meeting is properly conducted. At the same time, 3% of companies include additional issues on the agenda of the meeting without proper notification of shareholders.
In a number of companies, the Board of Directors or collegial executive bodies have appropriated certain powers of the general meeting. In 19% of firms, the general meeting is not given the opportunity to approve the board's recommendation to appoint an independent auditor.
Although the majority of respondents notify shareholders of the results of the general meeting, many companies do not provide shareholders with any information on this issue. Shareholders of 29% of surveyed companies are not informed about the results of the general meeting.
Many firms do not meet their obligations to pay dividends on preferred shares. Almost 55% of the surveyed companies with preferred shares did not pay declared dividends in 2001 (the number of such companies turned out to be 7% more than in 2000).
It is not uncommon for declared dividends to be paid late or not at all. The results of the study show that in 2001, 35% of companies paid dividends after 60 days had elapsed from the date the payment was announced. The Code recommends that payment be made no later than 60 days after the announcement. At the time of the study, 9% of companies had not paid dividends declared based on the results of 2000.

4. Disclosure and transparency
94% of companies do not have internal disclosure policy documents.
The ownership structure is still a well-kept secret. 92% of companies do not disclose information about major shareholders. Almost half of these firms have shareholders owning more than 20% of the authorized capital, and 46% have shareholders owning more than 5% of the outstanding shares.
Almost all responding firms provide shareholders with their financial statements (only 3% of companies do not).
In most companies, audit practices leave much to be desired, and in some firms, auditing is carried out in a very sloppy manner. 3% of respondent firms do not conduct an external audit of financial statements. Internal audit is absent in 19% of companies with audit commissions. 5% of the study participants do not have an audit commission provided for by law.

The way in which many respondent firms approve the external auditor raises serious concerns about the independence of the latter. According to Russian law, the approval of the external auditor is the exclusive prerogative of the shareholders. In practice, auditors are asserted: in 27% of companies - boards of directors, in 5% of companies - executive bodies, in 3% of companies - other bodies and persons.
Board audit committees are organized very rarely. None of the companies in the sample has an audit committee composed entirely of independent directors.
International financial reporting standards (IFRS) are beginning to spread, and this is especially true for companies that need to attract financial resources. 18% of surveyed firms currently prepare IFRS financial statements, and 43% of respondents intend to implement IFRS in the near future.
Based on the results of the survey, the respondent companies were assessed in accordance with 18 indicators characterizing the practice of corporate governance and divided into the four groups indicated above (Fig. 6).
Overall, performance across all four categories can be significantly improved, with the following indicators requiring particular attention:

  • training of members of the Board of Directors;
  • increase in the number of independent directors;
  • formation of key committees of the Board of Directors and approval of an independent director as the chairman of the audit committee;
  • accounting in accordance with international financial reporting standards;
  • improved disclosure of information on related party transactions.
Based on 18 indicators, a simple corporate governance index was built (Fig. 7). It allows for a quick assessment of the general state of CG in the respondent companies and serves as a starting point for further improvement of CG. The index is built as follows. The company receives one point if any of the 18 indicators is positive. All indicators have the same meaning for determining the situation in the field of corporate governance, i.e. they are not assigned different weights. The maximum number of points is therefore 18.
It turned out that the CG indices in the companies participating in the study differ significantly. The best AO received 16 out of 18 points, the worst - only one.
At least ten positive indicators have 11% of the companies in the sample, i.e. only every tenth joint-stock company has CG practices that can be generally considered to be in line with the relevant standards. The remaining 89% of respondents fulfill less than 10 out of 18 indicators. This indicates the need for serious work to improve the practice of corporate governance in the vast majority of joint-stock companies represented in the sample.
Thus, Russian companies have a lot of work to do to improve the level of corporate governance. Those who manage to achieve success in this area will be able to increase their efficiency and investment attractiveness, reduce the cost of attracting financial resources, and, as a result, gain a serious competitive advantage.