By Sorabh Gupta, EMBA '09
"Corporate governance in Russia — an oxymoron," said Mr. Ronald Freeman, Senior Advisor to the Chairman of the Board/CEO with Troika Dialog. His comment set the stage for an evening about Russia, boards, Putin and Kremlin. Mr. Freeman joined Sanya Zezulin, managing director CFO/COO, and Professor Bruce Kogut and students on October 10, part of the Paul M. Montrone Seminar Series on Ethics.
Troika Dialog is the oldest and the largest private investment bank in Russia, and provides services in capital markets, investment banking, asset management and private equity. Although Russia has transitioned from a planned economy to capitalism, it has seen wealth concentrated in the hands of a small group of oligarchs. The government’s dismemberment of Yukos, a Russian oil company, in 2003, highlights the interventionist role the state can play. In explaining the complexity of standard governance policies, Mr. Freeman simply emphasized the essence of a board’s role — to act as an important counter-weight to the management and its decisions. Nevertheless, when considering how pragmatic a governance code can be, one can’t ignore the business environment, inter-connections with government, and the historical context. Unlike the West, the biggest shareholders in Russia are the managers, not institutional shareholders. In Russia, a handful of individuals and "executives" hold most of the power, and decisions are made in a very rudimentary manner. The concept of "insider trading" is not even part of the Russian business dictionary.
Mr. Freeman cited a personal experience with one of the several companies at which he is a board member. The chief executive would refuse to attend board meetings, and these meetings, when they did take place, were restricted to administrative issues. Mr. Freeman drew an analogy of this Board’s role and power to that of a referee who is brought in at the last minute to call on the players. Nevertheless despite the difficulties with improving Russian governance, Troika Dialog’s view is that governance codes have begun to create an environment for ethical conduct. The importance of installation of code of ethics as a counterbalance to the growth in power of corporate executives should not be understated. Ron Freeman was clearly impressed by the vision of Ruben Vardanian, CEO of Troika Dialog, of bringing the best of the practices from other business cultures. Ms. Zezulin chimed in that the codes also allow Russian companies to maximize opportunities to raise capital in international markets and to become globally competitive.
As Mr. Freeman and Ms. Zezulin shared their challenges of working in an environment where governance practices are developing, it was obvious to students at this session that the role of business leaders such as Vardanian in nurturing governance is pivotal to the development of best practices in corporate governance.