| Alexei Kudrin | ||||||
Russia defaulting on its domestic debt in 1998 might seem like a distant memory, but one economic problem keeps coming up, and is stifling foreign investment: poor corporate governance.
This, says Alexander Ikonnikov, executive director of the Russian Investor Protection Association, is the most pressing issue facing Russian businesses: “Corporate governance is crucial to the strengthening of Russia’s economic and financial system, and in promoting transparency and investor confidence,” he said at the fourth annual Russian Economic Forum in London last month.
But there is very little confidence that anything is being done. “Until there is a real commitment to improving standards of corporate governance in Russia, gaining foreign investment will continue to be a problem,” says Jan Daumann, president of CET InterMatrix, an investment consultancy.
There might even be an appetite abroad to invest in Russian companies, if they demonstrated a willingness to move on this issue, explains Paul Melling, an international partner with law firm Baker and McKenzie. “Many investors say that they would actually be prepared to pay more for shares in a company that exhibited a high standard of corporate governance. So this is clearly an important issue for the self-interest of Russian firms.”
Anatoly Karachinsky, president and CEO of Russian information technology firm IBS Group, makes the point that western investors have exacerbated the problem. They looked for quick returns on investments and complained about poor corporate governance only when they made heavy losses. “Investors must not just talk about transparency and corporate governance,” he explains, “but must invest only in those businesses which apply good standards of governance. The market would then force everyone to play by the rules.”
In his speech at the forum deputy prime minister and Russian finance minister Alexei Kudrin painted a relatively optimistic view of Russia’s economic health while stressing the danger of complacency.
He pointed to economic liberalization and membership of the World Trade Organization as essential components for success. This would instill discipline and increase confidence among foreign investors, which is vital if Russian companies are to receive the inward investment they need to compete internationally.
But there’s a psychological barrier to overcome. As one delegate put it: “Rightly or wrongly, foreign investors still see Russian companies as just far too risky. Until this changes, we won’t get the investment we need.”
