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Taming old Russian bears

The watchdog of corporate governance has been let loose in the bearpit of Russian companies. But like old bears, Russian companies can be stubborn and bad tempered ­ and they don't like anyone getting in their way. Rupert Gordon-Walker reports

On paper Russia has almost the best corporate governance laws of any former communist economy, but in practice the country's Wild West style of capitalism lives on. The battle for control remains paramount and the laws are no match for managers determined to hold sway over shareholders. Both foreign and domestic investors have suffered losses after being outmanoeuvred by unscrupulous managers.

At the same time, shareholders have promised capital spending in return for cheap equity only to renege on the deals. Analysts say the situation will not improve until companies develop a capital thirst that can only be satisfied by respecting shareholders' rights.

"Control is everything," says Christopher Granville, head of research at United City Bank. "Managers behave like owners now because that was how they behaved and were expected to behave in Soviet times. It is important to have an historical perspective."

Legislation has so far failed to have any real impact on their conduct. A new law on joint stock companies came into effect on January 1 and laid down standards for company organization; the rights and obligations of shareholders, directors and managers; and disclosure rules during takeovers.

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