Transcript Document

OECD Russia Corporate Governance Roundtable
Moscow, 25–26 November 2012
BOARD FORMATION:
Governance and Value
Creation
Paul J.Ostling
Co-sponsored by
Informational partner
OECD Russia Corporate Governance Roundtable
Moscow, 25–26 November 2012
Disclaimer: The views expressed in
this presentation are those of the
author and do not necessarily
represent the opinion of the OECD
Russia Corporate Governance
Roundtable, the OECD or its Member
countries, or of the Moscow
Exchange.
Co-sponsored by
Informational partner
IS THERE A COMPELLING VALUE
PROPOSITION FOR IMPLEMENTING
“BEST IN CLASS” GOVERNANCE /
BOARD FORMATION?
3
EMERGING MARKETS LISTEES SUFFER A MATERIAL RISK
PREMIUM CHARGE –
Investors and regulators are concerned about:
• “rule of law” (Yukos, YPF…)
• accuracy of financial reporting
(Puda Coal, China Forest)
• domination
by
“controlling
shareholders”
(Volkswagon,
ENRC)
• behind the scenes government
influence or the influence of
networks connected to officials
(Rosneft-BP-TNK oligarchs)
• corruption (Hermitage Capital)
•
“Repeatedly over the last 20 years,
when British shareholders are
surveyed they have responded that
they are willing to pay a premium for
better governance in their investee
public companies.”
•
“When companies from emerging
markets have competed for capital
markets access using visibly better
corporate governance models, they
have been rewarded with higher
market capitalization.”
Example: Uralkali
EMERGING MARKETS LISTEES NOW TRADE AT 10% - 40% DISCOUNT
4
Good Corporate Governance Creates Value
Corporate governance has
been linked to financial
performance
Poor governance clearly hurts
Good governance is a longterm investment
Good corporate governance
creates trust
5
WHAT ARE THE NECESSARY PREREQUISITES TO A
SUCCESSFUL & SUSTAINABLE IPO AND HIGH EV
(Achieved Target Multiple + Ongoing Market Cap
Enhancement)?
1. Business model that is “sellable”
2. Reliable, timely financial data
3. “Acceptable” corporate governance/board
(…and, hopefully, transparency and high ethical standards….)
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BUT…
ACCORDING TO A HBS 2010 STUDY: the factors
that indicate “success” inside the Russian market
(dominant, control-oriented owner/founder + “the
personal ‘way’ of the founder” + shorter term
bottom-line focused operational model) have NOT
translated well to the global markets without
significant remediation
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SUCCESSFUL GOVERNANCE/ BOARD FORMATION IS
AN EVOLUTION, NOT A REVOLUTION
Moving from a “controlling / dominating”
operational/management model to a “shared
oversight/ ‘governance’ model”
The octopus vs the shark vs the outsider
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Typical Metamorphosis from typical Russian “Ex-Co”
to “Governed Board”
There must be TRUST in the INEDs and the Board process from owners
It normally takes 2 years to work with INEDs to reach the IPO-ready stageGE!
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THERE ARE SOME SPECIFIC RUSSIAN
LEGALITIES THAT SHOULD
BE CONSIDERED:
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RUSSIAN SHAREHOLDERS REPRESENTING 2% OF SHAREHOLDERS
HAVE THE RIGHT IN OJSCs TO NOMINATE DIRECTORS….
Therefore, if the “controlling shareholder” nominates all the
directors, there is a possible appearance of “controlled”
rather than independent directors
Therefore, the role of the Remuneration and Nomination
Committee can appear weak and superfluous
There should be consideration of giving the Board and the
R&N Committee a Role
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THE DEFINITION OF INDEPENDENT DIRECTOR
VARIES FROM THE NORM IN OECD, UK, US
E.g., director could have annual transactions up to
10% of company’s NAV and still be independent
E.g., could have transactions with the company
annually up to 10% of his or her annual income and
still be independent
Perhaps it is time to align the OJSC and OECD
definitions?
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THERE ARE MODELS OF ‘ENGAGING IN QUALITY
GOVERNANCE’ - Uralkali
PREMIUM LISTING IS AN EVEN FURTHER STEP
-– Polyus Gold
These companies took the time and effort to create
corporate governance as a strategic competitive
advantage. They are being rewarded by the
investment community for their efforts.
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