Russian Enterprises and Company Law in Transition

Nysten-Haarala, S. (2001). Russian Enterprises and Company Law in Transition. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-01-005

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Abstract

Privatization and company law have been the most important instruments of transforming Russian enterprises. State enterprises have been privatized and modern company law governs how they function, but privatized companies have not changed their business culture. Privatization did not divide management and ownership and did not create efficient stock markets to monitor managers. Managers were able to keep their authoritarian methods inherited from socialist management and rent-seeking in the absence of control.

Protection of minority shareholders does not function in practice, since managers can easily circumvent the rules. They can also ignore the rules of company law, which are not widely known and differ from earlier practices.

There are already too many forms of companies in Russia. Only two forms of companies are mostly used; namely the joint stock company (open and closed) and the limited liability company. Difficulties already emerge with registration. Local authorities may apply their own rules. Corporate governance is not yet a big issue in Russian company law studies, which concentrate on the rules of forming and dissolving juristic persons.

Bodies of companies are in principle modern. The board of directors is already powerful on the basis of the law for joint stock companies, but in practice it is even more powerful. The governance of limited liability companies has been arranged in a flexible way to make the running of a company as easy as possible for small enterprises.

Russian company law also recognizes personal liability of managers or shareholders in some exceptional cases. Such rules have been adopted from European company laws and it remains to be seen how they are used in Russian circumstances.

Russian enterprises still have a lot of social responsibilities to bear. The situation is quite different from Western company law, where stakeholder theory is being introduced. In Russia too heavy social responsibilities are an obstacle for restructuring and transforming into a profitable modern company. Environmental questions are widely ignored both because of old attitudes and new aspirations of profit and maintaining jobs.

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