Diana Galieva on new trends in corporate regulation

In connection with the special conditions of development of the Russian economy in the last two years, new corporate regulation with the prefixes “temporary” and “forced” has been created in the country, but now there are concerns in the market that the long-term results of such regulation will change the structure of asset ownership in the Russian Federation and are unlikely to reversible.

Among the main instruments of the new regulation are the institution of economically significant organizations (ESO) and the introduction of external management in the subsidiaries of foreign companies. The first helps to restore controllability to Russian assets structured through foreign holding companies, the second helps to solve the problem of suspending the work of foreign companies in the Russian Federation. The results of using the mechanisms are similar – either the companies work in good faith, or the participation of the state is included, making a decision on special measures. When an EZO company is declared, foreign shareholders are removed from asset management and can wait for their rights to be returned or receive compensation for the value of assets (the government is already counting on the speedy re-registration of most of these companies); with external management, they remain owners, but are not able to influence the efficiency of the business. An alternative is the sale of assets to “trusted” Russian persons, agreed upon by the investment commission (an illustrative example is Danone, whose “nationalization” was canceled after an agreement on such a sale).

All these seizure mechanisms are needed to ensure the interests of Russian enterprises and citizens in the companies, the problem is that the outline of this group is not formalized and is unlikely to be: the process of “stepwise nationalization” of foreign assets also affected Russian companies – not all of their owners turned out to be “ conscientious” and “responsible”, and the state “has to” intervene in the affairs of the market. The port infrastructure is being confiscated, the Chelyabinsk Electrometallurgical Plant, which produces ferroalloys for the production of military equipment, has been nationalized, “flaws” have been discovered in a number of privatization transactions, and the Klimovsky Cartridge Plant is being confiscated not for military, but for social reasons – due to a utility accident.

The market would obviously like to understand where the limits of these processes are. However, the answer to this question is impossible in a developing system – decisions are subjective and made “according to circumstances.” Businesses will have to adapt to this dynamic system. For the economy, a deviation from the rules of asset integrity, motivated by circumstances and good intentions, can cause long-term damage – both Russian and “friendly” foreign investors see that the rules of the game are changing on the fly.