ICT Governance for Enterprise Control & Value Creation - Day1
BOARD FORMATION: Governance and Value Creation
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Transcript of BOARD FORMATION: Governance and Value Creation
BOARD FORMATION: Governance and Value Creation
Paul J.Ostling
OECD Russia Corporate Governance RoundtableMoscow, 25–26 November 2012
Co-sponsored by
Informational partner
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.
OECD Russia Corporate Governance RoundtableMoscow, 25–26 November 2012
Co-sponsored by
Informational partner
IS THERE A COMPELLING VALUE PROPOSITION FOR IMPLEMENTING
“BEST IN CLASS” GOVERNANCE / BOARD FORMATION?
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EMERGING MARKETS LISTEES SUFFER A MATERIAL RISK PREMIUM CHARGE –Investors and regulators are concerned about:
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• “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
Good Corporate Governance Creates Value
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Corporate governance has been linked to financial performance
Poor governance clearly hurts
Good governance is a long-term investment
Good corporate governance creates trust
(…and, hopefully, transparency and high ethical standards….)
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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
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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BUT…
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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SUCCESSFUL GOVERNANCE/ BOARD FORMATION IS AN EVOLUTION, NOT A REVOLUTION
It normally takes 2 years to work with INEDs to reach the IPO-ready stageGE!
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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
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THERE ARE SOME SPECIFIC RUSSIAN LEGALITIES THAT SHOULD
BE CONSIDERED:
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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