Board independence in Russian SOEs: the effect of institutional innovations

The study is devoted to the problem of board independence applied to Russian state-owned enterprises (SOEs). Board independence is considered a crucial principle of best corporate governance practices in the modern world. Bodies of corporate control and supervision, boards of directors are meant to uphold the rights of minority shareholders, prevent corporate fraud, and provide proper settings for safe investments. An attempt to reform corporate governance, aimed at enhancing board independence, was made in Russian SOEs in the late 2000s. By analyzing the board composition of Russia’s 16 largest SOEs in 2008—2016, the study attempts to evaluate (1) to what extent independent directors of Russian SOEs were truly independent, and (2) what impact the reforms had on the board independence of Russian SOEs. The board independence was assessed comprehensively. The study shows that, although formally proclaimed independent, at least 37% of the board members at Russian SOEs were in effect affiliated with one or another group of shareholders. The reform had an ambiguous effect. On the one hand, the reform made the boards less dependent on the state and fostered the development of the institution of independent directors. On the other hand, the reform made the boards of directors more dependent on other large shareholders. Consequently, the total level of board independence has not changed after the reform, and at least 37% of board members in Russian SOEs remained affiliated with one or another large shareholder both in 2008 and 2016. This could serve as a good illustration of how developing countries and transition economies try to enhance their investment attractiveness, either de facto or de jure.

Dmitri Trifonov is a postdoctoral visiting researcher through the Sverker Åstrom foundation at the Institute for Russian and Eurasian Studies (IRES), Uppsala University. Trifonov defended his Ph.D. dissertation in the field of applied economics and quantitative finance in 2022. His current research interests concern political connections of Russian corporations and their economic, financial, and managerial repercussions.