Hitting the Russian Business Jackpot: Post-2022 Boardroom Revolution
Seeking Consultants: Examining the Evolution of Corporate Governance Bodies in Russia
Ever wondered what's cooking in the boardrooms of mother Russia these days? Well, buckle up, as we dive into the thrilling world of post-2022 Russian corporate governance! With foreign companies bailing and assets being transferred to the hands of local management, the board landscape has undergone a drastic metamorphosis.
After 2022, many foreign board members hightailed it out of Russia, fearing the big, bad sanctions. This left a gaping hole in many boards, necessitating the recruitment of less experienced replacements. To bridge this skill gap, companies looked for individuals boasting industry or global experience, digitalization know-how, finance whizzes, and crisis management gurus. However, the subsequent reduction of Supervisory Boards to a skeleton crew of 3-4 members occurred primarily due to the absence of independent members and their specialized skills – a move that severed their ability to function effectively as an independent advisory body.
Classic boards typically include shareholder reps, top management, and, most crucially, independent directors – seasoned, successful individuals who've navigated global crises and markets without being tethered to the interests of specific shareholders or management. If such individuals form the majority of the board, there's good reason to trust the company. Unfortunately, this wasn't the case post-2022.
The inefficiency of the Supervisory Boards cast a shadow over business activities. Despite the best intentions of CEOs acting as shareholders, the unprecedented pace of change in Russia and global markets made it challenging for even the most talented leaders to claim omniscience.
Restoring the Balance: A Battle for Boardroom Power
For most companies, the crisis-driven era of shareholders making quick, snap decisions and freezing Supervisory Boards has come and gone. The Russian business community is slowly but surely realizing that they need new strategies, rather than just firefighting measures, to restore the value of Supervisory Boards.
There are three compelling reasons for this:
- Crisis resolution: Companies are beginning to understand that they need new strategies to tackle crises – it's not just about putting out fires anymore. This opens the door to reinstating the power of Supervisory Boards.
- Avoiding shareholder-management showdowns: Conflicts between shareholders and management always intensify during crises, and intelligent companies are working to prevent these disagreements from derailing their businesses.
- Capital attraction: The Russian stock market offers a treasure trove of capital attraction opportunities. Companies are eagerly embracing these opportunities, wanting to become more transparent to increase their chances of attracting institutional investors, who shy away from businesses with weak corporate governance.
Another trend worth noting is the emergence of a myriad of new names and titles on the Russian corporate scene. Traditional enterprises might have once ruled the roost, but these fresh faces have shaken things up, making it essential for companies to adapt and find, you guessed it – effective and sustainable corporate governance bodies.
This doesn't mean a return to old-school boardroom antics. On the contrary, we're witnessing a complete overhaul of boardroom roles. While the temporary downsizing of boards during the crisis may have been a necessity, it's become clear that boards are now an investment that needs to pay off. Today's boards are staffed with highly paid specialists who bring not just established skills to the table but also dedicate time to understanding their companies' unique challenges. Only by prioritizing the professionalization of boards can companies hope to keep their heads above water, let alone achieve a competitive edge.
As a result, the demand for expanding or forming boardrooms has seen a 50% surge over the past year. While we're still trying to lure some directors back from Europe, the majority are being replaced by Russian business tycoons and professionals from Turkey, UAE, and India.
Advisory Boards: The New Kid on the Block
But wait, there's more! We're witnessing an even more significant increase in the demand for a new strategic management tool – Advisory Boards. Sometimes referred to as consultative councils, these bodies without formal powers have become all the rage among small and medium-sized businesses, as well as tech startups. They're an adaptable, flexible solution that allows companies to attract industry heavyweights to weigh in on strategic and specific business issues without overburdening their management structure.
Interestingly, our recent research on the development of the Advisory Boards institution has established that the demand for different council formats has skyrocketed – by 60-70%. One respondent, a marketing entrepreneur, summed it up as follows: "In tricky situations that threaten to turn into a crisis, I seek the counsel of colleagues from other companies – industry professionals. They're always there to lend a helping hand, and I'll be ready to return the favour one day."
The role of boardrooms in Russia is evolving – not a return to the old ways, but the emergence of a new, more practical, adaptable, and results-oriented approach. In an environment where a management misstep can cost a company dearly, the overhaul of corporate institutions is crucial for survival and growth.
Editor's opinion may not align with the author's viewpoint
Russian Boardrooms: Keeping Up with the (Capital) Joneses
Since the 2022 Russian invasion of Ukraine, Russian corporate governance has experienced turbulent shifts, many caused by sanctions, isolation, and domestic regulatory adjustments. While detailed reporting on the specific reduction of Supervisory Boards and the rise of Advisory Boards is in short supply in international sources, several broader trends and related challenges can be discerned.
- Government Dominance: There has been a clear trend toward centralization of corporate governance, echoing broader government management reforms. Many large enterprises, particularly those in strategic sectors such as energy, defense, and industry, now operate under tighter state control, with central government agencies or political figures playing more direct roles.
- Strategic Restructuring: The military-industrial complex (MIC) has undergone significant reorganization to centralize management, consolidating power under presidential control and streamlining traditional corporate board structures in favor of direct bureaucratic or Kremlin oversight.
- Economic and Financial Adjustments: Sanctions and isolation have forced companies to adapt their governance structures to navigate restrictions on capital flows, access to foreign technology, and international investment. This has heightened reliance on domestic and Chinese financing, as well as shifts in the management of national wealth funds and corporate holdings.
- Reduced Independent Oversight: The decreased size or removal of Supervisory Boards in many state-owned and strategic enterprises weakens checks and balances, potentially leading to reduced transparency, increased corruption risk, and diminished international investor confidence.
- Growth of Advisory Boards: The rise of Advisory Boards might represent an attempt to maintain technical expertise while circumventing formal governance structures. However, advisory boards often lack formal authority, resulting in weaker oversight and accountability compared to supervisory or independent boards.
- Dependence on Chinese Partnerships: Increasing reliance on Chinese investment and yuan-denominated assets (as seen in the National Wealth Fund) introduces new governance challenges, including alignment with Chinese interests and reduced strategic autonomy.
- Centralization Pitfalls: Over-centralization may hinder operational agility and innovation, making companies less responsive to market signals and more vulnerable to bureaucratic inefficiencies.
- Governance Quality: The reduction of Supervisory Boards undermines a key mechanism for ensuring transparency and accountability in large corporations. This is problematic in a context where state control is increasing and independent scrutiny is already limited.
- Strategic Decision-Making: Advisory Boards may provide expertise but lack the authority to challenge management or board decisions, potentially resulting in less rigorous oversight of executive actions.
- International Reputation: The erosion of traditional governance structures further isolates Russian firms from global best practices, complicating efforts to attract future foreign investment or partnerships.
- | Governance Structure | Authority Level | Oversight Capacity | Typical Use Post-2022 | |------------------------------|---------------------|--------------------|------------------------| | Supervisory Board | High (formal) | Strong | Reduced, especially in SOEs | | Advisory Board | Low (informal) | Limited | Increased |
- Conclusion: Russian corporate governance post-2022 is marked by greater centralization, reduced independent oversight, and a shift toward informal advisory arrangements. These changes are fueled by sanctions, state control imperatives, and economic realignment toward China. The resulting governance landscape is less transparent and less accountable, with potential long-term consequences for both domestic business efficiency and international engagement.
- In an effort to improve corporate governance and sustainability, many Russian companies are actively looking for industry or global experienced professionals, digitalization experts, finance specialists, and crisis management experts to fill the gaps left by foreign board members who left after 2022.
- As the Russian business community learns to move beyond crisis-driven measures, there's a growing interest in strengthening Supervisory Boards by adopting new strategies and reinstating their power, which will help avoid shareholder-management showdowns, attract capital, and increase transparency for institutional investors.
