Russian Corporate Governance
The Corporate Governance Code
The Corporate Governance Code of the Russian Federation was approved by the Central Bank of Russia in 2014 and recommended for application by public joint-stock companies whose shares are traded on the Moscow Exchange. The Code operates on a comply-or-explain basis: listed companies must either comply with the Code’s recommendations or disclose the reasons for non-compliance in their annual corporate governance reports. The Code replaced the earlier 2002 Code and brought Russian corporate governance standards closer to international best practices, including the OECD Principles of Corporate Governance.
The Code is structured around eight principles: (1) the rights of shareholders and equal treatment; (2) the board of directors; (3) corporate secretary; (4) the system of remuneration; (5) the system of risk management and internal control; (6) disclosure of information and transparency; (7) material corporate transactions; and (8) corporate governance in companies with state participation. The CBR monitors compliance and publishes annual reports on the application of the Code.
Board Committees
The Corporate Governance Code recommends the establishment of board committees (komitety soveta direktorov) to enhance the effectiveness of the board’s oversight functions. The Code recommends three mandatory committees for public companies: the Audit Committee (komitet po auditu), the Remuneration Committee (komitet po voznagrazhdeniyam), and the Nominations Committee (komitet po naznacheniyam).
The Audit Committee oversees financial reporting, internal control systems, the audit process, and the independence of the external auditor. It must consist exclusively of independent directors. The Remuneration Committee determines the remuneration policy for directors and senior management, ensuring that compensation is linked to performance and aligned with the company’s long-term interests. The Nominations Committee evaluates the composition and performance of the board and makes recommendations for the appointment and reappointment of directors.
Independent Directors
The concept of the independent director (nezavisimy direktor) was introduced into Russian corporate governance through the Corporate Governance Code and the Federal Law on Joint-Stock Companies (No. 208-FZ). An independent director is defined as a member of the board of directors who is not and has not been in the preceding three years: an employee of the company or a related entity; a person affiliated with a significant shareholder; a representative of the company’s auditor; or a person who has a material commercial relationship with the company.
The Code recommends that independent directors constitute at least one-third of the board for public companies, and at least one-quarter for non-public companies with a board of directors. The Moscow Exchange Listing Rules require companies listed in the highest listing level to have at least three independent directors. Independent directors play a key role in related-party transactions, where their approval is often required to demonstrate that the transaction is in the company’s interest.
Related-Party Transactions
Related-party transactions (sdelki s zainteresovannostyu) are regulated by Chapter XI of the Federal Law on Joint-Stock Companies (Articles 81–84). The law defines related parties broadly to include: directors and officers; shareholders holding 20% or more of voting shares; persons affiliated with the company’s management; and persons related to any of the above by family or corporate ties.
A transaction in which a related party has an interest must be approved by: the board of directors (where the transaction value does not exceed 2% of the company’s assets); or the general meeting of shareholders (where the transaction value exceeds 2% of assets). The interested party must disclose their interest prior to the approval vote and must not participate in the voting. Transactions concluded without the required approval may be challenged in court and declared invalid if the counterparty knew or should have known of the non-compliance.
The Corporate Governance Code recommends enhanced procedures for related-party transactions, including: the establishment of a related-party transaction policy; the involvement of independent directors in the approval process; and the disclosure of material related-party transactions in the annual report.
Major Transactions
Major transactions (krupnye sdelki) are governed by Chapter X of the Federal Law on Joint-Stock Companies (Articles 78–80). A major transaction is defined as: a transaction (or series of related transactions) involving the acquisition, disposal, or possibility of disposal by the company of property valued at 25% or more of the book value of the company’s assets as of the date of the last approved balance sheet.
Major transactions require approval by: the board of directors (where the transaction value is between 25% and 50% of assets); or the general meeting of shareholders (where the transaction value exceeds 50% of assets or where the board cannot reach a unanimous decision). The approval must specify: the counterparty; the subject matter and price of the transaction; and other material terms.
Transactions concluded without the required approval may be declared invalid by a court. The limitation period for challenging a major transaction is one year from the date on which the shareholder or board member knew or should have known of the grounds for the challenge. The court may refuse to invalidate the transaction where the counterparty did not know and should not have known of the lack of approval.
Shareholder Approval
Shareholder approval is required for the most significant corporate decisions. The general meeting of shareholders has exclusive authority over: amendments to the company’s charter; reorganisation and liquidation; increase or decrease of charter capital; election of the board of directors; approval of the annual accounts and distribution of profits; and major transactions and related-party transactions exceeding the statutory thresholds.
The procedure for convening and conducting general meetings is regulated by the Federal Law on Joint-Stock Companies and the CBR’s Regulation on Additional Requirements for the Procedure for Convening and Conducting General Meetings of Shareholders. Shareholders must be notified of the meeting at least 20 days in advance (30 days for meetings considering reorganisation or major transactions). Shareholders holding at least 2% of voting shares may propose items for the agenda and nominate candidates for the board of directors.
Disclosure and Transparency
Disclosure obligations for public companies are established by the Federal Law on the Securities Market (No. 39-FZ of 22 April 1996) and the CBR’s Regulation on Disclosure of Information by Issuers. Public companies must disclose: quarterly and annual financial statements; information on material facts affecting the company’s activities; information on affiliated persons; information on the composition of management bodies and their remuneration; and information on major transactions and related-party transactions.
Disclosure is made through the Interfax newsfeed (the authorised information agency) and the company’s website. The Corporate Governance Code recommends additional voluntary disclosure, including: corporate governance reports; environmental, social, and governance (ESG) information; and policies on risk management, anti-corruption, and human rights. The Moscow Exchange’s listing rules require companies in the highest listing level to prepare annual corporate governance reports in accordance with the Code.
State-Owned Companies
Special corporate governance rules apply to companies with state participation. The Federal Law on the Management of Shares in Joint-Stock Companies with State Participation (No. 159-FZ) and the Guidelines for Corporate Governance in Companies with State Participation, approved by the Government, establish enhanced governance requirements for majority state-owned companies.
These requirements include: the appointment of independent directors; the establishment of audit, remuneration, and nominations committees; the adoption of transparent procurement policies; the implementation of anti-corruption measures; and the disclosure of information on the company’s compliance with the Corporate Governance Code. The Federal Agency for State Property Management (Rosimushchestvo) exercises the rights of the state as a shareholder and monitors compliance with corporate governance standards.