17.09.08

The Ministry of Economic Development has developed a bill aimed at resolving deadlocks in board of directors or review boards. In particular, the bill would introduce the institution of temporary board members to Russia. The temporary members would be appointed by the court at the request of minority shareholders.

An explanatory note in the bill points out that these deadlocks are arising in traded companies with two major stockholders, and the deadlocks are related to the impossibility for the board of directors or the review board to make decisions on a wide range of questions, especially on the formation of an executive body. The explanatory note of the bill states that this situation could lead to losses of profit for the company as well as interfere with the company’s normal course of work.

The story of the conflict between British Petroleum (BP) and syndicate Alfa Group Consortium (AAR), which owns half of the oil company TNK-BP, is a good example. Because of a power deadlock, they cannot agree on a strategic plan for the company. In international practice, shareholders conclude agreements among themselves to decide how the company should be run. For example, the owners of the company have the right to agree among themselves that one of them will be excluded from voting when electing the board of directors.

The Ministry of Economic Development is proposing to make shareholder agreements legally authorized, as well as to introduce the institution of temporary members to the board of directors and review boards. These temporary members would be selected by the court from a list of independent directors of the company. Their power to make decisions on the election of a sole executive body of the stock company would be equal to that of the active members. The right to ask the arbitration court to appoint temporary members to the board of directors would be given to shareholders who own more than 25 percent of the shares.

In addition, the Ministry of Economic Development is proposing that board members who cause the company to incur losses as a result of their actions be punished. As Deputy of the State Duma Anatoly Aksakov asserted, it is very possible that the upcoming year will witness a series of crashing Russian companies, taking into account the complicated situation of the stock market. “I think we will support this bill,” Aksakov said. “Let senior executives pay for their companies’ failures out of their own pockets.”

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Source: Rbc Daily