Shareholder activism in the Western sense had relevance in Russia between 2000 and 2008. In the 1990s, some isolated issues, such as improving financial reporting, had been focused on by institutional investors. Since around 2008, shareholder activism has been dying down. There have only been some wavers of seemingly politically dominated disclosure of events linked to state companies and some individual corporate conflicts. While regulators from time to time voice concern about the lack of liquidity in capital markets, neither in the legislative nor in the practical context are there are any credible plans to change the situation. Also, in some there is a tendency to – for special purposes that typically have been linked to the political tensions between Russia and the West – allow that information be kept confidential.
II LEGAL AND REGULATORY FRAMEWORK
Companies with their main business in Russia frequently use foreign stock exchanges to attract investors. Sometimes that is linked with foreign corporate vehicles being used for the listing.2 More frequently, however, the corporate forms used are Russian. Sometimes, there is a conflict between the rules in Russia and the listing rules.3 In the event of a conflict, the manner in which Russian law and practice treat questions and issues is likely to prevail in that it will be difficult to implement any decision that would be taken under non-Russian law and implement it in Russia. Accordingly, in the following we are discussing Russian law, because it is Russian law that is relevant for companies with their main business in Russia. In addition to Russian corporate law, sometimes, Russian rules on listing would be likely to be relevant to questions related to shareholder conflicts.
Under Russian joint stock law (only joint stock companies are entitled to list), each shareholder has the right to participate in the shareholders' meeting. Such shareholders' meeting is to be held in person and to deal with the main issues relating to the life of the company, such as, for instance, annual reports, the approval of the activity of management, capital increases and transactions that exceed a certain value. Generally, decisions are to be taken with a simple majority of votes, with some, like in the case of the increase in charter capital, requiring a 75 per cent majority. Accordingly, activist shareholders could in general potentially influence decision-making. Anecdotal evidence, however, suggests that Russian listed companies are typically owned by a single or a few shareholders, and those are present at shareholders' meetings. As a consequence, it is unlikely that activist shareholders will obtain a majority at voting. Also, decisions will be invalidated only if they would not have been taken had it not been for the violation. Accordingly, reversal of decisions of a shareholders' meeting is the exception rather than the rule. As a consequence of all this, not many substantive discussions take place at shareholders' meetings.4
For the election of the board of directors, shareholders have as many votes as directors are elected (see Article 66 Section 4 Sentence 2 JSL-Law). In other words, minority shareholders, by putting all their votes on the few candidates they have preselected, can have their candidates elected even if the shareholders with controlling votes do not agree. In general terms, the German dual system of division of responsibilities applies to the governance of Russian JSCs, with some modifications being in place and the board of directors having supervisory power. Boards are typically entrusted with substantial power relating to the ongoing business of the company. As a consequence and given the comparatively high importance that boards typically have in Russian companies, it would be possible to exert substantial influence by being a member of a board. Indeed, some hope has been put in independent directorship.5 In particular, in the period from 2000 to 2004 some issues seemed to have been resolved through the activity of independent directors.6 Also, independent directorship had prominent and outspoken supporters, like Mr Borys Fyodorov.7 None of the independent board representations, however, currently seems to have a focus on active shareholder representation. Significantly, where independent members of boards are mentioned, it seems that mostly they do not specialise in active representation of shareholders' interests.8
Shareholders have a right to dividends. Sometimes, this right has been seen as not being complied with by issuers, and accordingly, a few shareholder activists have focused on implementation of this right.9
Furthermore; when purchasing 30 per cent or more of the stock of shares, the shareholder taking over must make an obligatory tender offer.10 Accordingly, shareholders could, by being aggressive, try to prompt such an offer. However, the number of related offers has been decreasing in recent years.11
Also, information rights for shareholders that in the early fashion of joint stock law had been very broad have been gradually reduced. Namely in 2001 the law clarified that only shareholders with more than 25 per cent of shares are entitled to receive the accounting documents and minutes of the meetings of the collective executive body.12 Political tensions have been given as a reason for the proposal to declare further information as being confidential.13
Additional limitations of information rights have been introduced by court practice. For instance, a company has been recognised as being entitled to limit the right of shareholders with less than 25 per cent of shares to get information on issues of extended competence, that is, the exclusive competence of the board of directors, as opposed to the competence of the executive bodies of the company.14 Additionally, court practice has allowed a company to refuse the shareholder information in cases of lack of 'legitimate interest' to receive the requested information.15 Moreover, companies can refuse to provide information to their shareholders referring to commercial confidentiality, and sometimes companies use this right extensively.16
III KEY TRENDS IN SHAREHOLDER ACTIVISM
When, market reforms began in the early 1990s, minority shareholders' rights, in a certain sense, were a key issue attracting the attention of the population at large. Since the main aim of market reforms was to distribute what was seen as being the people's wealth to the people, shares were distributed to the population at large through voucher auctions, and, therefore, protection of the many recipients of such vouchers should have been a major concern.17 However, attention to the detail of implementation of such rights was low, and no stable funds or associations to represent minority shareholders emerged.
In the early years of stabilisation (2000–2005),18 there were some signs that shareholder activism would play a major role going forward. In particular, some of the major corporates implemented major internal reforms, and some of those reforms were encouraged by pressure by shareholder activists. Also, part of some government programmes, such as electricity and pension reforms, was raising or investing in capital through stock exchanges.
Publicly, shareholder activism has for some time been associated with Mr Bill Browder.19 Mr Browder, after having maintained a high public profile for some time, came under attack from sources that must have been close to government, which culminated in accusations of brutality against the people involved on the side of Mr Browder,20 and in particular the US imposing countersanctions against individuals allegedly involved.21 While Mr Browder's shareholder rights-related activity may have substantially contributed to the aggressiveness of the reaction towards him and his allies, the evidence presented for the shareholder activism having been the only reason for the pressure against Mr Browder and his allies does not appear plausible to me. Rather, the actions against Mr Browder are likely to have had different sources. In any case,22 it appears that the reaction to Mr Browder has showcased some of the risks of action and accordingly interest in shareholder activism has only been renewed where a political motive for the activism was at least likely, and such initiatives have been marginalised.23 In addition, in my opinion regulators tend to dislike controversy and misunderstand the value of such controversy for corporate governance. In any instance, this difference of assessment does not make any difference to the result, namely that investors' rights are limited to an extent that does not seem to allow activist investment.
In addition, in parallel with the above, regulators appeared to be particularly concerned with inappropriate action of aggressive shareholders leading to a loss of assets.24 As a consequence, options for shareholders to act have substantially decreased over time.
Furthermore, and as mentioned before, majority ownership in listed companies has mostly been consolidated.
IV RECENT SHAREHOLDER ACTIVISM CAMPAIGNS
Technically, and for the reasons described, shareholder activism is limited to random phenomena like simple access to information25 or to a shareholders' meeting.26 Also, there has been some argument that shareholders have a right to correction of the accounts of companies.27 However, in the light of existing legislation there is little basis for such an argument, and related lawsuits have been dismissed as would have been expected.
Some funds continue to be involved in asset tracing.28
V REGULATORY DEVELOPMENTS
There have been many changes in corporate law recently, and, similarly to what was concluded in another context,29 it is not always easy to determine what purpose the many changes in relevant laws have had.30 Our impression is that even where it seems that options for minority shareholders are to be strengthened, in fact, the control of the management and majority shareholders over the procedure is increased.
On the other hand, while earlier privatisation attempts have not led to the expected results, in 2016 there was some hope that the difficulty with planned sales of Russian state assets and the concern with increasing the investor base31 would lead to more attention on and openness to shareholder activism, but this does not seem to have materialised in the first half of 2018.
There has not been much shareholder activism recently, and it remains to be seen whether there will be any over time.
1 Max Gutbrod is a partner at Baker McKenzie – CIS, Limited.
2 See Vimpelcom. Group Highlight. www.vimpelcom.com/Profile/Understanding-VimpelCom/Group-highlights/ (accessed on 5 September 2016).
3 In the public domain, a conflict between Kazakh and international listing rules has played some part, see: www.londonstockexchange.com/exchange/news/market-news/market-news-detail/KMG/12917715.html (accessed on 5 September 2016). Most of the information here and in the following footnotes is general information that is in the public domain as there does not seem to be a consistent overview of shareholder activism in Russia.
4 As a casual example of a bigger issuer that might be seen characteristic www.e-disclosure.ru/portal/event.aspx?EventId=DW8pjssHfU65IWf4cPwyjg-B-B, www.sberbank.com/ru/investor-relations/corporate-governance/general-shareholders-meeting/annual-meeting-2016, www.nsd.ru/ru/db/news/ndcpress/?id36=669403 (accessed: 5 September 2016).
5 Characteristic in his regard is Kirill Galetski. Independent directors on the rise, The Russia Journal, issue 438, 2002. URL: http://russiajournal.com/node/12117 (accessed: 5 September 2016).
6 Andrew Jack. Gazprom Feuding Factions Fight PR Battle, Financial Times, 27 June 2001. URL: www.sovereignglobal.com/p_5.asp?ItemID=150 (accessed on 5 September 2016).
7 Oleg Anisimov. Boris Fedorov about Gazprom, Sberbank and himself, Finance Journal. URL: www.ippnou.ru/print/000072/ (accessed on 5 September 2016), Boris Fedorov, The Economist, 27 November 2008. URL: www.economist.com/node/12675842 (accessed on 5 September 2016).
8 Characteristic in this regard is board representation at Sberbank, including the independent board members having impressive careers as politicians, scientists and managers, but not having any track record as investors and in some cases only having a relatively short term of office http://www.sberbank.com/investor-relations/corporate-governance/supervisory-board (accessed on 20 June 2018).
9 See www.prnewswire.com/news-releases/investigation-against-surgutneftegaz-asgty-for-possible-failure-
to-pay-required-dividends-being-conducted-by-bernstein-liebhard--lifshitz-llp-73176852.html (accessed on 5 June 2018).
10 Federal Law dd. 26 December 1995, No. 208-FZ on Joint Stock Companies, Article 84.2.
11 Statistics regarding voluntary tender offers, mandatory tender offers and squeeze-out requests is available at www.e-disclosure.ru/poisk-po-soobshheniyam (accessed on 20 June 2018) with the filter in the 'Выбрать тип сообщения' dropdown list to be set on 'Сведения о поступившем эмитенту (ОАО) добровольном или обязательном предложении' plus 'Сведения о поступившем эмитенту (ОАО) уведомлении о праве требовать выкупа или требовании о выкупе'. Significantly, with these said statistics referencing only one mandatory offer in between 21 October 2013 and 20 June 2018 and thus appearing to lack representativeness, the author is aware that while in 2014 there were more than 100 such takeovers, in the first half-year of 2017 the number was not more than 20.
12 See also the Decision of the Constitutional Court of RF dd. 16 June 2004, No. 263-O, which considered this rule as being constitutional.
13 See the report at https://themoscowtimes.com/news/russia-dodge-sanctions-secret-contracts-61764, accessed on 22 June 2016.
14 See Decision of the Constitutional Court of RF dd. 18 January 2011, No. 8-O-П.
15 See, e.g., Decision of the Arbitrazh Court of the Central District dd. 30 June 2015, No. F10-1836/2015.
16 See e.g., Dan'shin A. Shareholders' rights to information about the acticity of the company, Economics and Life, 2011. No. 6 (9372). URL: www.eg-online.ru/article/126635/ (accessed 5 September 2016). See also similar limitations being turned into law by the Duma adopting Draft Law No. 558976-5 in third reading on 19 July 2017.
17 Maxim Boycko, Andrei Shleifer, Robert W Vishny. 'Privatizing Russia', Brookings Papers on Economic Activity, 2:1993. p. 151. URL: www.brookings.edu/wp-content/uploads/1993/06/1993b_bpea_boycko_shleifer_vishny_fischer_sachs.pdf, (accessed 5 September 2016).
18 See a brief account of economic history in: Pekka Sutela. Russia's Economic Prospects, Getty, 28 March 2011. URL: http://carnegieendowment.org/2011/03/28/russia-s-economic-prospects-pub-43290 (accessed: 5 September 2016).
19 See: William Browder. Hermitage Capital, the Russian State and the Case of Sergei Magnitsky, Chatham House, 15 December 2009. URL: www.chathamhouse.org/sites/files/chathamhouse/public/Research/Russia%20and%20Eurasia/151209browder.pdf (accessed: 5 September 2016) and Amir Manzoor. Hermitage Fund: Shareholder Activism and Corporate Governance, Journal of Business Studies Quarterly, 2013, Volume 4, Number 4. URL: http://jbsq.org/wp-content/uploads/2013/06/June_2013_2.pdf (accessed: 5 September 2016).
20 See: Lilia Shevtsova, David J. Kramer. What the Magnitsky Act Means, The American Interest. 18 December 2012. URL: www.the-american-interest.com/2012/12/18/what-the-magnitsky-act-means/ (accessed date: 5 September 2016), Magnitsky Sanctions Listings // US Department on Treasury. URL: www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20130412.aspx (accessed date: 5 September 2016); Tara McKelvey. William Browder: The man behind the Magnitsky List, BBC News Magazine, 10 December 2013. URL: www.bbc.com/news/magazine-25190975 (accessed: 5 September 2016).
22 A summary of controversial proceedings also in: John Lough. End of an Era for BP in Russia, Chatham House, 7 June 2012. URL: www.chathamhouse.org/media/comment/view/183859 (accessed date: 5 September 2016).
23 See: The Domestic Context of Russian Foreign Policy. URL: Philip Hanson. Reiderstvo: Asset-Grabbing in Russia, Russia and Eurasia PP 2014/03. URL: www.brookings.edu/wp-content/uploads/2016/07/Chapter-One-12.pdf, page 23. (accessed: 5 September 2016).
24 An examination of the practices that lead to such concern can be found in www.chathamhouse.org/sites/files/chathamhouse/home/chatham/public_html/sites/default/files/20140300AssetGrabbingRussia
Hanson1.pdf (accessed: 5 September 2016).
25 Peter B. Maggs, Olga Schwartz, William Burnham. Law and Legal System of the Russian Federation. Juris Publishing, Sixth Edition. URL: https://books.google.ru/books?id=J0jwCQAAQBAJ&pg=PA428&lpg=
6H5g392kHiS6dE2aXAl18UgZvsI&hl=ru&sa=X&ved=0ahUKEwj-x5bV-evOAhVLKcAKHaeDBxEQ6AEILTAC#v=onepage&q=transneft%20access%20to%20shareholders%20meeting&f=false (accessed on 5 September 2016), in the cases reported, the interest appears to mainly be politically (as opposed to economically) caused.
26 Information about important act. 12 August 2012. URL: www.transneft.ru/u/important_fact_file/5902/15-08-2016.pdf (accessed on 5 September 2016).
27 Veronika Goryacheva. Auditors are brought into the court, Kommersant. 17 August 2016. URL: www.kommersant.ru/doc/3065415 (accessed on 5 September 2016), Eugeny Kalyukov. The minority shareholder of 'Gazprom' filed a claim against an auditor of the company. RBK, 17 August 2016. URL: www.rbc.ru/business/17/08/2016/57b42a029a7947187007b011, Gazprom shareholders demand recognition of the FBK audit report as incorrect. Pravo.ru, 17 August 2016. URL: https://pravo.ru/news/view/132602/, the court confirmed dismissal of the claim to the auditor of Gazprom in relation to the report. Rapsi news, 25 May 2017. URL: http://rapsinews.ru/arbitration/20170525/278699933.html (all accessed on 30 June 2017). A claim of an offshore company to collect 217 million roubles from Deloitte & Touche CIS was dismissed, see RAPSI News, 25 January 2018 www.rapsinews.ru/arbitration/20180125/281738896.html (accessed on 22 June 2018).
29 See: Report on the Observance of Standards and Codes on IOSCO Objectives and Principles of Securities Regulation for the Russian Federation, July 2016. URL: www.imf.org/external/pubs/ft/scr/2016/cr16233.pdf (accessed on 5 September 2016). '2. . . . While some have argued that the absence of overarching provisions is an inevitable consequence of the principles of Russian law, others have correctly pointed out that there are some overarching obligations already in the legal framework and steps are being taken to develop the approach to legislation on these lines.'
30 A different (more positive) assessment of the legal framework appears to be displayed relating to corporate governance in http://www.ebrd.com/documents/legal-reform/russia-country-law-assessment.pdf&usg=AFQjCNH0wixFsX_xzrjv9WD0R2TeCF0ulQ&sig2=NQ1Yu5bBARDclCFyUwNzXw&cad=
rjt Corporate governance assessment, EBRD. URL: page 14. (accessed on 5 September 2016).
31 While currently pension funds do not hold many shares, see Guidelines for the Development of the Russian Financial Market in 2016–2018, Bank of Russia. URL: www.cbr.ru/eng/finmarkets/files/development/DRFM_1618.pdf (accessed on 5 September 2016), An effort to increase their investment abilities appears to be planned, see: Alexey Lossan. Russia mulls investing pension funds in start-ups, Russia and India Report, 31 August 2016. URL: http://in.rbth.com/economics/finance/2016/08/31/russia-mulls-
investing-pension-funds-in-start-ups_625683 (accessed on 5 September 2016).