The Corporate Governance Review: Russia

Overview of governance regime

i Legal and institutional framework

The core statute setting forth the general framework for the Russian governance regime is the Russian Civil Code (RCC).2 The RCC outlines the basic available corporate forms, including the most commonly used forms: the limited liability company (LLC) and the joint-stock company (JSC); the structure and powers of the various corporate bodies; the rules on representation; the statutory duties and the matters of civil liability of a company's management and controlling persons; and the procedure for bringing derivative actions.

The JSC Law3 and the LLC Law4 each expand upon and supplement the RCC provisions. Importantly, the JSC Law also specifies takeover procedures in respect of public JSCs.

Another statutory framework is the Securities Market Law.5 This lays out the operational rules for all securities market participants in relation to the offering of securities, the marketing of financial products and the disclosure of information. Regulatory and interpretative acts of Russian regulatory and enforcement agencies (such as the Standards for Issuance of Securities6 and the Disclosure Rules)7 expand upon and supplement the provisions of the Securities Market Law.

Both public and non-public corporations active in certain highly regulated sectors of the Russian economy (such as banks, insurers, non-state pension funds and professional securities market participants) are bound by industry-specific legislation. This legislation specifies management qualification and reputation requirements, liquidity and financial stability standards, risk management and compliance procedures, and, in certain cases, specific requirements in relation to the structure of the governing bodies of the regulated companies. The Russian Central Bank (CBR) is the key regulator: it is in charge of the listed companies' regime, and is generally responsible for the prudential regulation and supervision of Russia's financial services industry.

Best practice provisions for listed companies are set out in the Corporate Governance Code (CGC)8 and the listing rules of licensed stock exchanges.9 Listed companies are expected to comply with the CGC or disclose and explain non-compliance in their annual reports. Companies must comply with the listing rules requirements to obtain and maintain premium or standard listings (rather than mere quotations) at the stock exchange. Best practice provisions for certain regulated companies are determined and enforced by self-regulatory organisations (SROs) in each sector.

ii Latest developments

Since 2010, when the government launched an initiative to transform Moscow into an international financial hub, it has taken a series of steps to achieve that ambitious goal. Among those are improvement of quality of the capital markets' infrastructure and the financial servicers' regulatory framework, implementation of measures against the abuse of inside information and market manipulation, more close regulation of the financial industry (in particular, since 2013, the CBR has been waging a large-scale campaign against financial institutions and their management involved in bad faith or suspicious transactions or practices detrimental to their clients and to the financial stability of the financial institution itself).

Corporate governance matters have also been on the radar of the Russian policymakers. A major step forward was the reform of the RCC in 2014, introducing new classification of commercial entities into public and non-public companies (with non-public companies having significantly greater flexibility in their governance arrangements).10

The government followed up by concentrating its efforts on balancing the (often differing) interests of the various stakeholders in both public and non-public corporations. The conflicts between the interests of the majority and minority shareholders, and the shareholders in general and the management of the company were the two focal points of the government's attention on this front.

Russian policymakers have sought to balance the interests of minority and majority shareholders, in particular, by introducing a series of previously non-existent checks and balances.

In particular, liability of the majority shareholders and ultimate controlling persons of the companies for the damage to the companies they control as a result of their bad faith or unreasonable actions, or both, was reinforced (and, in relation to the liability of the ultimate controlling persons, introduced for the first time outside the bankruptcy context). The minority shareholders have retained the right to bring derivative actions to enforce such liability and the shareholding threshold to bring such derivative actions has been retained as low as 1 per cent. The right to bring derivative actions has also been granted to supervisory board members. At the same time, certain changes to the procedure of bringing such claims were made to avoid the abuse of this instrument and turning it into a greenmail tool.

The potential for overextending the powers of the minority shareholders (who are often seen by the Russian policymakers as having a short-term speculative interest in the business) and a rise in shareholders' activism appears to remain one of the key concerns for the government. With that in mind, certain anti-abuse protections were introduced into the statutory provisions regulating the minority shareholders' information rights. The shareholders whose shareholding in the company is less than 25 per cent have to explain a proper business purpose for requesting access to certain documents of the company. Such access may be denied, in particular, if the requesting shareholder is evidently acting in bad faith, is a competitor of the company, affiliated with a competitor, or both.

Insofar as the accountability of the management is concerned, as part of the 2014 RCC reform the law has been amended to expressly set out an overriding duty of the members of governing bodies of companies and their controlling persons: to act in the company's best interests reasonably and in good faith, subject to an obligation to indemnify the company for damage resulting from a breach of that duty. To improve the quality of the board oversight, the government has also expanded the powers and information rights of the supervisory board members.

The Supreme Court as recently in December 2019 reinforced the principle of the management accountability in its landmark decision stating that even if the general shareholders' meeting or the supervisory bodies approve a transaction (or even instruct the management to go ahead with it), the management (1) shall be free to decline to proceed with it as they deem that it would be detrimental to the company and (2) may still be held accountable for any resulting losses (if they do proceed). The Supreme Court held that: (1) the management's obligation to act in the best interests of the company honestly and in good faith is paramount; (2) the management is primarily responsible for the day-to-day operations of the company; and (3) it may not relieve itself from liability by blindly following the decisions of other corporate bodies of the company.

The management and controlling persons accountability continues to remain a priority for CBR as the primary regulator of the financial services industry, especially following a series of high-profile insolvencies and bail-outs in that sector since 2013.

Corporate leadership

i Board structure and practices

Russian law provides for a two-tier board structure in public companies, including a supervisory board (also referred to as the board of directors) and the executive bodies. The two-tier structure is also mandatory for non-public companies that have more than 50 shareholders or that are subject to a specific regulatory regime (e.g., credit institutions).

The executive bodies of a company include the CEO (or several joint CEOs) and the management board. The formation of a management board is optional, except for those companies that are subject to special regulatory regimes (such as credit institutions).

Supervisory board and management board

Functions and formation

The functions of the supervisory and management boards are to supervise and advise CEOs (or joint CEOs) and limit their discretion on matters that are crucial for the stability and sustainable development of the company. The supervisory board is responsible for determining the company's long-term strategy and deciding on matters that affect key aspects of that strategy. The minimum competence of the supervisory board is specified by the RCC and the JSC Law. The competence of the management board is determined wholly by the company's charter. The management board usually includes the company's senior management and is subordinate to the supervisory board. Its primary function is to advise the CEO on the implementation of strategy approved by the supervisory board.

Decision-making procedures

With few exceptions, the law does not regulate the decision-making procedures of the supervisory board or the management board, so that shareholders are free to specify the relevant procedures in the charter.


Until recently, the formation of supervisory board committees was generally discretionary. However, from July 2018 public corporations are required to form an audit committee in their supervisory boards and implement risk management and internal control functions in general.

Additional requirements regarding the formation of supervisory board committees are included in the stock exchange rules. Compliance with such additional requirements is often a condition for a company to be included in certain quotation lists.

CEO (or joint CEOs)

The CEO (or joint CEOs) (referred to in law as the sole executive body) has the duty of managing the company. The CEO is held accountable by Russian law for the company's overall compliance with the applicable law. The CEO is vested with the power to enter binding contracts with third parties on behalf of the company. Additionally, the CEO may issue powers of attorney to other individuals or legal entities to allow them to represent the company.

Where there are joint CEOs, the scope of powers of each of them may differ depending on the provisions of a company's charter. The functions of the CEO may alternatively be performed by a specialised management company on the basis of a management services agreement.

ii Directors

Appointment and removal

Supervisory board

Supervisory board members of a public JSC are elected annually by the general shareholders' meeting.11 Members may be re-elected for an unlimited number of terms. The supervisory board in a public JSC is elected by cumulative voting. Each shareholder receives a number of votes equal to the product of the number of shares held by the shareholder by the number of seats on the supervisory board, and may distribute these votes among the nominees as desired. The supervisory board is then composed of the candidates who receive the largest number of votes.

Management board and the CEO (or joint CEOs)

Statute does not prescribe the term or procedure for the appointment of members of the executive bodies. In view of this, the matter is governed by the company's charter.

Independence, expertise and reputation

The professional suitability of supervisory board members and executive body members is becoming increasingly important in Russia. Under Russian law, no person disqualified by a court for an administrative or criminal offence (e.g., the falsification of financial and accounting reports, money laundering or insider trading) can serve as a CEO or a member of the management or supervisory boards of a public or non-public company for the term of their disqualification. There are further reputational and qualification requirements for supervisory board members and executive body members of regulated companies.

In the absence of limitations in the charter, supervisory board members are generally free to simultaneously hold managerial and supervisory positions in other companies. The approach is entirely different for executive body members, which require express authorisation from the supervisory board to be able to combine more than one office. Additionally, there are certain specific restrictions for regulated companies.

Remuneration of directors and senior management

Membership of the supervisory board does not result in employment by the company per se. In view of this, the basic position is that membership of the supervisory board is unpaid. However, the general shareholders' meeting may decide to remunerate or compensate the supervisory board members. Executive body members are company employees and their salary is stipulated in their employment contracts. In practice, the remuneration of the senior management is usually made subject to the consent of the supervisory board. The public corporations are required to disclose their remuneration policy and the amount of remuneration of the key managers and supervisory board members in their annual reports.

Conflicts of interest

Russian law contains the principle that supervisory board members and executive body members should act in the absence of conflicts of interest. To enforce this principle, supervisory board members and executive body members are required to provide to the company the information necessary to determine whether a transaction undertaken by the company qualifies as a related-party transaction – that is, a transaction in which an executive body member or supervisory board member or a controlling person12 of the company is interested personally or through companies under their control or their respective relatives. Such transactions do not require mandatory approval, unless a supervisory board member or a more than 1 per cent shareholder (having received notice from the management of its intention to proceed with the transaction) requests such approval, or the management submits the transaction for prior approval of its own accord (e.g. to enhance its legitimacy). As a general rule, the interested parties are banned from voting on the items of the agenda in which they have an interest. In 2019, draft law was put forward to extend the scope of these disenfranchisement provisions to the persons under the interested parties' control.

A transaction made or approved in the presence of a conflict of interest or resulting in a loss to the company, (or both) may trigger an obligation for the conflicted persons to indemnify the company for the loss. There are a number of financial services sector specific provisions targeting the matter of the conflict of interest (in particular, regarding the risks assessment of the credit institutions' dealings with its connected persons).


Internal liability

In the event that a supervisory board's members or executive body, or a company's controlling persons, are in breach of their duties to the company, they are obligated to indemnify the company for the damage resulting from the breach. There is a statutory restriction on the ability to limit management's liability in relation to bad faith (all companies) and unreasonable conduct (public companies), and the liability of controlling persons.

The CEO is not exculpated from liability merely because he or she obtained all requisite corporate approvals for an action (the Supreme Court reinforced this position in its December 2019 ruling) – if the action caused damage to the company and none of the exemptions from liability apply, all persons who voted in favour of that action (or abstained from participation in the voting in bad faith) may be held jointly and severally liable.

External liability

The general position under Russian law is that executive body members, supervisory board members and a company's controlling persons are not liable to parties who contract with the company for the company's debts. However, there are several exemptions to this principle. One exception is that management and the controlling persons13 are liable in the event that the company is declared insolvent.

Another exception is set out in the Securities Market Law, which provides that any person who has signed or approved a prospectus is subject to secondary liability for losses caused to investors as a result of inaccurate, misleading or incomplete information being contained in the prospectus.


The JSC Law and the Securities Market Law are the key statutes establishing disclosure obligations. The JSC Law requires all public companies to disclose annual reports, annual accounts, lists of affiliates and corporate documents. The Securities Market Law sets out wider disclosure obligations that are triggered by the company registering a prospectus of its securities. The disclosure obligations may apply to non-public companies that have issued securities (such as bonds)14 to the public and that were required to register a prospectus. The Disclosure Rules provide further detail to supplement the Securities Market Law.

The Securities Market Law disclosure requirements can be classified as periodic and one-off disclosure obligations. The periodic disclosure obligations include the publication of quarterly reports, which primarily include quarterly financial statements. One-off disclosures relate to material facts (i.e., certain price-sensitive information concerning the reporting company).

A complex procedure applies if a reporting company wishes to terminate (or become exempt) from its disclosure obligations. This procedure involves a super-majority vote by the shareholders and a special authorisation from the CBR.

Additional disclosure obligations may apply to regulated companies, with credit institutions being subject to the highest level of transparency and most rigid reporting standards.

In light of the continuing geopolitical unrest and the ongoing 'war of sanctions', amendments to the JSC Law and the Securities Market Law were introduced in December 2018 to empower the government to determine instances where a company may become exempt from some of the disclosure requirements that would otherwise have been applicable to it.

Corporate responsibility

i General

The CGC defines corporate governance as 'a system of relationships between the executive bodies of a company, its board of directors, its shareholders and other stakeholders'. The CGC recommends that supervisory boards take into account both financial and non-financial risks affecting a company's activities (including ethical, social, ecological and operational risks), the interests of all external stakeholders (including employees), and applicable social and ecological standards.

The obligation of the management to take into account the interests of all of the company's stakeholders is not expressly set out in any specific piece of legislation, but is rather derived from a range of general legislative provisions.

As a matter of practice, even in the absence of a proper regulatory framework that would incentivise them to do so, many major companies tend to assume broad social responsibility undertakings in implementing their internal ethics codes and, on certain occasions, as part of their government-relations strategy.

ii Employees

All Russian companies are subject to social obligations, such as ensuring minimum salary levels for employees, making contributions to social and pension funds for employees, conducting assessments of workplace conditions, and introducing additional benefits and regimes if necessary based on these assessments. Separate benefit regimes are also established for different categories of employees (such as women with family responsibilities and rotational system employees).

iii Small and medium-sized businesses

The government is seeking to support Russian small and medium-sized businesses (SME). Given the significant effect that the government has on the Russian economy, Russian law sets mandatory provisions for state agencies and state-owned companies to purchase a specified amount of goods and services from SMEs.

iv Anticorruption

Although Russian anticorruption legislation is mainly focused on governmental authorities and state-owned companies, there are still some broadly stated rules targeting companies with no state participation to take measures to prevent corruption. In particular, commercial bribery is a criminal offence under Russian law. Further, private companies are prompted to introduce anticorruption policies and procedures preventing conflict of interest (such policies and codes have become common in large Russian companies but remain rare for smaller privately held companies). Companies with significant foreign participation tend to follow the anticorruption standards applicable to their overseas parent undertakings (e.g., the UK Bribery Act or US Foreign Corrupt Practices Act).

v Currency control and anti-money laundering

Russian financial institutions have a number of supervisory functions in relation to currency control and anti-money laundering (AML). Russian residents are required to collect all foreign currency export proceeds in their bank accounts in Russia. For those purposes, the overseas contracts of Russian residents are required to be registered with an authorised Russian bank, which will then handle the payments under the relevant contract. The purpose of this regulation is to prevent capital flight from Russia.

The AML laws require that companies operating with money – banks and other credit institutions, securities market participants, insurance companies, investment fund management companies, realtors, pawnshops and others – to monitor and, if necessary, report their clients' suspicious transactions the value of which exceeds the threshold set out in law.

vi Compliance

To ensure their stability and protect their clients, credit institutions and professional participants of securities markets are required by the JSC Law to maintain an internal compliance function (including, by reference to the Basel Committee principles). As noted above, the public corporations are required to introduce risk management and internal control function (although there is no express requirement for them to maintain a compliance function). Even where there is no specific legislative requirement regarding the maintenance of a compliance function, in practice, this function is usually fulfilled by various departments within the relevant company's corporate structure.


i Shareholder rights and powers

Russian policymakers have adopted a restrictive approach towards the powers of the general shareholders' meeting in public companies. The scope of these powers is determined by the JSC Law only and may not be extended (but, conversely, may be further limited in favour of the supervisory board) by the charter. The matters attributed to the competence of the general shareholders' meeting by the JSC Law, are limited to those that are likely to result in a fundamental change to the nature of the business of the company or the composition of its assets, and the balance of powers between the various governing bodies set out in the charter.

By contrast, the regulation is more flexible for non-public companies. For example, the competence of the general shareholders' meeting in a non-public company may be extended compared to the one set forth by the statute.

Equality of voting rights

Russian law establishes the principle of equality of voting rights: all ordinary shares and all preference shares of a single issue provide equal rights in proportion to their nominal value. The voting rights are usually carried by ordinary shares only. The preference shares in public JSCs become voting shares in certain exceptional circumstances only (most commonly, non-payment of dividends due on those shares).

Non-public JSCs may issue voting preference shares granting voting rights on all or some of the matters on the agenda of the general shareholders' meeting. LLCs do not issue shares, and as a general rule provide a percentage of votes determined as the ratio between the nominal value of the participatory interests held by the shareholder and the aggregate amount of the charter capital of the LLC. Disproportionate voting arrangements may be set out in the charter of an LLC or a non-public JSC (but not a public JSC).

Rights of dissenting shareholders

The law contains specific protections for shareholders who attended a general shareholders' meeting and voted against a resolution or did not participate in the relevant general shareholders' meeting (dissenting shareholders). A dissenting shareholder can challenge such a resolution of the general shareholders' meeting. Additionally, the law permits dissenting shareholders of JSCs to request that the company buys out all or a part of their shareholding, if the resolution in question concerns certain fundamental matters (such as the company's reorganisation or the entry into of a major transaction with a value exceeding 50 per cent of the company's assets).

ii Shareholders' duties and responsibilities

The most important statutory obligations of shareholders are their financial obligations (in particular, payment of their share of the company's capital) and their obligations not to hinder the activities of the company (in particular, by maintaining the confidentiality of commercially sensitive information, participating in adopting key corporate decisions and avoiding causing damage to the company).

iii Shareholder activism

Say on pay

The general shareholders' meeting is the competent body to decide on the timing and amount of the distribution of dividends to shareholders. However, the supervisory board may issue a recommendation on the amount of dividends or a recommendation not to distribute the dividends at all (in which case the general shareholders' meeting cannot decide otherwise).

Derivative actions

Shareholders can sue members of the executive bodies and the supervisory board, as well as persons exercising de facto control over the company, for damage caused to the company by those persons.

Proxy battles and proxy solicitation

Unlike in some Western jurisdictions, the issues of proxy fights and proxy solicitation are not typical in Russia. In view of this, there are no special regulations in this respect.

Shareholder campaigns

Large shareholder campaigns are not very common in Russia; although, some of the institutional minority investors (particularly portfolio companies) in Russian public corporations have been increasingly active in bringing derivative actions against controlling shareholders in the public corporations for losses caused by their actions.

Long-term shareholder value

The management of Russian companies is subject to an overarching obligation to act reasonably and in good faith to ensure that the company continues as a going concern with a view to profit. As such, the management is encouraged by the Russian legislators to try to work towards an increase of the shareholder value long-term. Recognising that in certain circumstances the management may be tempted or pressured to prioritise short-term (and sometimes speculative) goals by some of the shareholders (particularly controlling shareholders), a number of checks and balances to enable the management to follow a proper course of action have been put in place in Russian legislative acts (including the enhanced liability of the management and controlling persons of the company for the damage caused to the company). The overall principle is reinforced through securities market specific prohibition for all market participants from engineering any short-term price increases in the company's stock (market manipulation).

iv Takeover defences

Takeover rules

Russian law does not generally prohibit acquisitions of significant stakes in public JSCs on the basis of private bilateral deals between the purchaser and the selling shareholder or shareholders. That said, the JSC Law contains a number of provisions addressing the procedure for acquisition of more than 30 per cent stake in public JSCs (Takeover Rules).

The Takeover Rules:

  1. require a shareholder that consolidated a more than 30, 50 or 75 per cent of voting shares in a public JSC to submit an offer to the remaining shareholders in the target company allowing them to exit the target by putting their shareholdings to the bidder at a specified price: a mandatory tender offer (MTO);
  2. allow a shareholder that intends to consolidate a more than 30 per cent stake voluntarily to submit an offer to all other shareholders to sell their shares to the bidder at a specified price: a voluntary tender offer (VTO); and
  3. where a shareholder has consolidated more than 95 per cent of voting shares in a public JSC:
    • require such shareholder to notify the remaining minorities of their right to put their shares to such shareholder; and
    • provided that at least 10 per cent of the shares have been purchased on the basis of an MTO or a VTO, allow such shareholder to call the shares of the remaining minorities thereby consolidating 100 per cent of voting shares in the target company.

Defence strategies

Unlike many Western jurisdictions, the Takeover Rules provide little specific regulation on defence strategies against hostile takeovers. Arguably, the main reason for this is that due to high concentration of control in Russian corporations, more often than not, the actual acquisition of control over the target happens on the basis of a bilateral deal between the previous controlling owner and the purchaser and the Takeover Rules are triggered after that deal is completed. The provisions of Takeover Rules are seen, with rare exceptions, as an unpleasant formality to comply with, rather than a meaningful set of instruments for acquisition of control over the target.

The Takeover Rules are, therefore, primarily focused on granting a certain degree of protection to the minority shareholders in Russian public targets upon the occurrence of a change of control, rather than regulating in detail the ways in which existing shareholders may defend against the prospect of such change of control.

Key decisions taken by shareholders

The underlying principle of the Takeover Rules is that a change of control over a public company is a matter for the shareholders in that company to decide, ultimately, through accepting or declining to accept a takeover bid. The CEO, the management and the supervisory boards are, therefore, limited in their ability to influence that decision (or the takeover process as a whole) other than through issuing a recommendation to the shareholders to accept or decline to accept the relevant offer. In particular, the management and the supervisory board are limited in their ability to implement a crown-jewel defence, as, after the an MTO or a VTO procedure contemplated by the Takeover Rules is triggered, the decision-making powers in the company are redistributed between the main governance bodies in favour of the general shareholders' meeting (such that the approval of the latter is required for any transaction exceeding 10 per cent of the company's assets or any issuance of new shares or instruments convertible in the shares).

Staggered board

Russian corporate governance rules contemplate that the supervisory board is re-elected by the general shareholders' meeting annually in full. There are no instruments under Russian law to appoint a supervisory board in a public JSC, the members of which are classified into different categories (for example, each with an individual rotation cycle).

Poison pill defences

Poison-pill defences are usually structured through issuance of convertible instruments, voting preferred shares, emergency issuance of additional shares to all existing shareholders other than the purchaser and analogous measures.

Russian law does not expressly prohibit those kinds of arrangements (unlike some Western jurisdictions), which makes them theoretically possible. However, the regulation of the instruments customarily involved in structuring poison pill-type defences makes the implementation of any such defence in practice very challenging.

Voting preference shares

As a general rule, preference shares in Russian public companies are non-voting shares and only become voting shares in a limited number of cases. Where the preference shares have become voting shares prior to an MTO or a VTO procedure having been triggered pursuant to the Takeover Rules, those shares may be acquired by the purchaser on the basis of an MTO or a VTO.

Russian law contemplates the concept of voting preference shares that grant voting rights on all or some of the matters within the competence of the general shareholders' meeting permanently or upon occurrence of certain specified circumstances. However, such instrument is available to non-public companies only, which are outside the scope of the Takeover Rules.

Convertible instruments

Russian law allows issuing instruments convertible into voting shares in a company (such instruments include convertible bonds, convertible preference shares and options).

It must be taken into account that after an MTO or a VTO procedure pursuant to the Takeover Rules has been triggered, the issuance of convertible securities is only possible by resolution of the general shareholders' meeting.

White knight

The Takeover Rules include a concept of a competitive offer (i.e., an MTO or a VTO that has been submitted by a different bidder after an MTO or a VTO from the original bidder has been received by the target); however, it is very rarely used in practice given the practical considerations outlined above.

v Contact with shareholders

Mandatory and best practice reporting to all shareholders

Shareholders have a general right to access information and documents concerning the company's activities. Both the JSC Law and the LLC Law list the information that is available to all shareholders and set out the procedure for accessing this information. Access to certain documents of JSCs, such as a company's accounts and the minutes of its management board, is open only to a shareholder or shareholders collectively holding not less than 25 per cent of voting shares. In certain cases, minority shareholders need to show proper business purpose to get access to the documents of the company. Moreover, the JSC Law and LLC Law have recently been supplemented with a new provision empowering the government to release certain companies from the statutory obligations to provide information on interested-party and major transactions to their stakeholders.


Since 2010, the government programme to transform Moscow into an international financial centre has been the key driving force behind corporate governance reforms in Russia. One key idea behind that initiative was to make the Russian jurisdiction more attractive to international financial investors and give a boost to domestic capital markets.

While the momentum behind this initiative has somewhat been stalled, particularly, in the recent years following the political crisis in Ukraine and Russia becoming subject to an EU and US sanctions, the government has continued its efforts in improving the corporate governance regime for Russian companies. Russian policymakers and the companies themselves have recognised the importance of proper corporate governance, irrespective of the level of interest of foreign investors in the Russian jurisdiction.

Russian policymakers continue their work on further enhancing management accountability. One of the suggested innovations (which have not yet been approved by the Parliament) relates to the treatment of quasi-treasury shares. While treasury shares owned by a company itself are non-voting and are not counted towards a quorum, there is no similar limitation for shares in the company held by its subsidiaries. Therefore, as has been the case in numerous high-profile shareholders' conflicts surrounding prominent Russian companies, the control by management of a significant quasi-treasury stake results in an excessive entrenchment of the management. The concepts of accountability of management and controlling persons remain of even greater importance in the financial services sector, with the continuing trend for clearing the sector of corrupt and bad-faith participants.

Protection of minority shareholders in the process of takeovers of public companies is another hot topic and a leitmotif of 2019–2020. One of the key proposed changes to the takeover regime concerns the indirect change of control over public companies. The takeover rules at this stage are triggered only through the change of ownership of a significant stake in the company itself. The change of control over a significant shareholder does not trigger the takeover rules and has on numerous occasions been used to avoid the implementation of the minority protection measures contemplated by the law.

In summary, the government is continuing its work on improving the Russian governance regime with a view to reaching a balance of interests between the various interested parties, despite the unfavourable political and economic circumstances. Hopefully, those efforts will receive an additional boost if and when the international sanctions against Russia are lifted.



1 Danil Guryanov, Bogdana Shtoma and Andrey Shevchuk are lawyers at Herbert Smith Freehills CIS LLP.

2 Civil Code of the Russian Federation (Part 1) (Federal Law No. 51-FZ dated 30 November 1994).

3 Federal Law No. 208-FZ On Joint-Stock Companies dated 26 December 1995.

4 Federal Law No. 14-FZ On Limited Liability Companies dated 8 February 1998.

5 Federal Law No. 39-FZ On the Securities Market dated 22 April 1996.

6 Regulation No. 428-P On Securities Issuance Standards, the Procedure of State Registration of Issuance (Additional Issuance) of Securities, the Procedure of State Registration of Securities Issuance Reports and the Registration of Securities Prospectuses approved by the Central Bank of the Russian Federation on 11 August 2014.

7 Regulations on Disclosure of Information by the Issuers of Securities No. 454-P approved by the Central Bank of the Russian Federation on 30 December 2014.

8 Corporate Governance Code, published in the Official Journal of the CBR No. 40 (1518) (18 April 2014).

9 Each stock exchange develops a set of rules for access to public trading in securities that in turn are based on the benchmark approved by the regulators.

10 A company is deemed to be public if it has a registered prospectus in respect of its shares or instruments convertible into shares and has entered into a listing agreement with a licensed stock exchange.

11 Since July 2018, the competence of the supervisory board has been broadened, empowering its members to propose candidates for the CEO (or joint CEOs), the supervisory board itself and the audit committee at their own discretion; however, the number of such candidates shall not exceed the overall number of board members.

12 The definition of a controlling person for the purposes of related-party transactions includes the persons holding, directly or indirectly, a controlling stake in the capital of the company, the persons vested with power to appoint its CEO or to elect more than 50 per cent of supervisory board members, or both.

13 The definition of a controlling person for the purposes of insolvency laws, includes the CEO (or joint CEOs), the persons holding a controlling stake in the capital of the company, the persons vested with representative authority on behalf of the company and the persons exercising de facto control over its activities. The definition and criteria of a controlling person have been summarised in Resolution of the Plenum of the Supreme Court of the Russian Federation No. 53 dated 21 December 2017.

14 Non-public companies may not issue shares and instruments convertible into shares to the public: this right belongs to public companies only.

Get unlimited access to all The Law Reviews content