Formation of corporate governance in Ukraine

Formation of corporate governance in Ukraine

01.02.2017 Analytics News

According to the State Statistics Service, as of January 1, 2017, there are 15 206 join-stock companies registered in Ukraine, 3 122 of which are the public companies. Although the Ukrainian independence celebrates its 25- year anniversary already, only recently the national business has started to review the governance system and the system of effective implementation of global corporate governance practices. However, in Ukraine, this phenomenon is so young that not everyone understands that the creation of corporations is not the same as the formation of an effective corporate governance system.

Corporate governance is a system of rules, methods, and procedures defining the company’s management and the system of relations between all the interested parties. Achievement of an optimal balance of interests of all stakeholders, viz. shareholders, managers, customers, suppliers, financiers, government, and society, should be the aim of good corporate governance. It covers almost all spheres, i.e. from the action plans and internal management to assessment of the production or disclosure effectiveness. Standards of the system demonstrate the company’s efficiency and prospects and hence its potential in the related market to investors and the public. However, unbalanced system or incorrect risk assessment lead to inefficient operation of the company or reduce a period of its effective operating, prosperity etc.

How did the corporate governance originate?

History of the Ukrainian corporatization divides into two stages, i.e. the pre-Soviet and the post-Soviet periods. Large and highly efficient corporate enterprises and many small but proficient companies operated at the end of XIX in the first decade of XX century in the biggest cities of Ukraine constituting a part of the Russian Empire. By the level of industrial production concentration, Ukraine occupied one of the leading places in the world. Over 44 % of all workers were employed at big enterprises (whereas in the USA – 33 %). This situation contributed to the monopolization process, which had started in some sectors of the domestic economy.

Mighty syndicates had immense production capacities. For example, Produhol, one of such syndicates, founded in 1904, embodied 18 joint-stock companies and controlled 75 % of coal production in the Donetsk Basin. However, precisely a century ago, notorious events that shook the Empire have frozen the history of Ukrainian corporatization for many years. A significant number of
the enterprises was liquidated and their properties were nationalized. Only joint-stock companies experiencing state’s involvement and being under state’s tight control managed to remain at least in the field of foreign economic activities. The last attempt to form a joint-stock relation in the public sector has been carried out by the issuance of shares of the workforce and the company’s shares as it provided for by the decree of the USSR Council of Ministers «On the issue of securities by enterprises and organizations in October 1988». Given that such issue didn’t become widespread, in 1992 it was abolished.

Formation of a new history

The recent history of corporate governance began with Ukraine’s independence and the adoption of the Law of Ukraine «On Business Associations». The Law defined a joint stock company as an independent entity and defined legal basis of its institution and functioning. But corporate relations introduced at those times were utterly imperfect: deprivation of minority shareholders of their
rights, schemes of reorganization from OJSC into CJSC depending on interests of corporate managers, multiple registers of shareholders and raider attacks. Corporatization of the privatized enterprises that lasted for many years and proved to be fairly low efficient was another major issue. In 2008, with the adoption of the Law of Ukraine «On Joint Stock Companies», a new stage in the history of domestic production corporatization has started. This regulatory act became the result of the struggle, diligence and extraordinary efforts of a wide range of professionals, including international ones.

A study of corporate governance system, conducted by KPMG in September 2013 showed that more or less effectively formed corporate governance system actually began to appear even before the law adoption – in 2005. Upon the adoption, a number of companies using such tools raised tenfold. In addition, in 2014 the National Securities and Stock Market Commission approved a new version of the strategically important document, i.e. Principles of Corporate Governance. It has not only systematized the status and mechanisms of corporate governance provisions implementation but also has summarized the global trends in this sphere, as it was constituted on the basis of the OECD Principles of Corporate Governance. It is generally accepted that this document summarizes the global vision of all the components of effective corporate governance.

However, despite the adoption of a fairly broad regulatory framework, many problems are still to be resolved. In general, corporate governance remains at a fairly low level. The most important issues and challenges to be improved include:

  • a low level of shareholders’ rights protection,
  • the problem of information disclosure and transparency issues on the whole,
  • solution of corporate governance problems on state enterprises,
  • gradual narrowing of the stock market volumes and an increasing reduction in the number of companies that can be listed on the stock exchange by introduction of stricter requirements to such companies,
  • lack of a regulatory act providing for a mandatory position of the Corporate Secretary,
  • inability and unwillingness to take into account the interests of corporate governance, and assess the impact of stakeholders (both internal and external ones),
  • lack of a balanced risk governance system, and still imperfect legislation and government regulation.

Practical implementation of the system

As far as practical implementation of corporate governance is concerned, the research by the rating agency «IBI-Rating» as of March-April 2016 studying Ukrainian commercial banks can cast light on the situation in Ukraine. It showed (based on 11 study subjects), that generally increase in regulatory requirements contributed to the improvement of corporate governance in the banking system. Despite this, not all banks implement advanced principles of corporate governance, many of them perform only mandatory legal requirements in this sphere, and recommendations and international experience are embodied by few and yet partially. It was found that an average level of banks’ compliance with international and Ukrainian progressive principles of corporate governance and experience of innovation implementation in this field is quite low, what points out to a significant risk for the shareholders, investors, and stakeholders.

In general, the positive is that the percentage of companies that have successfully implemented corporate governance system is steadily increasing. Even before defining the position of Corporate Secretary/Director as a mandatory one, such provision was introduced by many companies. In 2016, the rating agency IBI-Rating analyzed corporate governance showings of 55 companies with shares traded on the international and Ukrainian stock exchanges: 12 companies with shares traded on international stock exchanges, and 43 companies with shares traded on the Ukrainian stock exchanges. Based on the study, companies’ ratings based on the corporate governance level were defined.

Top five rated companies with shares traded on international markets include «Astarta Holding N.V», «Kernel Holding S.A.», «Industrial Milk Company», «Ovostar Union», and «Cadogan Petroleum».

The top five of the companies with shares traded on the Ukrainian platforms consists of «Ukrtelecom», «Concern Halnaftohaz», «Farmak», «Kyivenerho», and «Centrenerho».

At present, the state lobbies the Law «On corporate governance», which is to reform and de facto to introduce a system of good corporate governance at state enterprises of all types. In addition, the adoption in the first reading of two bills concerning the corporate governance reform was an important innovation. The first bill on the squeeze-out and sell-out mechanisms will allow jointstock companies to reduce costs related to the publicity requirements, reduce the reporting volumes, loosen regulation, get more possibilities to protect themselves from raiding and reduce the threat of corporate blackmail. By virtue of the bill, without additional costs for correspondence with the company and opening a securities account the minority shareholders will have the possibility to apply the sell-out procedure, receive a market price for their securities and leave the company as shareholders. The second bill will improve the mechanisms of corporate governance, provide flexibility in structuring the relations of the issuer and the investor, contribute to a safer investment, etc. Each investor will have the assurance that at any time they could leave the business, take their investment and due dividends.

Other articles

  • What social projects are supported by business
    News

    What social projects are supported by business

    LDaily decided to conduct a survey among the companies working in Ukraine to find out what social projects they support and why.       Anastasia Voitkevych, Head of Corporate Communications & Social Responsibility, Winner Group Ukraine Winner CSR has two focus areas — Charity and Responsible Business. Charity is philanthropy, Winner’s and its leadership’s […]

  • Ukraine under quarantine. How the economy of Ukraine will survive the coronavirus
    News

    Ukraine under quarantine. How the economy of Ukraine will survive the coronavirus

    The largest European countries are going to exit quarantine. On Monday, Germany, the Czech Republic, France, Poland, Norway and Denmark are lifting some of the quarantine restrictions imposed to combat the coronavirus epidemic. So, in Germany, it was allowed to open commercial space less than 800 square meters in size. Car dealers and bookstores were […]

  • Banking reboot
    Analytics News

    Banking reboot

    In the context of large-scale reformatting of the banking sector in Ukraine, many surviving banks declare responsiveness to credit requests. The experts admit that it is the right time to increase it. Last year the National Bank of Ukraine (NBU) reported a steady decline in total loans however business needs to be pushed to develop […]

  • Which lawyer is more effective – corporate or freelance?
    Analytics News

    Which lawyer is more effective – corporate or freelance?

    A staff lawyer or a freelance consultant? This question was asked by many businesses, if not by all. And any of the control of management found both pluses and minuses of each option. Some people prefer in-house lawyers (corporate – in house), because they know the situation “from within”, while others are trying to involve […]

  • Results of 2016: Annual Business Achivements
    Analytics News

    Results of 2016: Annual Business Achivements

    The outgoing   2016 was  hard, and not only for business but also for the country in general. It was really difficult but not  fatal: a new tax policy, the integration into the European market, difficulties of investment and many other things. There are  key factors which have affected the development of a business industry much […]

  • The Results of the Presidential elections in the USA
    Analytics News

    The Results of the Presidential elections in the USA

    The victory of the candidate of republicans at presidential elections in the United States of America became a big surprise for the world community. Despite the fact that most the analytical bureaus holding authority on the USA relied on democrats, Donald Trump could collect 290 votes of delegates, therefore, became the forty-fifth President of America. […]

  • Top 5 of the best business schools
    Analytics News

    Top 5 of the best business schools

    A Business, as well as any other sphere of professional activity, demands from the person a certain complex of knowledge, abilities and tendencies. In any case, if you actually plan to achieve stable success as the entrepreneur, the corresponding education will become some kind of catalyst in the course of achievement of this purpose. The  […]

Read also

Formation of corporate governance in Ukraine
News

The court overturned a fine of € 790 million for 14 airlines

14 famous international airlines, such as British Airways, Air France-KLM, Qantas Airways, Air Canada, etc.,  were accused of cartel in the area of ??cargo and had to pay a fine of € 790 million. The European court of general jurisdiction, the second most important court in the EU, in its verdict says that the decision, […]

Next
Formation of corporate governance in Ukraine
News

Digital Future will become a leading investor in the Ukrainian startup Softcube

The Digital Future Investment Company invests $ 200,000 in the Softcube personalization service. In this round also participated private investor Alexei Kuznetsov, and the total size of the deal was $ 400 000. There is another investor in the transaction, he is going to announce its participation later, because now he is at the stage […]

Next
Formation of corporate governance in Ukraine
News

Mail.ru blocks traffic to Ukraine

Mail.ru stops to deliver a traffic in points of a traffic exchange in Ukraine. “Liga.net” published this information on its web-site. Mikhail Polovinka, UA-IX director on Ukrainian point of exchange of a traffic reported that Mail.ru had sent them the notification according to which the group of companies stopped delivery of a traffic to Ukraine […]

Next
Formation of corporate governance in Ukraine
News

Fiat Chrysler is recalling 570 thousand machines to avoid multimillion-dollar fine

Recently, foreign automobile corporations are increasingly exposed to multi-million dollar fines from regulators. The reason is negligence   of manufacturers who violate the road safety  legislation at the stage of cars’ production. Scandals accompanied by multi-million dollar fines recently occurred in companies BMW, Volkswagen, and Fiat Chrysler, which subjected the charges from the regulatory authorities for […]

Next
Formation of corporate governance in Ukraine
News

Japan’s Honda will invest a considerable sum of money in its production in Canada

The Government of Canada and, directly, the municipality of the largest city Toronto will help to improve automotive industry Honda. This information is provided by investment portal InVenture Ukraine. It is known that the forward Japanese manufacturer of motorcycles and automobiles will invest in their businesses in the central Canadian provinces – Ontario (Mr. Elliston) […]

Next
Formation of corporate governance in Ukraine
News

EBRD credits the Meest Express on $ 10m

According to Delo.ua, the European Bank for Reconstruction and Development (EBRD) represents the credit to Meest Express  of 10 million dollars on post automatic machine network development. The EBRD press-service informed about it.The postal and logistic operator will have  planned  to increase the share on the Ukrainian market and to develop the existent network until […]

Next
Formation of corporate governance in Ukraine
News

A shareholder of Alfa-Bank Ukraine became an investor of Uber

The LetterOne Holding (L1), one of whose shareholder is the billionaire Mikhail Fridman (who was born in Lviv, and who is one of the shareholders of Alfa-Bank Ukraine), invested $ 200 million in Uber  taxi service. This is stated in the message of LetterOne. “I am very pleased with our strategic partnership with Uber. As […]

Next
Formation of corporate governance in Ukraine
News

The Milk producer “Milkiland” expands its business

The “Milkiland” dairy group with assets in Ukraine, Russia and Poland completed the registration of one Polish and two Panamanian subsidiary trading companies in the first quarter 2016. According to the report of the group on the site of the Warsaw Stock Exchange, in Poland was registered UA TRADE Sp.zo.o., in Panama – Newholm Systems […]

Next
Formation of corporate governance in Ukraine
News

“Prometheus” reinvested more than $ 3 million profit in the upgrade of elevators

Since July 2015 a group of companies “Prometheus” reinvested 40% of the profits in the upgrade of material and technical base, according to a company press release. Mainly investments were aimed at expanding the network of elevator capacities, upgrade of grain storage, modernization of equipment and improvement of the quality of processes, replenishment of the […]

Next
Formation of corporate governance in Ukraine
News

EpiCentre K has bought Alta Center TC

EpiCentre K  has bought the Alta Center TC . The object has been pledged to the one of the commercial banks and sold to repay the debt to the financial institution. There are no any official comments from EpiCentre K for this moment. The complex is owned by VK Development – a developer unit of […]

Next
Formation of corporate governance in Ukraine
Analytics News

Banking reboot

In the context of large-scale reformatting of the banking sector in Ukraine, many surviving banks declare responsiveness to credit requests. The experts admit that it is the right time to increase it. Last year the National Bank of Ukraine (NBU) reported a steady decline in total loans however business needs to be pushed to develop […]

Next
Formation of corporate governance in Ukraine
Analytics

Healthcare reform in Ukrainian

What are the risks of medical reform in Ukraine? What it must change? Will the industry be funded as stated? Will insurance medicine work and how the market for medical services will be? Medicine established on authorities VS medicine established on evidence In November 2016, the Cabinet of Ministers of Ukraine approved the Concept of […]

Next
Formation of corporate governance in Ukraine
News

“Kernel” will pay $ 2.4 million penalty charge for contaminated sunflower oil

One of the largest Ukrainian agricultural groups “Kernel”, will pay $ 2.4 million, according to the results of court proceedings, in which it was involved in the case of contamination of the Ukrainian sunflower oil delivered in the EU in April 2008. According to the company report, disclosed on its website on Friday, the court’s […]

Next
Formation of corporate governance in Ukraine
News

KSG Agro enters the Georgian market

KSG Agro has received permission to export pork to Georgia. The first shipment is scheduled for June. “Pig-breeding business of KSG Agro has successfully passed the test of the National Food Agency of the Ministry of Agriculture of Georgia and received permission for the supply of pork to the country”, – said in a statement […]

Next
Formation of corporate governance in Ukraine
News

HarvEast invested 500 million UAH in improvement of soil quality

During 5 years of its activity the HarvEast company invested 500 million UAH in the improving  of soil quality (21 thous UAH was invested in each share). This was stated by  the general director of the  company,Dmitry Skornyakov, reports “SCM”. In addition, the company has invested 500 million UAH (20% of all investments in the […]

Next
Formation of corporate governance in Ukraine
News

The Japanese company Fujikura opened a plant in the Lviv region

The opening of the plant of the Fujikura company in Ukraine should be a strong signal to all investors willing to believe in our country. The President of Ukraine Petro Poroshenko wrote about this in his Twitter after the opening of the new plant of Fujikura  in village Pidryasne near Lviv. “You will not find […]

Next
WP2Social Auto Publish Powered By : XYZScripts.com