Independence of board of directors, employee relation and harmonisation of corporate governance. Empirical evidence from Russian listed companies
| Published date | 28 June 2011 |
| Pages | 444-471 |
| DOI | https://doi.org/10.1108/01425451111142729 |
| Date | 28 June 2011 |
| Author | Dilek Demirbas,Andrey Yukhanaev |
| Subject Matter | HR & organizational behaviour |
Independence of board of
directors, employee relation and
harmonisation of corporate
governance
Empirical evidence from Russian listed
companies
Dilek Demirbas and Andrey Yukhanaev
Newcastle Business School, Northumbria University, Newcastle, UK
Abstract
Purpose – The main aim of this paper is to examine the role of the board of directors in Russia with
specific attention to their independence, employee relations and ability of successful adaptation of the
international standards.
Design/methodology/approach – The authors used a survey questionnaire to provide an
empirical example from a transition economy to the corporate governance literature by exploring the
attitudes of the 55 board directors from 30 listed companies on the Russian Trading System (RTS)
Stock Exchange.
Findings – The respondents recognise the board of directors as an important instrument of efficient
and good corporate governance practice. More surprisingly, they are also in favour of employee
representatives on the board of directors and agree that board size and composition should be
enhanced by employee representatives on the board.
Research limitation/implications – Even though 200 questionnaires were distributed and the
response rate was 28 per cent, the authors know that they cannot generalise results for all directors of
1,414 listed companies on the Russian Trading System Stock Exchange from this level of response. In
addition, questions might have some elements of subjectivity.
Practical implications – Policy makers in Russia should continue reforms in Russian corporate
governance to improve transparency and accountability to adopt international standards and to
attract foreign capital.
Originality/value – This study is one of the most comprehensive studies to explain the role of
directors of listed companies in corporate governance throughout a survey questionnaire in Russia.
The authors believe that the study contributes to the literature in two ways: theoretically by
examining the attitudes of Russian listed company directors in the literature and empirically by
conducting a survey among listed companies’ directors to evaluate the attitudes of boards of directors,
and employee relations in Russia.
Keywords Corporate governance, Russia, Internationalstandards, Perception, Employeerelations
Paper type Research paper
1. Introduction
Within the context of globalisation, almost all organisations around the world are
currently undergoing significant changes. One of the major dimensions of these
changes within these organisations is corporate governance. Corporate governance has
indeed become the focus of increased attention of not only directors, investors and
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Employee Relations
Vol. 33 No. 4, 2011
pp. 444-471
qEmerald Group Publishing Limited
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DOI 10.1108/01425451111142729
stakeholders, but also regulators, who are all watching more and more carefully
whether organisations are “governed” effici ently, effectively and ethically. In
particular, corporate governance scholars have come to the conclusion that
companies across the world need to adopt commonly accepted corporate governance
standards to be able to attract foreign capital, to become internationally more
competitive and to deal with corporate governance problems in today’s economy.
With the intention of providing the best and most commonly accepted international
corporate governance standards, in 1999, the Organisation for Economic Cooperation
and Development (OECD) developed an international corporate governance code and
global principles of “good” governance. In 2004, OECD revised its previous attempt,
Principles of Corporate Governance, and defined “good corporate governance” as a
practice that:
[...] provides proper incentives for the board and management to pursue objectives that are
in the interests of the company and its shareholders, and should facilitate effective
monitoring. The presence of an effective corporate governance system, within an individual
company and across an economy as a whole, helps to provide a degree of confidence that is
necessary for the proper functioning of a market economy. As a result, the cost of capital is
lower and firms are encouraged to use resources more efficiently, thereby underpinning
growth (OECD, 2004, p. 11).
In the literature, Solomon et al. (2003) emphasise the importance of good corporate
governance and claim that corporate governance involves a set of relationships
between a company’s management, its board, its shareholders and other stakeholders,
with increasingly accepted “good” corporate governance practices. By adopting good
corporate governance principles, co-operation will continue to play a crucial role in our
economies with high economic efficiency, our personal savings will be well managed
with investor confidence and our pensions will be secu red with monitored
performance. In much more economic terms, Pistor (2006) and Meharey (2006) define
good corporate governance as an economic function of the firm, which knows how to
maximise its residuals. What they mean by the firm’s residuals is wealth generation by
the firm through real operations (which can be defined as the difference between what
a firm pays at contractually predetermined prices to obtain its input and what it
receives for its output) and distribution of wealth to shareholders on a pro rata basis in
the case of investor-owned firms. In contrast, bad corporate governance is just the
failure of a firm to meet one or both of these conditions. According to Fox and Heller
(2006), managers should operate their firms in order to meet these good corporate
governance conditions (wealth generation by real operations and distribution of the
wealth to shareholders) that entirely depend on the structure of constraints and
incentives in which they operate, and a structure that depends on the prevailing legal
system.
In a much wider sense, Markus (2007, p. 2) defines good corporate governance as “a
set of institutions, i.e. formal and informal constraints on behaviour, determining the
capacities of firm stakeholders to control the decisions and the cash flows in a given
corporation”, and then he argues that “the firm level corporate governance institutions,
fulfils a variety of goals for the enterprise insiders, some of which are entirely
decoupled from the perfunctorily assumed all-trumping financing needs of enterprises”
(Markus, 2007, p.3). On the same line, for Borsch-Supan and Koke (2002, p. 295) good
corporate governance is:
Independence of
board of
directors
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