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CORPRORATE GOVERNANCE IN UKRAINE:

CORPRORATE GOVERNANCE IN UKRAINE:. WHY UKRAINE NEEDS A NEW JOINT STOCK COMPANY LAW. By Ms. Motria Onyschuk-Morozov International Finance Corporation. Current situation in Ukraine. 35,000 JSCs and 18 million shareholders

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CORPRORATE GOVERNANCE IN UKRAINE:

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  1. CORPRORATE GOVERNANCE IN UKRAINE: WHY UKRAINE NEEDS A NEW JOINT STOCK COMPANY LAW By Ms. Motria Onyschuk-Morozov International Finance Corporation OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  2. Current situation in Ukraine • 35,000 JSCs and 18 million shareholders • Current law inadequate for shareholder protection and proper regulation of company procedures • Numerous shareholder violations • Deters investment - only $US 4.1 billion invested in Ukraine as of July 2001 OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  3. Typical shareholder violations • Inability to participate in corporate governance & shareholder meetings • Non-disclosure of information • Transactions at less than market value • Dilution of capital • Asset stripping • Related party transactions OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  4. Problems with current laws • Minority shareholders not represented on Boards and rights not protected • Directors and officers not restricted from acting to the detriment of the company • Decision-making powers not allocated appropriately between governing bodies • Common international safeguards absent OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  5. What can be done? • Adopt a New Joint Stock Company Law • Adopt clear rules for procedures requiring more detailed regulation • Improve enforcement of laws & regulations • Increase corporate governance education • Introduce voluntary principles of best practice (a Corporate Governance Code) OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  6. WHAT IS NEEDED IN A NEW JSC LAW ? OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  7. Minority shareholder protections • Cumulative voting • Tag-along rights in changes of control • Right to redeem shares if vote against major transactions • Clear mechanism for right of first refusal in additional share issuances • Timely and complete information disclosure OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  8. Shareholder meeting procedures • Specify record date for shareholder list • Reduce quorum for adjourned meetings • Improve procedure for certification of proxies • Require ballot voting on key decisions • Enforce notification procedures OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  9. Responsible directors & managers • Introduce concept of fiduciary duty: • Duty to act in best interests of company • Duty to act honestly and in good faith • Duty to disclose conflicts of interest • Duty not to usurp corporate opportunities • Impose appropriate penalties for non-compliance that are enforced OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  10. Proper allocation of powers • Clearly allocate responsibility between Supervisory Board and Management Board • Decisions exclusive to shareholders should include: • Sale of substantially all the assets • Approval of major transactions • Election and removal of members of the Supervisory Board OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  11. Introduce key concepts • Cumulative voting • Fair market value (independent appraisal) • Conflict of interests • Related party transactions • Insider trading • Major transactions • Sale of substantially all assets • Class actions OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

  12. On the right track • Presidential Decree on The Development of Corporate Governance,March 2002 • Securities Commission interested in work on Corporate Governance Code • Increased awareness that improving corporate governance will increase investment OECD Third Eurasian Roundtable on Corporate Governance Kyiv, Ukraine April 17-18, 2002

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