3rd Eurasian Corporate Governance Roundtable

Shareholder Rights, Equitable Treatment and the Role of the State

April 17-18, 2002

hosted bySecurities and Stock Market State Commission of Ukraine

State Property Fund of UkrainePFTS

with the support ofThe Government of Japan

The GlobalCorporate Governance Forum

The OECD Corporate Governance Principles, Shareholders Rights and

Implications for the State

Introductory Address

Mr. Rainer GeigerDeputy Director, Financial, Fiscal and

Enterprise AffairsKyiv, 17-18 April, 2002

Objectives of the address

• Discuss the main aspects of the role of the state in ensuring good corporate governance

• Explore the role of the state with respect to shareholder rights and equitable treatment of shareholders

Structure of the address

• The role of the state in the transition to a market economy

• The corporate governance related role and functions of the state Institution building: the state and capital market

developmentLegal and regulatory functions of the stateThe role of enforcement

• Main issues of shareholders rights and equitable treatment

The role of the state in the transition to a market economy

• Macro-economic and structural reform

• Institution building and legal reform

• Managing privatisation and residual state assets

The State and Corporate Governance

• Corporate governance as a tool to achieve economic performance and policy reform

• OECD Principles on Corporate Governance

• The state and corporate governance in OECD economies

Corporate governance and the state

The state has the following functions with respect to corporate governance

• Institution Building

• Legislative reforms

• Law enforcement

• Enforcement

Corporate governance and the state (cont’d)

In order to fulfil its role, the state needs to:

• Clearly define its functions

• Provide for an efficient institutional infrastructure

• Act in a transparent, consistent and credible fashion

The rule of law: Key elements

The establishment of rule of law in the economy depends on:

• adoption of a proper legal framework of property rights, rules for trade, investment and finance, and

• a legal context for the establishment, functioning and liquidation of private firms

• integrity in government and public administrations

The rule of law as objectives

The rule of law describes an economic and social environment that is characterised by:

• Predictability

• Transparency of decisions

• A level playing field for all economic agents

• Reliability and accountability

• Clearly defined rights and fair dispute resolution

Institution Building

The state policy on capital market development

• Stock exchanges in Eurasia need to improve their technical and legal infrastructure

• Low capitalisation and liquidity need to be addressed

Institution Building

Lack of demand and supply is a problem:

• Delays in the privatisation process

• Lack of interest from companies in being listed

Institution Building (cont’d)

Eurasian Stock Exchanges are still not able to fulfil their traditional roles:

• as a source of funding for enterprises

• as a disciplining mechanism through the take-over threat

• to provide adequate information and fair valuations

Strengthening stock market development

What could give an impulse to Stock Exchange development in Eurasia?

• The recently launched Pension Reforms

• Speeding up of the privatisation process: IPOs and secondary markets

• Regional cooperation may constitute an option

Law enforcement

• Discrepancy between the corporate governance framework and practices

• Insufficient capacity of the judicial and administrative systems to enforce the law

• Insufficient capacities of Securities Exchange Commissions

Main issues with respect to shareholders rights

• Access to information on ownership structure• Information on shareholders meetings• Clear provisions concerning voting

procedures during the AGM• Capacity for shareholders to vote in absentia,

by proxy or mail• Rights to receive dividends

Main issues with respect to equitable treatment

• Dilution of minority stakes during capital increases

• Fair treatment of minority shareholders in case of de-listing

• Related parties transactions

• Insider dealing and self-trading

• Possibility of legal redress

Strengthening the role of the judiciary

Strengthen the capacity of the judiciary to deal with commercial disputes

Streamline of the rules on jurisdiction over commercial disputes throughout the region

Challenges ahead

• Develop a corporate culture

• Strike a balance between regulation and self-regulation

• Strengthen corporate social responsibility

• Promote best practice through regional co-operation