Transparency and Disclosure as an Element of Corporate Management in Russia Urgency, Problems and Trends Analysis 2003 Results

Analysis 2003 Results

Research motivation Opacity Index of Countries (by PwC) information vacuum volatility of the finance markets clear inadequacy of accounting and audit

Opacity Index of Countries (by PwC)

information vacuum

volatility of the finance markets

clear inadequacy of accounting and audit

Benefits of Better Disclosure

Sberbank … Tatneft … RAO EES … Rostelekom … North - West Telekom … MGTS … Mosenergo … Irkutskenergo … Vimpelcom … MTS /МТС … Wimm - Bill - Dan … Sibnetf … Gazprom … Yukos … Lukoil … Transneft … OMZ … Nornickel … Lenenergo … Baltica … Aeroflot … Severstal … Surgutneftegaz … Average

Sberbank … Tatneft … RAO EES … Rostelekom … North - West Telekom … MGTS … Mosenergo … Irkutskenergo … Vimpelcom … MTS /МТС … Wimm - Bill - Dan … Sibnetf … Gazprom … Yukos … Lukoil … Transneft … OMZ … Nornickel … Lenenergo … Baltica … Aeroflot … Severstal … Surgutneftegaz … Average

TP on Acquisitions 1. Big + Big = Disaster. (Statistically.) (There are exceptions; e.g., Citigroup.) 2. Big (GE, Cisco, Omnicon) acquires small/specialist = Good … if you can retain Top Talent. 3. Odds on achieving “projected synergies” among Mixed Big “cultures”: 10%. 4. Max Scale Advantages are achieved at a smaller size than imagined. 5. Attacked by Big, Mediocre Medium marries Mediocre Medium to “bulk up.” Result: Big Mediocrity … or worse. 6. Any size— if Great & Focused—can win, locally or globally. 7. Increasingly, alliances deliver more value than mergers —and clearly abet flexibility.

The System of Information Disclosure in Russi a The Current State of Research on Transparency Trends in Corporate Governance Lack of transparency in company management Lack of accountability to shareholders on the part of management Unfair treatment of minority shareholders Weak coordination and advocacy among shareholders and stakeholders Weak corporate governance culture Poor enforcement and oversight of existing laws and regulations

The Current State of Research on Transparency

Trends in Corporate Governance

Lack of transparency in company management

Lack of accountability to shareholders on the part of management

Unfair treatment of minority shareholders

Weak coordination and advocacy among shareholders and stakeholders

Weak corporate governance culture

Poor enforcement and oversight of existing laws and regulations

The System of Information Disclosure in Russi a Use of International Accounting Standards Russian Regulations and Legislation The Quarterly Report is drawn up on the basis of quarterly results and is ratified by the board of directors. ‘ Information about the issuer’ ‘ Issuer financial and economical activity data’ ‘ Information about company’s securities’ ‘ Other information about issuer securities’ facts that ‘significantly affect financial and economical activity’ of the company Election and abdication of the chief executive officer or a member of the board Changes in the list of shareholders Transactions accounting for 10% and more of the companies assets Reorganization of the issuer and /or of its subsidiaries etc

Use of International Accounting Standards

Russian Regulations and Legislation

The Quarterly Report is drawn up on the basis of quarterly results and is ratified by the board of directors.

‘ Information about the issuer’

‘ Issuer financial and economical activity data’

‘ Information about company’s securities’

‘ Other information about issuer securities’

facts that ‘significantly affect financial and economical activity’ of the company

Election and abdication of the chief executive officer or a member of the board

Changes in the list of shareholders

Transactions accounting for 10% and more of the companies assets

Reorganization of the issuer and /or of its subsidiaries

etc

Previously Performed Research Analyses in Russia Standard & Poor’s’: Russia 2003 Transparency and Disclosure Survey Ernst & Young: 2002 Fund Manager Survey on Russian Investments PricewaterhouseCoopers: Investigating the Costs of Opacity – Deterred Foreign Direct Investment Brunswick UBS Warburg Rating Iclg, RID, ISMM and others.

Standard & Poor’s’:

Russia 2003 Transparency and Disclosure Survey

Ernst & Young:

2002 Fund Manager Survey on Russian Investments

PricewaterhouseCoopers:

Investigating the Costs of Opacity – Deterred Foreign Direct Investment

Brunswick UBS Warburg

Rating

Iclg, RID, ISMM and others.

Research Basis of the Research Preconditions Stages of the Research Sample formation Questionnaire Design Conduct of Questioning Data aggregation Model is based on econometric tools

Preconditions

Stages of the Research

Sample formation

Questionnaire Design

Conduct of Questioning

Data aggregation

Model is based on econometric tools

Research Object and Method of the Study Object of the Study Z is the investment decision making value  ,  and  i – are coefficients T - the transparency criterion Yi - other I criterions of corporate governance and other possible values. Method of the Study Internet-trade and analytical sites Corporate websites of the researched companies

Object of the Study

Z is the investment decision making value

 ,  and  i – are coefficients

T - the transparency criterion

Yi - other I criterions of corporate governance and other possible values.

Method of the Study

Internet-trade and analytical sites

Corporate websites of the researched companies

Research Stages of the Research Questionnaire Design Corporate Statement and Policy Disclosure Financial Transparency & Information Disclosure Board and Management Structure and Process Ownership Structure and Investor Relations The Conduct of Questioning Data Aggregation

Questionnaire Design

Corporate Statement and Policy Disclosure

Financial Transparency & Information Disclosure

Board and Management Structure and Process

Ownership Structure and Investor Relations

The Conduct of Questioning

Data Aggregation

Research Obtained Results 9 out of 23 companies have a transparency criterion higher than 2.00. This accounts for 39% of the sample. Average value of the transparency criterion is 1.87, which equals to 43% of the possible maximum. Wimm-Bill-Dan has the highest value of 2.48 (equals to 74%), where Tatneft ranked latest with 1.31 (equals to 16%) 1,09 Information on corporate conflicts. 1,04 The specifics of directors' pay? 1 Top 10 shareholders? 1 Any non-audit fees paid to the auditor? 1 How much it pays in audit fees to the auditor? Average value The minimum disclosed questions are: 2,83 The name of its auditing firm? 2,83 A list of board members? 2,83 The list of the senior managers? 2,91 Details of the kind of business it is in? 2,96 Details of the products or services produced/provided? Average value The most disclosed questions are:

9 out of 23 companies have a transparency criterion higher than 2.00. This accounts for 39% of the sample.

Average value of the transparency criterion is 1.87, which equals to 43% of the possible maximum.

Wimm-Bill-Dan has the highest value of 2.48 (equals to 74%), where Tatneft ranked latest with 1.31 (equals to 16%)

Research Obtained Results P/E and Transparency correlation P/BV and Transparency correlation

P/E and

Transparency

correlation

P/BV and

Transparency

correlation

Research Model Construction Two competitive models 1 st 2 nd Comparing * better values are marked bold 0,03158 0,03158 0,18387 0,27254 2 nd 0,03128 0,03128 0,19470 0,27335 1 st F-test P-Value of 2nd factor P-Value of 1st factor R2 Model*

Two competitive models

1 st

2 nd

Comparing

Research Results Model Testing Discussion of the Results

Model Testing

Discussion of the Results

Research Results Mosenergo 1,40 1,00 Total 0,27 0,18 1,54 Ownership Structure and Investor Relations 0,28 0,24 1,17 Board and Management Structure and Process 0,61 0,34 1,77 Financial Transparency & Information Disclosure 0,24 0,24 1 Corporate statement and policy disclosure Total Weight Score Category

Mosenergo

Research Conclusions