The State as a Shareholder: Responsibilities and Objectives

Abstract

THE CREATION OF A PRIVATE SECTOR in the economy has been one of the most conspicuous elements of post-communist reforms in Russia. The most dramatic manifestation of this policy has been the mass privatisation of public property. The government also seeks to encourage new private businesses by setting up a markettype institutional environment. The results are not straightforward. Private capital has achieved some success in such sectors as banking, construction, retailing, tourism and export-import trade. Manufacturing, though, remains dominated by large enterprises that have generally failed to improve their efficiency or restructure after becoming privately owned. Industrial output has been falling ever since reforms started early in the 1990s. This article makes an attempt to draw attention to one aspect of Russian privatisation which is often underrated in the literature but which, we believe, has contributed substantially to the bleak performance of industrial enterprises in recent years. Privatisation in Russia was unusual in the sense that even after its conclusion the state retained a considerable degree of control in a great number of firms as an influential shareholder. In 1996, according to an important report, the average state ownership among medium-size and large firms was 9%; it was more than 20% in a quarter of privatised companies and more than 32% in a 10th of them; state ownership in the 50 largest Russian firms was about 38%.1 Additionally, in firms with more than 10 000 employees and those belonging to key industries, the state has reserved for itself a so-called 'golden share' which guarantees the state, through the right of vetoing any resolutions of the shareholders' general meeting, the controlling power of a majority shareholder irrespective of the actual weight of public ownership in the capital of the firm. This article argues that the Russian state has failed to utilise these huge powers to the benefit of the firms in which it has shares, their other shareholders and the shareholder culture in general. This happened because, after privatisation, the state showed an inability to determine correctly its responsibility as a shareholder, while its objectives as owner remained confused and unarticulated. Consequently the ownership rights associated with the shares owned by the state mostly rest unexercised. The article tries to demonstrate that the position taken by the state did little to help develop a pattern of effective ownership and corporate governance in Russia. In the