Despite general investor optimism, North American and European investors say Russian companies must bolster their corporate governance standards and improve investor communications in order to attract and retain foreign investment. According to survey responses, while the country looks attractive from a macro economic perspective, government intervention, opaque corporate governance practices and a general lack of regulation to protect investors pose risks.
The survey of Investor Opinions of Russian Companies, found the following:
- Some 58% of survey participants hold a decidedly favorable three-year out look on Russia. This optimism is primarily based on strong commodity prices, especially oil. Many investors believe that strong demand for natural resources will bolster the rest of the economy and spur both consumer and infrastructure spending.
- Investors surveyed agree that the best ways for Russian companies to improve their investor relations efforts are to equip investor relations officers with senior-level insight, adopt the financial reporting and disclosure practices of developed market companies, increase the accessibility and visibility of senior management, and establish consistent communication with the investment community.
- In order to improve corporate governance standards, investors surveyed said that Russian companies should focus predominantly on aligning interests with minority shareholders by promoting independent board structures, clearly defining shareholder structures, and being good stewards of capital.
- Over 50% of survey participants believe that a US or UK listing increases the appeal of a Russian company, citing the increased trading liquidity that it offers and stricter reporting and disclosure requirements with which an exchange-listed, sponsored company must comply.
- A majority of survey participants revealed that government control is a significant issue when investing in Russia. Investors said that government demands too often take precedent over companies’ responsibility to minority shareholders, the result of which includes inefficient capital allocation decisions, limited return on invested capital, and insubstantial or nonexistent dividend payments.
- A huge 80% of survey participants do not assign different risks to Russian companies that are incorporated offshore versus those that are incorporated in Russia. Investors say they evaluate companies on a case-by-case basis and cannot make generalisations based on where a company is incorporated.