Supporters say new rules good, but corporate-governance laws still have a long
hibits Ukrainian-registered companies from holding shareholder meetings outside the country.
Still, they say it doesn’t go far enough. Additional laws on joint stock companies are needed to solve more urgent problems such as protecting the rights of minority shareholders.
The bill, passed by the Rada on Jan. 10, prohibits so-called offshore shareholder meetings. It is expected to be signed into law by President Leonid Kuchma within a month.
The bill amends joint stock company legislation dating back to the early 1990s, which allowed meetings to be held offshore. Now that would be banned.
The State Commission for Securities and the Stock Market spearheaded passage of the bill, arguing that it was needed to protect the interests of minority shareholders.
Viktor Horbatenko, a senior lawyer at the International Finance Corporation’s corporate governance project, believes the government lobbied for the bill to protect small shareholders, which can include the state as well as individuals.
Horbatenko said government officials have expressed concern about majority shareholders from Russia. They have in recent years held meetings in Russia, instead of Ukraine. Time and financial restraints made it hard for the state’s representatives to take part in many of these meetings.
Peter Levine, project manager for a USAID-funded corporate governance project administered by Financial Markets International, said the law will help private minority shareholders too.
Levine said the bill would provide them with better access to meetings and strengthen regulatory oversight by ensuring that meetings are held in accordance with Ukrainian law.
But the bill could also negatively affect some foreign investors, IFC’s Horbatenko said.
“Why should a German investor who controls 99 percent of a Ukrainian company hold a meeting in Ukraine?” he said.
Horbatenko and Levine agreed that holding meetings in Ukraine alone will not drastically improve shareholders’ rights in Ukraine, a country they say has a poor record when it comes to corporate governance. They would like to see passage of a comprehensive law on joint stock companies.
Improving minority shareholders’ rights, adoption of international accounting standards and improving the flow of financial disclosure to market participants, such as stock traders, are areas that need to be addressed by parliament.
Both FMI and IFC have joined with reform-minded market participants to urge passage of such a law. Several bills that would have improved the current law have been submitted, but passage of a more-comprehensive bill is unlikely ahead of the parliamentary elections.
“Although this amendment is a positive development, the passage of a new law on joint stock companies remains critically important to provide the much-needed legal structure for implementation of best practices in corporate governance,” Levine said.
Ukraine has recently made progress in improving shareholders’ rights, however.
A new regulation adopted last year making it more difficult for majority shareholders to dilute stakes owned by minority shareholders is one example, according to Levine.
But much remains to be done that could be addressed by a joint stock company law, Levine added.
