Enterprise Restructuring and the Role of Managers in Russia by Krueger Gary;

Author:Krueger, Gary;
Language: eng
Format: epub
ISBN: 3569949
Publisher: Taylor & Francis Group

Governance

The watch factory, contrary to the experiences of many firms privatized before 1992, had a problematic governance structure due to three factors. First, the large share held by the state since privatization in 1991, 37 percent of total equity, gave the state an exceptionally large voice in company affairs. Second, ownership was highly dispersed as the remaining shares were divided among some 7,700 workers, former workers, and pensioners. As noted above, these workers were more militant than those in most Russian firms. Third, unlike in most insider-controlled firms, management did not increase its stake in the company following voucher privatization. The deputy director indicated, on more than one occasion, that management controlled just 5 percent of the firm’s shares, with each individual manager controlling no more than one-half of 1 percent. This allocation of ownership among managers was based on Russian privatization rules, which were generally ignored by most firms. Perhaps the previous background of the deputy director in the Ministerial Glavk had instilled a greater respect for these regulations. In 1996 and again in 1997, when asked if management was buying up shares from workers, the respondent strongly denied this, stating unequivocally, “As long as I sit in this chair we will follow the rules.” When asked if workers were looking to sell to outsiders, the deputy director related that they were, but that management convinced them that outsiders “would turn the factory into warehouses.”

Throughout the four years of interviews no significant change in the distribution of ownership took place, although in 1995 it was hinted that the state share would soon be sold. During the 1997 interview, the deputy director repeated once again that the state share was soon to be sold, with 25 percent going to a single investor and the remaining 12 percent distributed among a small group of buyers. No definite date was given for this sale. Were this sale to materialize, the firm’s ownership structure would likely move toward a higher level of concentration, improving the firm’s governance.

The unwieldy ownership structure was manifest in the organization and composition of the firm’s board of directors. The board, numbering twenty-six members, was two to three times larger than those of most FSOEs. The composition of the board was skewed heavily toward insiders, with the sole outsider representing the state’s share. Allocation of seats on the board was determined on the basis of the size of the various production shops that made up the firm, which undoubtedly biased decisions to the largest, but perhaps least necessary or least efficient, shops. The ability of management to act decisively was additionally constrained by the self-imposed rule that no actions were taken unless 80 percent or more of the board consented in advance of a formal motion. “We don’t want to waste time arguing,” said the respondent.

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