Liaison between Board and CEO in Russian Oil Companies

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Liaison between Board and CEO in the Russian Oil Sector

Artur Lokomet 1

Table of Contents Introduction……………………………………………………………………………..…3 Section 1: Corporate Governance in Russia

Tsarist Time……………………………………………………………………….4 Communist Regime and Its Influence……………………………… ……………..5 Culture……………………………………………………………………………..8 Current Corporate Governance Structure…………………………………………8

Section 2: Model of Power of CEO and Board of Directors Board of Directors Typology.……………………………………………………11 Case of Russian Oil Companies……………………………………… …………13

Section 3: Oil Sector History of Russian Oil Sector……………………………………………………14 Structure of Oil Industry…………………………………………………………16 Russian Oil Majors………………………………………………………………21

Section 4: Board of Directors in Russian Oil Companies Role of Board in Corporate Governance………………………………………...29 Mission of Board…………………………………………………………………30 Duties of Board…………………………………………………………………..31 Board and Shareholders………………………………………………………….32 Board and Management………………………………………………………….33 Board Committees……………………………………………………………….35 Board Members…….…………… ………………………………………………39 Board Size………………………………………………………………………..43 Director Share Ownership………………………………………………………..43 Role of the Board Chair .………………………………………………… ……...44 Director Compensation…………………………………………………………..45 Board Sponsors…………………………………………………………………..45

Conclusion……………………………………………………………………………….49 Discussion………………………………………………………………………………..54 References………………………………………………………………………………..56

Liaison between Board and CEO in the Russian Oil Sector

Artur Lokomet 2

List of Tables Table 1: Methods of privatization in Russia………………………………………… 6 Table 2: Proposed members of a board in privatization plan……………………….. 7 Table 3: Board of directors’ typology……...………………… ……………………... 12 Table 4: CEOs of Russian oil companies…………………………………………… 14 Table 5: Dynamics of oil privatization, 1994-2003…………………….…………… 18 Table 6: Status of Russian oil companies…………………………………………… 19 Table 7: Effective and Expected Eurobonds issues………….……………………… 23 Table 8: Effective ADR programs……...…………………………………………… 24 Table 9: Reasons for powerful board within effective organization………..……..… 31 Table 10: Executive body in a public oil company……..…………………………….. 35 Table 11: Number of committees per board…………..……………………………… 35 Table 12: Board committees………………………………………………………….. 38 Table 13: Place of birth…………………………………………………………..…… 39 Table 14: Education of board members ………..…..………………………………… 40 Table 15: Location during professional education…………………………...…..…… 41 Table 16: Breakdown of directors’ area of residence……………..……………..…… 42 Table 17: Number of directors on a board………………………...………………….. 43 Table 18: Percentage of directors who own and control shares…………………...….. 44 Table 19: Who are board chairs?…………………………………………………..…. 45 Table 20: Board members’ classifications…………...……………………………….. 46 Table 21: Percentage of inside directors…………………………..………………….. 47 Table 22: Russian oil barons………………………………………..………………… 50 List of Figures Figure 1: Geert Hofstede Analysis for Russia, Germany and USA………………….. 8 Figure 2: Crude oil production of former USSR and Russian Federation…………… 15 Figure 3: Structure of Russian export………………………………………………... 16 Figure 4: Ownership structure……………………………………………… ……….. 21 Figure 5: Boards of US and Russian oil companies/ by age distribution……………. 39 Figure 6: Companies with at least one female director……………………………… 43 Figure 7: Ownership structure and board members’ sponsors……….……………… 48 Figure 8: Typology of boards of Russian oil companies…………………………….. 52

Liaison between Board and CEO in the Russian Oil Sector

Artur Lokomet 3

Truth and oil always come to the surface.

Spanish proverb

Introduction Russia is considered to be an emerging market, a fact always connected to creating an

economy from scratch. Therefore, after going through a complete restructuring in the

Post-Soviet era, the country for the first time encountered the topic of contemporary

corporate structure.

Russia is known for its natural resources, which are its main capital. The most