Part II of an RJ interview with Dmitry Vasiliyev, an investors rights activist who discusses corporate governance and the country’s first decade of capitalism.

In Part II of his interview with The Russia Journal, Dmitry Vasiliyev, executive director of the Institute of Corporate Law and Corporate Governance and chairman of the board of the Investors Protection Association, discusses corporate governance in Russia and the country's first decade of capitalism. (The first portion of this interview can be found on The Russia Journal Website – www.russiajournal.com – under Issue 4, dated Feb. 3-9, 2001; or e-mail editor@russiajournal.com for a copy.)

Russia Journal: Why is the problem of corporate governance so acute in Russia? Is the 10 years of market reform not enough to train a sufficient number of managers?

Dmitry Vasiliyev: Russia is still living in the 19th century in terms of the quality of legislation and law enforcement, as well as the efficiency of state agencies. It is just about to pass the feudal era. The 70 years [of Communist rule] should be written off the country's history. They pushed back the development of property relations in the country.

The problem is not only in getting enough managers. Above all, boards of directors should properly control management. Boards of directors should introduce rules that would create incentives for managers not to steal but work to increase the market value of their company. There should be improvement in both directions – the quality of management and the efficiency of boards.

It will take time and effort, but the results are expected much sooner than happened in the West, because Russia's corporate governance and the securities market are developing much more rapidly than they have in the West.

Another aspect is that privatization in Russia was completed in 1995. If we compare our problems of corporate governance to those countries that began market reform at the same time as us, such as the Czech Republic or even countries that have always had a capitalist system, we see that they're facing the same problems. South Korean oligarchs from Daewoo are in no way different from Russian oligarchs. My colleagues from a similar investor protection association in South Korea told me about numerous infringements, although Korea has lived with a market system longer than Russia and the development of its economy is higher.

The problem is not only in the training of managers. If all Russian top managers went to Harvard, they would learn to wear ties before a camera, choose the right wines and write business plans, but they wouldn't crucially change their attitudes and behavior, which depend on the overall economic conditions and the rules set by the board.

If there is a struggle for control in a corporation between an insider and outsider, there is a likelihood of infringements of shareholder rights. When the struggle for control subsides, more stable property relations will emerge and the number of corporations with good corporate governance will increase.

The most obvious examples of corporate governance problems are the conflicts that emerge during the natural-monopoly restructurings. Recently, there has been a controversy around the appointment of an auditing company for the Gazprom-Itera deal. PricewaterhouseCoopers is Gazprom's auditor, and this company has been appointed to inspect the relations between Gazprom and Itera. From my viewpoint, this is a typical conflict of interests. They've inspected Gazprom for several years and have not found anything. They won't find anything this time.

But PricewaterhouseCoopers has not turned down the offer, although in terms of the company's reputation and international auditing standards it should have. It is a blatant example of how a company that believes it is able to teach others does not quite comply with international standards. I have addressed PricewaterhouseCoopers and suggested that it turn down the offer.

I'm quite optimistic about the improvement of corporate governance in Russia and the inflow of foreign investment here. Our motto is very simple: All investors in the Russian economy unite!