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orate governance. The article concludeswith implications of the evolving system forWestern investors.
Seven decades ofcommunism and centralplanning had provided little or
no experience in dealing withissues of ownership and
shareholder rights
CORPORATE GOVERNANCE
Foundations of Corporate Governance
Corporate governance has been defined as ‘the exercise
of power over and responsibility for corporate
entities’ (Mallin, 2002). It includes the perspective of
owners, or capital providers, in assessing their risk
with investments in a firm’s resources, in evaluating
capital allocations to provide maximum returns, and
monitoring how capital is managed over time
(Rubach and Sebora, 1998). Corporate governance
systems recognize the inherent conflict in objectives
between owner-shareholders and managers, and thus
establish institutions, policies, and procedures to protect
shareholders’ interests. Shareholders are purported
to seek the maximization of profit or the
shareholder value of the firm, while managers are
inclined to make decisions that perpetuate their own
personal rewards, positions, and longevity within
their firms.
One model of corporate governance is based on
agency theory, which has as its underpinning this
fundamental conflict between
shareholders and managers
(e.g., Buhner et al., 1997; Donaldson,
1990; Jensen and Meckling,
1976; Shleifer and
Vishny, 1997). With the recent
proliferation among many
countries of the concept of
shareholder value, which advocates
the primacy of shareholder
interest, some experts
have suggested that a convergence
toward the agency theory
model of corporate governance
is occurring. Russia’s developing corporate governance
system appears on the surface to validate this
view, since it has been strongly influenced by this
model that prevails in the US and the UK.
While not in direct conflict with agency theory, the
cultural embeddedness model takes a more expansive
approach, noting that differences in corporate
governance exist among countries because of their
particular institutional and cultural variations. These
include influences such as the relative efficiency of
capital markets and regulations, as well as socialization
experiences (Bird and Wiersema, 1996; Charkham,
1994; Lubatkin et al., 2001; Roe, 1993). For
instance, an empirical study found that different
institutions accounted for variations in ownership
modes of firms in 12 European countries (Thomsen
and Pedersen, 1996; Pedersen and Thomsen, 1997).
Another major study that documented differences
among national systems of corporate governance also
refutes the convergence view (Gedajlovic and
Shapiro, 2001). As Russia’s corporate governance system
evolves, we believe that it will begin to reflect
more of the cultural embeddedness model, incorporating
additional influences from its own culture, history,
and traditions.
European Management Journal Vol. 20, No. 6, pp. 630–640, December 2002 631
Corporate Governance Abuses in the Decade of
‘Wild West’ Capitalism
During Russia’s 70 years of communism and central
planning, as well as during the early years of perestroika
and glasnost, there was no private ownership
of commercial or industrial enterprises. There were
no shareholders, since the State was the owner of all
productive assets an