Due to the efforts of bureaucrats and some parliamentarians it may happen that starting from January 2018 shares of public joint-stock companies will completely disappear from the Ukrainian stock exchange. Since private joint-stock companies do not plan new placements in the local stock exchange, the stock market of Ukraine is going to collapse.
When there is no market quotation for corporate shares, the key indicator for corporate finances does not exist either. There will be no tool for embedding corporate governance in the paradigm of enterprise value maximization. Basic mechanisms of balancing the conflicts between agents and binding managers’ motivation to the price of shares and the cost of capital will be lost.
This year in Ukraine a lot of seminars and conferences have been held under the aegis of foreign sponsors, with one of the most essential mentioned in the title. In good faith, sponsors have been aiding our country in improving the quality of corporate governance. However, they seem not to be considering the fact of the liquidation of the necessary environment for corporate finances.
Figuratively speaking, corporate governance and corporate finance are two “wings” of the development in the corporate sector and economy in whole. The capital asset market serves as kerosene for such “airplane”. It seems that by attracting a sponsors’ money, organizers of the events in corporate governance simply want to divert attention from the reality. After all, “kerosene” has almost completely leaked out through a breach in the tank, and everything is ready to tear off one of the “wings”. It has been desirable if Western sponsors, including USAID, would have paid their attention to this. They have been helping the “airplane” which is definitely not going to fly anywhere, even with a powerful engine called “eurointegration” attached. Below we will explain why.
Currently the law 5592-d is being prepared for adoption. This law will create maximum inconvenience for those entities, which decide to exist as public joint-stock companies. Moreover, this law will compulsorily turn all public joint-stock company of the country into private ones. In addition, the previously adopted law on squeeze-out (which should not have been introduced into the legislation of the economically immature country) enables forcing those few public joint-stock company remained in the shrunk Ukrainian stock market to turn private too.
On this legislative background, an enchanting number of events in corporate governance supported by the foreign and domestic organizations looks very strange. Starting from next year only 100 percent state- owned companies will remain public. Their shares have never been traded on the stock market, i.e. these companies are public only by the name. There also will be banks of an amorphous status “joint stock company” without specifying a type. This law abolishes a quite rational requirement to commercial banks to exist in the form of public corporations, which opens for them an opportunity to become private. Therefore, the specific of corporate governance in the long run will become needless for the banks.
A logical question arises: “Why do foreign sponsors support events in which there is no strategic sense from the standpoint of compulsory liquidation of the domestic capital asset market? Maybe it is worth to motivate local politicians to carry out legislative initiatives to bring at least the largest Ukrainian companies to the public sector?” And only thereafter to finance events in corporate governance.
Obviously, not only public companies implement corporate governance. In private companies, it is used as an effective management system. However, without letting capital assets to have a market price, there is no correlation between management quality and shareholders’ wealth. The Management and the Supervisory Board do not have incentive to maximize profits and minimize the cost of capital. Instead, especially due to the situation in our country, they are pushed towards minimizing the profits for tax evasion. Naturally, various schemes of “tax optimization” are flourishing in Ukraine. It is deeply regrettable that even the biggest enterprises, which in developed economies traditionally exist in the form of public companies, stick to these principles.
This article should draw attention to what is really happening in Ukraine behind the scenes of the good play called “The transformation of the financial sector of Ukraine in the mainstream of European integration.” In fact, it is a cargo-integration. It linearly replicates the legislation of the developed economies, destroying the conditions in which this legislation had been evolving in the western countries. Not only do we need to adjust to the EU regulations, but we also have to recreate the environment in which the economy functions within the EU. Otherwise, will it be a pouring of young wine in fur shabby. The result is known and already visible inside the country. It is pitiful that the foreign sponsors, supervisors and consultants do not see this.
The scandalous law mentioned in the article should have already been voted for. Thanks to the protests of professional participants, the discussion of it was held at the round table – “Publicity of Joint Stock Companies: New Content, New Prospects” in the framework of the USAID project “Transformation of the Financial Sector of Ukraine” on 06.11.2017 in the Ukrinform Agency. The law is now in the Parliament between the first and second readings.