PROBLEMS OF CORPORATE GOVERNANCE DEVELOPMENT
INKAZAKHSTAN COMPANIES
A.A. Zhumalina
Al-Farabi Kazakh National University, HSEВ
Management, 1st year Student of Master’s degree
Scientific adviser
Dzhumambayev S.K.
Сandidate of Economic Science
In the current economic conditions particular importance takes the problem of constructing
an effective model of corporate governance in every modern large organization. At the same
timenote that the low quality of corporate governance worsens the investment climate and
hinders to attract external funding.In addition, corporate governance largely determines the
business culture. In this regard, it is important to identify the major basic stages in the
development of corporate governance in Kazakhstan.
For today the actual problem of corporate business in Kazakhstan is to improve the quality
of corporate governance (CG). To do this, it is essential to find effective solutions to issues
related to the protection of rights of property owners, balancing the interests of individual
companies and corporate structure as a whole.
Improvement of CG is a multidimensional problem which requires a comprehensive
review. The development of modern CG in countries with transitional economies, including
Kazakhstan, depends on the completeness and complexity of the solution of the following
problems:
1. Adoption of the principles of corporate governance in Kazakhstan;
2. Improving the governance structure of the company, in accordance with the principles of
CG;
3. Improving the governance of the property as an essential element of CG;
4. Expansion and governanceof information transparency of the company as an important
link in the development of CG.
5. The development of the stock market as an essential link in improving of the market CG
is a an important indicator of the level of development of CG in the country
6. Improving the governance of the interaction of participants of corporate business on the
principles of CG. Settlement of corporate conflicts.
Assertion of corporate governance principles is the fundamental stage in the development,
of CG as well as corporate business in Kazakhstan. The first step towards this should be the
awareness by property owners and leadership of corporations objective need to strictly follow the
principles of CG to realize the economic content of corporatism in market relations.
The modern period of economic development of Kazakhstan is characterized its
recognition by the international community as a country with a market economy. In the Republic
formed a new institutional environment, where the decisive role is played by private property. It
exists in various shapes and forms - from individual to sophisticated corporate in the form of
joint-stock companies with complex organizational structure, various composition of
participants.
Investigation the ways to improve the governance of economic development in the country
at all levels, considering the specificity of Kazakhstan and taking into account international
experience, brings to the forefront the problem of corporativity and corporate governance. This
problem in concentrated form is reflected in corporate business formation and development in
the country which provides the necessary investment and a business climate in general, gives a
new quality of economic growth in the country.
Associations of people in organizational groups to work together implies, firstly, the
participation of both physical and legal entities, such as creating a joint-stock company;
secondly, creation the necessary rules for the conduct of such activities, without which control is
ineffective. Adherence to these principles is becoming one of the key issues for the efficient
functioning of corporations. Large corporate business structure becomes a powerful industry and
inter-industry structures of economic management of the country. In fact they are supposed to
form the structure of sectoral and cross-sectoral governance in the country.
The relevance of CG is defined by complicating the relationship between proprietors and
managers of enterprises that form the core of CG. If at the initial stage of market reforms in
Kazakhstan are often combined in one person, but now owners of shares (proprietors), as well as
throughout the "civilized world", are increasingly forced to hire professional managers. In
addition, the complicated relationship between different groups of shareholders in corporation:
small and large, controlling and a blocking, etc. This whole tangle of relationships should be
regulated by the principles of CG.
The emerging in Kazakhstan a system of CG is characterized by certain features:
- A permanent process of redistribution of ownership in a corporation;
- Specific motivation of many insiders (managers and major shareholders) associated with
the control of financial flows and the "output" assets of the corporation;
- The concentration of shares (controlling stake) in the hands of the directors or the CEO ;
- Week or atypical role of traditional "external" corporate governance mechanisms (market
securities, bankruptcy, the market for corporate management and control), etc.
A significant drawback in corporate governance is the absence of equitable representation
of members of the corporation. No clearly defined calibrated system of separation of powers,
rights, responsibilities and functions between the different levels of the control system, as well as
between the parties to the decision making process. This situation is one of the threats to the
economic security of the corporation.
The high degree of centralization of corporate governance leads to a low level of economic
independence divisions of the corporation. For asuch control system is characterizedrigid
subordinated submission of the lower-level leadership to senior managers and indirectly the
directors and directly to General Director, in which they often do not bear the corresponding
liability for the results of economic activity. It is largely an obstacle to the formation and
development of corporate governance.
It is important to realize that CG - it's too complicated process, hoping that one person can
perform equally well all managerial roles (functions). Each role requires a special style. Roles
that participants of the process of corporate governance have to play are in conflict. Therefore,
one person will never be able to perform them all at the same time. This a whole tangle of
relationships should be regulated by the principles of CG.
Among the difficulties, encountered in the way of corporate restructuring, should be called
the lack of understanding of many of their leaders of what constitutes a CG, corporate culture,
business ethics, rules of the economic game, the code of corporate conduct or principles, etc.
A CG in Kazakhstan so far vulnerability in terms of transparency of ownership.This is
manifested in insufficient transparency of possessive and controlling structures. The opacity of
the ownership structure of companies often does not allow shareholders and potential investors
to have a correct understanding of the mechanism of control, which, of course, increases their
risk of possible involvement in the Kazakhstan projects. Still fails phase constant struggle for
power between different interest groups in the companies.
Research has shown that many corporations actually do not belong to the shareholders and
groups of individuals controlling the company through a combination of legal and illegal
methods. Often the real owners generally difficult or even impossible to detect because there are
no register.And, as sayRadygin A. and G. Sidorov “shareholders, who are members of the
controlling group, act on a single scenario developed by the real owners. In this case, the claims
to the actual owners of injury to the ordinary "outsider" is not possible - the owners are hidden
behind many structures.” In other words, a feature of many corporation of countries with
transitional economies has been the identification control of the controlling shareholder. The
reason is that, for fear of losing control over their capital, as well as control over financial flows,
some proprietors not willing to risk even to delegate operational management of the corporation.
Therefore it is quite understandable that on the set of Kazakhstan corporations General
Director retains many levers uncontrolled influence but the control system is authoritarian. As a
result, losts the integrity of the corporation as a coherent totality of human resources, tools and
objects of labor.All this eventually reduces the competitiveness and the market value of the
corporation.
It should be emphasized that the concept of CG makes sense only if there is a separation of
ownership from management and finance department, at least, certain sources of finance, from
the management of the corporation. Exactly separation of functions of the owner and manager
defines the essence of the modern corporation and necessitates implementation of the system of
CG.
Based on the foregoing, it can be concluded that in countries with transitional economies
and domestic conditions formed a distinctive model of CG. Call it the CG model of the transition
period. In this model, there are also the owners, and hired managers, but their powers in the
company are not strictly separated.
In this model the transition does not occur directly the separation of ownership and
management of the property. On the contrary, there is a powerful line: Owner - Board of
Directors - Management, part of which forms the core of management, the company performs as
a business function and control. One of the main drawbacks of this model is that the
administrative core is a kind of internal joint-stock company, a substitute for all the formal
corporate governance mechanisms. Interests of those who did not get into the core of
management, with no protection. In these circumstances, there is inevitably a continuous struggle
for the interception of the entrepreneurial function, which, in turn, allows to effectively manage
the company even for highly professional management and create a sustainable competitive
advantage.
If we analyze the external factors that would have to discipline the internal processes of
CG, then we have the following picture. Financial markets are poorly developed in Kazakhstan,
ineffectiveand therefore stock prices do not reflect the real value of companies. There are no
financial instruments, the yield of which could be taken as a starting point in determining the
discount rate. Because of this, it is very difficult to determine the value of the company and its
dynamics, therefore, virtually no important disciplining management indicators - the market
value of the company and the market CG and control.
Thus, even if the mechanisms of CG formallycreated correctly, they do not work cause of
external mechanisms do not discipline the behavior of shareholders, managers do not stimulate
the growth of the share capital. This finding supports the need to consider all parts of the CG, a
systematic approach to the concept of corporate development in Kazakhstan.
Solving the problems of transition to CG of modern Kazakhstan is a key character since
offers opportunities to attract cheaper capital, increasing the market value of companies.
Developing a practice of CG should be considered as part of the overall process of
modernization of the country, which covers not only private but also a public sector, which is
one of the really active partners in corporate structures. It is important to emphasize that this is a
way for solving the problem of creation the strategic management process of formation of
competitiveness of Kazakhstan's economy.
It is necessary to emphasize the importance of the evolutionary stage formation and
consolidation of corporate governance principles, reflecting different stages of development and
maturity of the corporations and the associated growing domestic needs and external stimuli
debugging corporate mechanisms.
Justifying the need for a radical change in the mechanism of decision-making in
Kazakhstan corporations, use the recommendations of G. Kleiner, who offers the following
structure: each person involved in the activities of the corporation, is one of the four factors of
production: firstly, workers - work; secondly, the shareholders - financial capital; third, the
control of the enterprise - organizational and technological factors; fourth, CEO - entrepreneurial
activity.
On the basis of this structure is proposed scheme is a modern model of CG. To implement
this scheme is necessary to ensure that all individual participants (employees, shareholders,
managers) the possibility of democratic representation, coordination and consolidation of
interests within their functional group and between groups - social contract in the interaction in
the decision-making process. In this case, the main direction of the vector of common interest
must meet the interests of the corporation as a whole.
At present, the activities of corporations regulated by a variety of instruments such as the
Civil Code, the Labor Code, the Law "On Joint Stock Companies", "On Insolvency (Bankruptcy)
of Enterprises", the documents relating to the statistics, accounting, etc. In each of these
documents allows for the selection of certain administrative or organizational decisions. And this
is an opportunity for unscrupulous businessmen to seize weak enterprise through bankruptcy,
cheating partners, violation of the rights of employees and shareholders.
In Kazakhstan, the current stage of development of business should be held under the
slogan of corporate development and full-scale development of corporate governance principles
at all levels of government. To implement this concept, it is necessary:
To transfer from the model of CG transition period to a modern model based on
international principles of its construction. The proposed model of CG presupposes the existence
of effective securities market and a such important and disciplining management indicators as
the market value of the company and the market CG and control.
Prepare and adopt a law "About Corporation" which defined in a set of basic principles and
norms of its activity as an integrated socio-economic business entity economy. It is necessary to
exclude the possibility of hostile takeovers of companies, based on different interpretations of
the law, through bankruptcy, cheating partners, violation of the rights of employees and
shareholders, ie raiding and better secure the rights and responsibilities of all stakeholders CG
and corporate business as a whole, its organizational forms.
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Kosolapov G.V. Economic security and cost management business // Sayasat, - 2007.- №1.p.26
Rodygin A., G. Sidorov The Russian economy: one hundred years of solitude? // Questions
ekonomiki.- 2000.- №5 - p.45-61
http: / www.vestona.ru/str-sys.htm
New Kazakhstan in the new world.Message from the President of the Republic of
Kazakhstan NursultanNazarbayev to the people of Kazakhstan. // Kazakhstanskaya Pravda,
02.03.2007
OECD Principles of Corporate Governance. - 2004 - www.source OECD.org.
G. Kleiner Who and how to manage the Russian enterprises .// Independent gazeta., 2001.May 8th.
See. 1
Patyurel R. Creation of network organizational structures. // Problems of the theory and
practice of upravleniya.- 1997.- №3- p. 20.