Financial sector reforms communications taskforce, experts and market players: institute of independent directors is as a prerequisite for improving corporate governance


Kyiv, October 12, 2015. Creating an institute of independent directors is a key component for improvement of corporate governance which would result in increasing trust in financial instruments, according to panelists of a round table discussion on “Corporate management as a tool to restore trust and fight corruption in the banking system” organized at Ukraine Crisis Media Center as part of Ukraine Reforms Communications Taskforce.

Oksana Paraskieva, Investor Relations Agency partner, said that there is high demand for new, quality corporate governance, as trust in the financial sector is low. According to Paraskieva, a survey conducted in March 2015 shows that about one third of Ukrainian citizens do not trust banks at all and another 50 percent would trust them with only with a small amount of money. In fact, it is the level of the management quality the society made to banks supervisory boards whose responsibility is monitoring development of financial institutions. According to the expert, one of the key elements of corporate culture in Ukraine is excessive commitment to the interests of a narrow group of major shareholders; 85 percent of respondents mentioned this issue in one of the surveys. “This crisis of trust can be defeated by broadening the concept of stakeholders considered in Ukrainian corporate governance. Boards must defend all stakeholders’ interests,” says Paraskieva.

A change in approach to supervisory boards’ (boards of directors) formation is needed to turn the situation around. A new law compels banks to have at least one quarter of boards made up of “independent directors”. This requirement is effective starting 2016. Analyzing the prospects of its implementation by banks, Paraskieva mentioned the absence of a unified list of requirements independent directors must meet, as different laws are interpreted in different ways.

Vladyslav Rashkovan, deputy head of the National Bank of Ukraine, is convinced that professionalism is to become the key criterion to select candidates for independent directorships. Moreover, they are to receive decent remuneration for their work. Independence of the boards will be impossible unless this condition is met. “Bank supervisory boards are to become efficient management bodies, not an instrument for legitimization of bank owners’ decisions. This refers to both private and state banks,” says Rashkovan.

Rashkovan suggested something similar to a self-regulating body might be created, for instance, on the grounds of a bank association. It would conduct certification of supervisory board members and take care of their training and retraining, so that they are able to make proper management decisions. Lots of important issues are within supervision councils’ competence. I don’t want to hear board members again saying that they are only signing papers and not making decisions. They are to understand the responsibility they bear for their actions when they sign something. We are to create a market of professional independent directors where banks compete with one another for quality directors in order to improve their corporate governance,” suggests Rashkovan.

Timur Khromaiev, Head of the Securities and Stock Market National Commission, believes that corporate development strategy is a guarantee against possible attempts of manipulations from agencies’ owners and pressure exertion upon the council of directors. “Supervisory boards must not be controlling shareholders’ puppets. Nevertheless, there must be a strategy, not manual management. Supervisory councils are to be guided by this strategy and manage the board,” says the Head of the Securities and Stock Market National Commission.

Khromaiev said certain criteria an independent director must comply with, such as absence of conflicts of interests, are relatively subjective, as they are defined by companies themselves as well as the candidate’s perception. “What matters here are the requirements on information disclosure and responsibility for violations,” emphasized Khromaiev.

Analyzing the progress of corporative reform launched in Ukraine, Paraskieva laid emphasis on slow implementation concept of “corporate secretary institute” in Ukraine. It is one of the key elements of reform as it is a link between management, shareholders and the third parties, i.e. auditors, lawyers, governmental bodies etc. It also provides management structures with information of the company’s compliance with legislation. Banks’ compliance with the requirement on corporate management code is declarative. The situation with the code of conduct is similar. “The expert also mentioned absence of drastic change in the procedure of banks supervisory board formation. An assumption that foreign banks’ arrival would lead to importing positive corporate cultures was popular in Ukraine. Unfortunately, this did not happen and corporate culture in Ukraine remained virtually unchanged,” stated Paraskieva.

Roman Sulzhyk, Head of the Supervisory Council of the National Securities Depository believes that the requirement for independent directors and corporate secretaries will not automatically lead to major changes in corporate culture. “Banks will not be competing for investors’ funds in Ukraine and all these requirements will remain a formality until a real capital market emerges in Ukraine. The culture will not change,” says Sulzhyk.

Other participants of the roundtable:

Taras Kozak, President of the UNIVER investment group, member of financial sector reform taskforce
Victoria Strakhova, project manager of Financial Sector Reforms at the National Reforms Council
Iulia Sobko, Strategic Communications Director at Alfa-Bank Ukraine
Oleksandr Nikishev, managing partner at Investor Relations Agency