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There are consistent differences in disclosure standards between Russian state-controlled and similarly sized public Russian companies, according to a report published on June 7 by Standard & Poor’s Governance Services, titled Transparency And Disclosure By Russian State-Owned Enterprises.

“This is in line with the notion that transparency of state-controlled enterprises is hampered by the tendency of the Russian government and individual officials to use their influence on such companies to promote political or individual goals that often diverge from commercial motives and investor interests,” says Standard & Poor’s governance analyst Julia Kochetygova. “High standards of transparency and disclosure, on the other hand, are a cornerstone in the foundation of good governance. They provide legitimate stakeholders – whether creditors, minority shareholders, taxpayers, or the general public – with the information they need to be able to begin to hold government decision-makers accountable for their actions.”

The surveyed companies scored moderately on transparency, with an average aggregate score of 47% (disclosure of 47% of possible disclosure items). In contrast, the average score for the 10 largest Russian private, listed companies included in a previous study by Standard & Poor’s was 52% (see Russian Transparency and Disclosure Survey 2004: Positive Trend Continues Despite Political Obstacles, published October 13, 2004, on RatingsDirect, Standard & Poor’s web-based credit analysis system).

The study also compared Russian state-owned companies with state-owned industry peers in Western Europe and North America, and revealed an even greater gap: the average score for that peer group is 63%, that is, 16% higher.

More significantly in Standard & Poor’s view, a qualitative analysis of the firms studied shows that, in addition to differences in scope and detail of public reports, disclosure by state-controlled firms suffers from one-off lapses at critical junctures.

“Even if these events are relatively isolated, they have a major bearing on companies’ strategies and performance,” Kochetygova explains. “These lapses, which usually occur when significant stakeholder interests are at risk, undermine Russia’s ability to attract capital at competitive rates, to build efficient and trusted institutions, and maximize its economic growth.”