Corporate Russia in general doesn't have a great reputation when it comes to governance. Often that is because of historical, social or political factors that are often completely misunderstood by the outside world. But it is also true to say that many Russian companies pay little more than lip service to the concept. It's time for that to change.

Transparency International press releases usually aren't the first place one looks for investment themes, but this week they have hit the nail on the head, ranking Gazprom 98th out of 105 global counterparts for corporate transparency. It isn't just Gazprom, however ­ much of corporate Russia seems to enjoy making communicating with investors, the business media and investment analysts as much of a slog as possible. But what Transparency International is seeing as a transparency issue is actually the tip of a bigger issue known as corporate governance.

It just so happens that the TI comments about Gazprom (and it is hardly a Gazprom-specific issue) come in the same week as an Aton report that goes right to the core of the issue. This identifies two key points. The first is that companies that have a better understanding of corporate governance tend to deliver far superior returns to investors. The second is that corporate governance of Russian companies is a big factor in the perception of international investors, which makes capital more expensive for Russian companies.

Aton has taken the 111 companies they cover and allocated them a governance rating, and then divided the companies into four quartiles. Those in the top quartile have outperformed those in the bottom by at least 60 percent and the RTS by 55 percent over the past three years.

Against a backdrop of Russia needing to take major strides in its ability to attract long-term global capital, the report notes that not only has Russia failed to keep pace with developed markets in the past three years, it has been losing ground against rival emerging markets, with Russian valuations heavily discounted. It also notes that the lack of information about corporate Russia means that global investors can overlook companies with a good track record, and simply apply the most conservative, and expensive for corporate Russia, capital costs. This doesn't just cost individual companies, it costs the entire economy.

Now is very much the time to act. The new Civil Code, adopted in March, brings in a range of provisions relating to corporate behavior, in particular an emphasis on "good faith" conduct of corporate relations by all participants. The changes and the shift toward International Financial Reporting Standards for many Russian companies means that there will now be a legal impetus and an internationally recognized mechanism for corporate Russia to account for its actions.

Improving governance will still leave corporate Russia captive to the many negative perceptions about business in Russia which pervade the global business press. But it is the one clear issue that can be addressed at company level, and that brings overt advantages for the company and investors. It is time to start.

Keywords: Russia, Business, Investment - Russian News - Russia

Corporate Russia in general doesn't have a great reputation when it comes to governance. Often that is because of historical, social or political factors that are often completely misunderstood by the outside world. But it is also true to say that many Russian companies pay little more than lip service to the concept. It's time for that to change.

Transparency International press releases usually aren't the first place one looks for investment themes, but this week they have hit the nail on the head, ranking Gazprom 98th out of 105 global counterparts for corporate transparency. It isn't just Gazprom, however ­ much of corporate Russia seems to enjoy making communicating with investors, the business media and investment analysts as much of a slog as possible. But what Transparency International is seeing as a transparency issue is actually the tip of a bigger issue known as corporate governance.

It just so happens that the TI comments about Gazprom (and it is hardly a Gazprom-specific issue) come in the same week as an Aton report that goes right to the core of the issue. This identifies two key points. The first is that companies that have a better understanding of corporate governance tend to deliver far superior returns to investors. The second is that corporate governance of Russian companies is a big factor in the perception of international investors, which makes capital more expensive for Russian companies.

Aton has taken the 111 companies they cover and allocated them a governance rating, and then divided the companies into four quartiles. Those in the top quartile have outperformed those in the bottom by at least 60 percent and the RTS by 55 percent over the past three years.

Against a backdrop of Russia needing to take major strides in its ability to attract long-term global capital, the report notes that not only has Russia failed to keep pace with developed markets in the past three years, it has been losing ground against rival emerging markets, with Russian valuations heavily discounted. It also notes that the lack of information about corporate Russia means that global investors can overlook companies with a good track record, and simply apply the most conservative, and expensive for corporate Russia, capital costs. This doesn't just cost individual companies, it costs the entire economy.

Now is very much the time to act. The new Civil Code, adopted in March, brings in a range of provisions relating to corporate behavior, in particular an emphasis on "good faith" conduct of corporate relations by all participants. The changes and the shift toward International Financial Reporting Standards for many Russian companies means that there will now be a legal impetus and an internationally recognized mechanism for corporate Russia to account for its actions.

Improving governance will still leave corporate Russia captive to the many negative perceptions about business in Russia which pervade the global business press. But it is the one clear issue that can be addressed at company level, and that brings overt advantages for the company and investors. It is time to start.