RUSSIA - Profile - Igor Kostikov.

Chairman of the Federal Securities Commission (FSC), the stock market watchdog, Kostikov was appointed to this post on Feb. 1, 2000 by Putin. Like Putin, he is a native of St. Petersburg and until then was deputy chairman of the financial committee in that city's administration. In the early 1990s he worked with Putin when the latter was the city's deputy mayor.

Kostikov inherited one of the toughest jobs in the government, charged with trying to bring order to Russian's wild capital markets. Although the FSC has designed strict legislation enshrining good corporate governance practices, it has often lacked the political muscle to enforce its decisions. Putin has provided Kostikov the backing the FSC has lacked. His predecessor, Dmitry Vasiliev, resigned in October 1999 amid accusations that the state did not give enough priority to defending investor rights.

Dmitry Vasiliev now is chairman of Russia's Investors Protection Association (IPA), a private body founded in April 2000, trying to protect minority shareholders' interests against the predations of Russia's business "oligarchs". He was quoted in early August as saying Russian managers' struggle to win control of companies and siphon off their cash was heating up. This leads to violations of outside shareholders' rights, including dilution of capital, failure to comply with disclosure requirements, asset stripping and transfer of assets to "friendly" companies, transfer pricing and fraudulent bankruptcies. Takeovers, or changes in management control, have been effected by the use of force.

On the other hand, Vasiliev believes there is growing public and political awareness that poor governance deters inward investment, especially because of the lack of proper financial intermediaries to channel the Russian people's large cash savings into investment. He says the legal framework is not bad, though it suffers from gaps. The principle of "one share, one vote" has been written into law. The real problem is poor enforcement and the ineffectual operation of many courts.

IPA emerged from an initiative called Co-ordinating Centre for Protection of the Rights and Legal Interests of Investors. It is backed by the 25 biggest portfolio investors in Russia. IPA's board includes such foreign fund managers as William Browder, managing director of Hermitage Capital Management, who has played a key role in the revolt against the proposed break up of UES (a state-controlled power utility which is the second biggest company in Russia) into hundreds of separate companies. UES is headed by Anatoly Chubais, for whom Vasiliev worked as deputy chairman of the Russian Federal State Property Committee which privatised huge assets, including oil producing firms, sold at ridiculously low prices. Vasiliev says IPA, which threatened to oust Chubais and was prepared to enlist the support of the press, has persuaded the UES management to adopt a better scheme for a break-up into 15 companies. But some fund managers worry that, in the process, Vasiliev has himself become too close to Chubais.

The oil JVs in which foreign companies are involved have their own association called AssoSPneft, which has been lobbying the government against imposing high taxes and excise duties. Another foreign lobby group is the Petroleum Advisory Forum (PAF), headed by Glen Waller. Other such groups in Russia include the Foreign Investment Advisory Council (FIAC), the American Chamber of Commerce headed by Scott Blacklin, the European Business Club, and the German Business Association. In March 2000 these groups set up a series of joint working parties to negotiate with the government tax reforms, legal and accounting systems and a drive against bureaucracy and counterfeiting. Their move followed a recommendation that they work together from Putin himself, who attended a FIAC meeting earlier in March. These groups were also lobbying for an arbitration process to cut down on lengthy court battles with the tax authorities.