Organizational Patterns of Corporate Control and Business Integration

Abstract

Conjecturing about the evolution of the Russian system of corporate governance continues; however, it would be interesting to answer the question of which model of governance dominant shareholders choose and whether or not they consent to the separation of executive management from company ownership. Reliance on hired management prompts owners to seek other methods of control over a business entity, and they sometimes resort to the use of internal corporate mechanisms. The issue of the gradual separation of executive management from ownership was discussed on the basis of records of 20 in-depth interviews with senior managers of joint-stock companies (JSCs) (Dolgopyatova 2004). In formal terms, separation was recognized when a general director did not own shares and other company managers held little interest. It was demonstrated that as Russian business underwent an intense integration, the ways and means of corporate control also saw extensive change. Some examples are as follows:

• 1. The separation of the ownership and management functions was primarily characteristic of subsidiaries companies within company groups.

• 2. Formal separation resulted in real changes in the distribution of competencies, gradual delegation of some managerial issues to hired managers, and, in particular, production and operational issues and some strategic issues related to logistics and marketing.

• 3. Separation contributed to a more active use of internal mechanisms of corporate governance (boards of directors) by dominating owners to exercise control over hired managers.