February 23, 2012 -- IFC recently helped improve the legislation on corporate governance in the Kyrgyz Republic to protect minority shareholder rights. A new law on joint-stock companies, drafted with IFC’s support, introduces mandatory cumulative voting, giving minority shareholders more power to put their representatives on boards of directors.
“IFC helped us draft this new law that will stimulate investors acting as a minority shareholder by ensuring their participation in corporate operations,” said Roza Aknazarova, member of the Kyrgyz Parliament. “The old procedure of forming a board of directors in joint-stock companies did not protect all shareholders, as it forced companies to depend on the opinion of one majority shareholder.”
IFC’s survey of corporate governance practices shows that Kyrgyz private companies elected board representatives by simple majority, which decreased minority shareholders’ ability to defend their interests.
In Kyrgyz state joint-stock companies, the board’s composition and independence have been controlled by major shareholders only, thus hindering boards’ main functions, which are to set strategic guidelines and oversee management. Political intervention and controlling shareholders’ engagement in activities advancing their own interests at the expense of minority shareholders have also negatively impacted the corporate governance of local corporations with state participation.
The implementation of cumulative voting by state and private companies will address these issues of local corporate governance specifics and result in more equitable treatment of all shareholders, including foreign and minority ones, boosting investor confidence in the fairness of corporate management practices in Kyrgyz companies.
“By adopting the new law, the Kyrgyz Republic continues to improve the legal environment for more than 2,000 joint-stock companies in the country,” said Sergii Tryputen, IFC Central Asia Corporate Governance Project Manager. ”Implementation of the new law protecting minority shareholders should attract more investments into local companies.”
IFC supports the Kyrgyz Republic’s efforts to improve corporate governance practices through its Central Asia Corporate Governance Project, implemented in partnership with the United Kingdom’s Department for International Development, DFID.