Calling for Responsible Leadership

Coming below are some thoughts shared by A. Chmel, PricewaterhouseCoopers partner, on the evolving ratings for larger Russian companies and quality of corporate financial reporting and accounting practices.

— What Expert-400 rating trends for the current year appear to be most meaningful?

— The mix of leaders in sales basically remains unchanged, with the limited shifts being primarily generated by relevant mergers and acquisitions: seven companies passed as largest for 2006 just reaffirmed their status for 2005. However, the ranks of leaders in capitalization standings have changed pretty radically. Only two out of the twenty former leaders managed to keep their positions. Importantly, three "upstarts" (that had not been rated for their previous-year capitalization levels) have now made it to the top twenty, the trend not being seen by the top twenty for revenues. But it is too early to conclude whether the capitalization rating effort remains relevant. Clearly, the highly volatile capitalization rating readings, that derive from stock quotations and have little to do with either availability or timely presentation of audited consolidated financial statements, appear to be there for all to see.

— Do you see any linkage between the leadership in ratings and quality of corporate data disclosed for outside users?

— This kind of linkage has just started to be evident in Russia. By way of example, at the close of 2006 the RAO UES of Russia’s sustainable business development report received the annual Russian award "Best Social/Sustainable Development Report". Just to remind, RAO UES of Russia poses as third-largest domestic company in sales and fifth-largest in terms of capitalization. Likewise, other high-visibility domestic companies seek to measure up in drafting and releasing their social, environmental security and sustainable development reports: 35% of the top-twenty companies in sales and capitalization levels are known to be releasing that kind of reports. Annual reports are now drafted and made available by all major Russian companies in terms of sales and capitalization. However, only one in five winners of the "Best Annual Report" competition, run by the Expert RA agency at the close of 2006, has become a top-100 company for sales, with four out of five local winners making it into the top-100 for capitalization. Of course, it would be foolhardy to say that Russia’s leader-companies have come to the fore because of their good annual reports. Yet global experiences have been indicative of the fact that a measure of linkage between the company capitalization particulars and the quality of reporting documents can be identified.

— I wonder if the quality of social reports released by businesses have any impacts on their market valuations?

— Following their research of the practices used to draft annual reports and other statements for Fortune’s Global-500 companies, PricewaterhouseCoopers analysts have concluded that top-of-the-line non-financial reports come from the companies making the world’s leaders. Admittedly, the current Russian practices of writing social and other reports have incrementally been evolving in the right direction. By and large, one can clearly see close linkage between the more successful companies’ capitalization levels and their diligence in drafting social and other non-financial reports. By way of example, aggregate capitalization of the 25 companies releasing social, environmental security and sustainable development reports and taking part in the 2006annual Russian competition for the "Best Social Report/Sustainable Development Report" award came to stand at RUR13.8 trillion – more than half the total capitalization posted by the top-200 companies rated by Expert RA.

— Do you see any tangible improvements in the levels of social responsibility sustained by Russian companies?

— Year in year out we see Russian companies increasingly improving the quality of their dialog with disparate stakeholders and disclosing pertinent data on social commitment practices. Linkage between the aforesaid company engagements and relevant ratings appears to be on the ascent. Obviously, this makes a graphic example of how a good company can exercise its responsible leadership, the notion clearly embracing social, environmental security, commercial and ethics dimensions of business management – the area where PricewaterhouseCoopers has been posing as prime mover for a few years now.

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