Employee Ownership and Corporate Governance in Russia

Russian corporate governance is full of contradictions. For instance, trade unions in Russia have traditionally been tools of corporate management rather than of employees. In effect, managers in the Soviet period were like feudal lords of their enterprise, despite the highly centralized economic system. Workers usually did not play any active role in management, although they had significant blocks of shares in them. Nonetheless, Russian employees ended up better protected from unemployment than their cohorts in other transition economies. These are just a few puzzles of the Russian post-Soviet transition that this chapter analyzes. For various historical reasons, the idea of employee ownership has traditionally been very popular in Russia. The Soviet system, beginning with the October Revolution, aimed at establishing the dictatorship of proletariat, was built on the rhetoric that a working man is the centre of all government policies. Despite the fall of communism, this Soviet mentality persisted in post-Soviet economy. The designers of Russian privatization, in addition to transferring ownership, also sought to prevent communists from returning to power. To this end, it was necessary to secure wide public support for privatization. Therefore, employee buyouts as the main method of privatization were determined more by political necessity and pressure from directors' and employees' groups rather than by considerations of effective economic policy. As a result, employees gained the controlling stakes in most state enterprises.