Transneft is all well and good, of course, but we’re continuing to work on Rosneft too. Especially since the company has had such wonderful achievements: * Russia’s largest companies have become more transparent in terms of disclosure compared with last year. That is according to a report by the international rating agency "Standard & Poor’s" and the Center for Economic and Financial Research and Development. As last year, the compilers of the ranking once again awarded first place to "Rosneft." *////// How delightful: first place in the transparency ranking goes to a company that - refuses to provide shareholders with basic information that they are entitled to by law; publicly states that it wants to give different shareholders different amounts of information, depending on whether it likes the shareholder or not; challenged in the Constitutional Court a provision of the law that gives shareholders the right to receive information. Of course, I understand all that. There can be different assessment methodologies. Different criteria can carry different weights and affect the final score in different ways. And something like “having an English-language website” can significantly boost a company that is not actually transparent. One could even, with an ironic raise of the eyebrow, say that the indicator “friendship with shareholder Navalny” cannot be quantified mathematically and therefore cannot be taken into account when compiling the ranking.
However, in any case, a ranking should correctly reflect the main trends and dynamics. It should be, at the very least, a general guide. This S&P ranking, with all due respect to the company, points in the wrong direction. Which is harmful. Because the crooks at Rosneft wave this ranking around at every shareholders’ meeting like tribesmen shaking a tambourine: how can you make complaints against us when S&P itself approved us? As I promised, we have prepared a polite letter to the Standard & Poor’s people on this subject. We’ll publish the reply. ** *Mr. Alexei Novikov Managing Director, Office Head Russia/CIS Standard & Poor’s Dear Mr. Novikov: The purpose of this letter is to alert you to the extreme deficiencies in corporate governance at Russian oil producer OAO Rosneft. The company’s shares are quoted in Moscow and on the London Stock Exchange in the form of GDRs. For several years I have been openly critical of a number of issues with Rosneft corporate governance and its dubious business practices. A new development at Rosneft has sunk the level of respect for shareholders rights and the rule of law to a new unacceptable low. The facts herein should be helpful to you and the wider international investment community in evaluating the corporate governance and transparency practices of the company and the attractiveness of its stock. The Russian Law on Joint Stock Companies (Article 91) is unambiguous in stipulating that any shareholder can request certain information, including the minutes of the board of directors' meetings. Over the last year I have requested and successfully received the board minutes of a number of major Russian companies, including Gazprom, Surgutneftegas, InterRAO and many others. Rosneft, on the other hand, has blatantly refused to provide its board minutes. I filed a claim with the Moscow Arbitrage Court which ruled in my favor in August 2010. Rosneft decided not to comply with the law and the court decision, but to appeal it. The text of the appeal makes quite a fascinating reading (a translated copy is attached to this letter). The following aspects of Rosneft position are worth highlighting: Rosneft alleges that by requesting all board minutes in respect of 2009 I exceed the scope of rights afforded to me by the law. They claim that the relatively small size of my shareholding should not give me the right to obtain access to requested information. In other words, transparency to shareholders is the function of the size of your stake, not a universal shareholder right. In addition to contradicting the Law on Joint Stock Companies, it is a grossly unfair position contradicting the major principle of fair corporate governance, aimed at ensuring a level playing field for all shareholders regardless of the size of their shareholding. As one of the arguments supporting the position of not providing the board minutes, the company uses the fact that I have not voted at the annual shareholders' meeting in 2010. Linking my right as a shareholder to information access and transparency with my voting at shareholders' meetings is absurd. I am sure that the vast majority of small and institutional investors can relate to my indignation in this respect. Finally, the company uses my reputation as a shareholder activist and the fact that I own shares in a number of Russian public companies as a further basis for denying me the requested documents. By this logic, a shareholder's right to transparency is depending on a range of factors, including your other investments, your civil activities, and unrelated litigation. I am confident that the appeal court will uphold the first ruling, which is directly based on the provisions of Russian law. However, the abusive attitude of Rosneft to the rights and interests of its minority shareholders should be known to the investment community. I hope you will also consider the Rosneft stance on this issue in your regular review of its corporate governance and transparency ratings. Rosneft’s top position in the recently published 2010 Standard & Poor’s Transparency & Disclosure Report is highly inconsistent with its non-compliance with local disclosure rules and maybe misleading the investment community. It seems like an unfortunate oversight that among more than one hundred transparency criteria listed in your report disclosure of minutes of the board as required by the Russian law is missing. I hope that you will consider including this disclosure aspect for your future reports. As a Rosneft minority shareholder, and a concerned citizen of the Russian Federation, which is its majority owner, I feel responsibility to maintain an uncompromising stance against corporate abuse, corruption and shareholder rights violations. It would be a shame if my efforts are not joined by the general investing public. Rejection of these abusive practices by investors and independent rating agencies will serve as a long due wake-up call to Rosneft management and force them to make amends. Together, we can make Russian corporates more transparent and open and bring the major Russian companies to the universally accepted standards of corporate behavior and governance. Sincerely yours, *Alexei Navalny *Distribution among foreigners close to the subject is welcome. For those who don’t speak the American language, here’s the short version: Guys! We really can’t figure out what the Russian office of S&P is doing. It looks as though instead of working, you’ve sunk into drinking, smoking, partying, card-playing, and other unhealthy excesses. The only way to give Rosneft the “Most Transparent Company” award is if you’re hungover or stoned. Explain how this happened, and then the whole office should go see a narcologist (addiction specialist). To get yourselves coded (a post-Soviet term for treatment intended to stop alcohol abuse). Sincerely yours, Navalny
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