In March 2022, following the Russian invasion of Ukraine, Glass Lewis released a policy update to inform its stakeholders of its amended approach to research in the context of the war. Specifically, we clarified that Glass Lewis:

  • will not provide research on Russian incorporated or listed companies that are subject to sanctions;
  • will recommend that shareholders do not vote on proposals that directly or indirectly concern an individual that is subject to sanctions; and
  • may recommend that shareholders escalate votes against accountable directors at non-Russian companies that have decided to maintain material activities or operations in Russia and whose boards have failed to provide shareholders with a comprehensive risk assessment of this decision.

In light of the unprecedented array of sanctions that were being, and continue to be, imposed against Russian companies and individuals by a number of jurisdictions around the world, Glass Lewis has partnered with OpenSanctions – the leading opensource database of persons and companies of political, criminal, or economic interest – in order to ensure that our research staff and clients are provided with comprehensive and timely information that may be material to their advisory and stewardship duties. Using the OpenSanctions‘ API and on an ongoing basis, we are comparing the Glass Lewis database of 200,000+ recently active public company directors and 22,000+ public companies with the OpenSanctions consolidated datasets. Each potential match that is identified is then manually validated against further external data sources.

From March 9, 2022 through January 31, 2023, Glass Lewis has assisted its clients in identifying 37 general meetings of companies that are subject to sanctions in at least one jurisdiction, involving:

Furthermore, in our analysis of non-Russian companies with a material exposure to Russia, Glass Lewis has included an assessment of the company’s response. This nuanced analysis takes into account, inter alia, the nature of the company’s business model, Russian operations and products and/or services offered in Russia, any disclosed actions or commitments to curtail exposure to Russia, any disclosure regarding the risk evaluation associated with maintaining activities or operations in Russia, and other individual company circumstances, such as its shareholder structure and country of incorporation. In ten separate cases, Glass Lewis recommended that shareholders vote against the re-election of an accountable director on the basis of concerns that shareholders had not been provided with sufficient disclosure on the risk assessment made for the company’s ongoing exposure to Russia.

Changing Corporate Governance in Russia

As detailed in our May 2022 blog post, the corporate governance landscape in Russia has markedly changed since the outbreak of the war.

Over the past year, Russia has progressively raised the barriers for foreign investors to exit their positions in Russian companies. After an initial presidential order temporarily blocked the sale of Russian assets toward the start of the war, new restrictions on foreign shareholders are increasingly focused on legal or natural persons from ‘unfriendly’ jurisdictions – defined as those that “commit unfriendly actions against Russia, Russian companies and citizens.” This list predominantly comprises countries that have imposed economic sanctions on, and/or severed diplomatic ties with, Russia.

While investors from ‘friendly’ countries were granted access to trading in Moscow’s derivatives market after a six-month hiatus, those from ‘unfriendly’ jurisdictions have faced higher hurdles to divest their assets and have reportedly often had to accept stark discounts to do so where possible. A more specific ban on the trading of stocks in strategic companies and those in certain industries has been extended until the end of 2023 and applies in particular to persons from ‘unfriendly’ countries. Additional restrictions on the sale of shares in Limited Liability Companies (the most common company structure for wholly-owned subsidiaries in Russia) were also introduced, likely causing further complications for companies from ‘unfriendly’ jurisdictions that are trying to reduce their footprint in Russia.

Foreign investors are also facing increased barriers in conducting their stewardship duties

A decision by the Central Bank of Russia to temporarily reduce the reporting requirements of credit institutions has been extended to July 2023. While individual and consolidated financial statements complying with Russian GAAP must be submitted to the regulator, banks continue to be prohibited from publishing these in order to reduce sanctions risk. Some banks are however starting to explore methods in which they can increase their disclosure of financial information that is material to investors while continuing to comply with the Central Bank’s restrictions.

Access to information continues to be an issue for foreign investors at almost all Russian companies. We continue to observe that, since the outbreak of the war, the depth and quality of governance information and data made publicly available by Russian companies has substantially reduced. Information on company websites is often outdated, in particular with respect to the composition of the company’s governing bodies and director biographies. In some instances, companies state that access to certain documents is only possible in person at their headquarters, or access to parts of websites has been blocked to non-Russian IP addresses.

Investors, or their representatives, from ‘unfriendly’ jurisdictions may also find themselves frozen out of the decision-making process at some companies altogether. A January 2023 presidential decree permits shareholders from ‘friendly’ jurisdictions of companies in certain industries to pass a decision to revoke the voting rights of ‘unfriendly’ shareholders. If the decision is passed, it also applies to the representatives of such shareholders, i.e. supervisory board members elected through Russia’s cumulative voting system by shareholders from ‘unfriendly’ jurisdictions would also be stripped of their voting rights on board decisions.

Other legal changes may further reduce shareholder influence

Wide changes to corporate law were made at the start of the year, many of which appear intended to provide for the improved ability of companies to operate independently during turbulent times, but which may also further reduce shareholder influence.

Until the end of the year, supervisory boards may continue to operate with fewer than the minimum number of members prescribed in the articles of association, as long as they have at least three members. Companies that are subject to foreign sanctions are entitled to operate without a supervisory board altogether if shareholders authorise them to do so. From this year, all publicly-listed companies may also decide to propose the election of supervisory board members for a period of up to three years, departing from the traditional one-year board terms previously seen in Russia.

Glass Lewis Approach in 2023

Given the ongoing nature of the conflict, Glass Lewis confirms that its research approach in the context of Russia’s invasion of Ukraine, as outlined above, will remain in place for the 2023 proxy season.

In particular, we highlight our belief that non-Russian companies that maintain material activities or operations in Russia should be continuing to provide periodic updates to shareholders on their strategic approach and the board’s assessment of the risks associated with this approach. While we are mindful that some companies may be facing financial, legal, or philosophical barriers in executing their plans to reduce their exposure to Russia, we believe that clear disclosure is crucial for shareholders to be able to evaluate a company’s plans in the context of potential reputational damage that could affect shareholder value.

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Glass Lewis aggregates the data from c. 30,000 public company meetings each year, including individual director and remuneration information. Used in concert with the OpenSanctions data referenced above, Glass Lewis’ data has assisted clients and research analysts to closely monitor emergent and ongoing issues in relation to Russo-Ukraine war. The Glass Lewis data that supports the findings of this blog post, as well as our other datasets, is accessible by request at datarequest@glasslewis.com.

Nicoleta Melnic also contributed to this report.