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UPDATE 2-Russian govt says will keep clout on company boards

Published 04/22/2011, 02:20 PM
Updated 04/22/2011, 02:24 PM
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* Deputy PM says trustees to replace officials

* Trustees will vote on government orders

* Board initiative comes ahead of presidential vote (Recasts with Putin deputy's quotes)

By Denis Dyomkin

GORKI, Russia, April 22 (Reuters) - A senior Russian official said on Friday the government would keep a strong voice on state-controlled company boards, a blow to President Dmitry Medvedev's drive to curb state influence in the economy.

The remarks quashed hopes among minority shareholders that independent directors may replace officials and underscored the challenge Medvedev faces in putting his stamp on corporate governance and emerging from the shadow of his powerful mentor, Prime Minister Vladimir Putin.

Asserting his authority, Medvedev said in late March that top members of Putin's government must leave the boards of firms such as gas giant Gazprom and oil major Rosneft within months.

Some board chiefs are seen as close Putin allies, and the order was a bid by Medvedev to build up clout ahead of a March 2012 election in which both members of the ruling "tandem" have said they may run.

He has warned that overbearing state influence on the economy could lead to stagnation, suggesting that policies that worked for Russia during Putin's 2000-2008 presidency rule needed to change to attract investment and foster modernisation.

Pressing ahead with his initiative, Medvedev told a meeting attended by Putin that officials leaving the boards must be replaced by "impartial, uncorrupted" professionals and not by "clerks from ministries".

But a top Putin deputy made clear directors replacing officials on boards would put the government's priorities first.

"We will treat these people as professional trustees," First Deputy Prime Minister Igor Shuvalov told journalists.

Shuvalov said that "an independent director acts in line with his vision of what is best for the company's development while a professional trustee acts on the government's orders."

He said officials would leave the boards of more than 1,000 companies, some 950 of which are due to be privatised.

Putin steered Medvedev into the Kremlin in 2008 after eight years as president and has said they will decide together who should run in 2012. Medvedev has shown increasing signs he wants a new term, but analysts say Putin will make the final choice.

"SADDENING FIASCO"

Most Russian firms are traded at a discount to their peers in other emerging markets and analysts explain the discount by poor corporate governance, saying that officials' presence on the boards is partly to blame.

"Medvedev's great idea has turned into a saddening fiasco. What difference does it make who sits on the board if he votes on orders anyway," activist shareholder Alexei Navalny, who owns shares in many state controlled firms, told Reuters.

Shortly after Medvedev's order, Putin's deputy Igor Sechin, Russia's energy tsar, stepped down as chairman of state oil giant Rosneft.

Finance Minister Alexei Kudrin followed suit by tendering his resignation as chairman of VTB, Russia's second-largest lender, and of diamond miner Alrosa.

"Now a new problem emerges, which we must resolve in a worthy way: the people who replace you must be professionals, impartial, uncorrupt and possessing authority on the market," Medvedev said on Friday.

There is still no formal procedure for the replacement of ministers on corporate boards, and many analysts predict the changes will be cosmetic.

Rosneft CEO Eduard Khudainatov has said that Sechin would still control Russia's biggest oil company, and Kudrin suggested the changes would be symbolic because state-controlled companies would continue to represent state interests until privatised.

Medvedev also said that regional officials from the personnel reserve lists compiled by his administration as well as by Putin's United Russia party could serve on the boards. He did not specify whether they should quit their current jobs. (Writing by Gleb Bryanski and Alissa de Carbonnel; Editing by Jon Boyle)

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