The Unintended Benefits of Empowering Boards in Conglomerates: The Case Study of AFK Sistema

Abstract

THE UNINTENDED BENEFITS OF EMPOWERING BOARDS IN CONGLOMERATES: THE CASE STUDY OF AFK SISTEMA 4This paper investigates the role of boards of directors of conglomerate subsidiaries in emerging markets. The paper based on a case study of AFK Sistema-a large diversified Russian business group including subsidiaries in 15 sectors. We show that creating corporate governance institutions at the subsidiary level can have unexpected advantages for the group as a whole and can be used to improve the quality of decision-making in the group. Sistema implemented corporate governance at this level to attract capital and to satisfy the demands of the minority shareholders, but over time started to use the already established institutions of the corporate governance as a tool of corporate management.

Board Empowerment: What Motivates Board Members of Founder-Owned Companies?

“…Second, the article contributes to the research on emerging market companies, which, as mentioned, frequently are characterized by highly concentrated ownership. The literature pays substantial attention to the possible contributions formal corporate governance (including strong boards) can play in this context—for example, by attracting investments (Black, 2001) or improving the communication between companies in a business group (Dolgopyatova, Libman, & Yakovlev, 2018). Our article argues that relying on the resource-provision task of the boards can allow the companies with concentrated founder ownership to overcome a difficult dilemma they face: the need for the founder to stay in control (to ensure the survival of the company) versus the need to access new markets and new partners (in spite of the lack of connections of the founder and reputational problems).…”

“… 8. Similarly, as Dolgopyatova, Libman, and Yakovlev (2018) show, Sistema implemented initial public offerings (IPOs) of several of its subsidiaries and, for this purpose, strengthened their corporate governance and their supervisory boards. …”