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survey corporate governance practices

in kazakhstan

IFC Advisory Services in Europe and Central Asia

IFC Central Asia Corporate governance project (kazakhstan)

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The materials contained in this report represent generalization of the survey results carried out from October 2007 to June 2008 of 97 joint-stock companies in Kazakhstan, including ten commercial banks. The information in the report is presented exclusively for the purpose of familiarization. IFC/World Bank Group shall not be liable for the accuracy of the information contained in the report.

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IFC Central Asia Corporate Governance Project (Kazakhstan) 41А Kazybek Bi, 3d floor, Almaty, 050010, Republic of Kazakhstan Tel.: +7 (727) 2980 586, Fax: +7 (727) 2980 584 www.ifc.org/cacgp

survey corporate governance practices in kazakhstan

IFC Advisory Services in Europe and Central Asia

IFC Central Asia Corporate governance project (kazakhstan)

2 Survey. Corporate Governance Practices in Kazakhstan

Contents

MAIN OBSERVATIONS AND FINDINgS .................................................................................................4

the Governance and ownership Structures .................................................................................................................. 4

adherence to high corporate Governance Standards ............................................................................................. 4

the Shareholder rights ................................................................................................................................................................ 5

the information disclosure and transparency .............................................................................................................. 5

INTRODUCTION ........................................................................................................................................6

the objective of the Survey ...................................................................................................................................................... 6

the Scope of the Survey.............................................................................................................................................................. 7

the Survey Methodology ........................................................................................................................................................... 8

the General information on the Sample .......................................................................................................................... 8

respondent information (Joint-Stock Companies) ...................................................................................................10

gOVERNANCE AND OWNERSHIp STRUCTURES ...............................................................................12

investments and the Corporate Governance ...............................................................................................................15

ADHERENCE TO HIgH CORpORATE gOVERNANCE STANDARDS ..................................................17

Plans on Corporate Governance Practices improvement.....................................................................................20

Factors impeding Corporate Governance Practices improvement ................................................................24

Controlling and Supervisory Bodies in Joint-Stock Companies ........................................................................28

availability of a Corporate Secretary Position ..............................................................................................................28

advice on Corporate Governance issues ........................................................................................................................28

SHAREHOLDER RIgHTS .........................................................................................................................30

Convening a General Meeting of Shareholders (GSM) ...........................................................................................32

INFORMATION DISCLOSURE AND TRANSpARENCY ........................................................................33

CONCLUSION ...........................................................................................................................................35

3

Acronyms Used in the Report:

JSC – Joint-Stock Company

kASE – Kazakhstan Stock Exchange

LSE – London Stock Exchange

gMS – the General Meeting of Shareholders

IFRS – the international Financial reporting Standards

IFC – the international Finance Corporation

OECD – organization for Economic Cooperation and development

Rk – the republic of Kazakhstan

BoD – the Board of directors


the governance and ownership structures 1. the joint-stock companies in Kazakhstan are characterized by high concentration of

ownership. in the majority of JSCs (67 percent) involved in the survey the number of shareholders does not exceed ten.

2. there is an affiliation among shareholders in approximately 25 percent of joint stock companies. the most common form of affiliation is partnership in business, which is not directly associated with a joint-stock company.

3. in a relatively small number of joint-stock companies the shareholders’ relatives are members of the board of directors (11 percent) or the executive board (10 percent).

4. the content of the charter documents of joint-stock companies with different numbers of shareholders does not have significant differences.

5. during five years preceding the survey, the majority of Kazakh joint-stock companies elected not to attract foreign investment and preferred to borrow from Kazakh legal entities.

6. over 50 percent of respondents noted that their companies anticipate attracting foreign investment during next three years. the majority of respondents from those companies, which do not anticipate attracting foreign investment during next three years referred to the fact that internally generated cash flows are sufficient to meet the investment needs of the company.

Adherence to high corporate governance standards1. the major part of Kazakh joint-stock companies are not familiar with basic interna-

tional corporate governance documents; however, many Kazakhstan JSCs consider enhancement of their corporate governance practices as an opportunity to improve their company’s image.

2. the majority of joint-stock companies (53 percent) have been transformed into JSCs following privatization or as a result of reorganization from another legal form. Forty-seven percent of companies have been initially registered in the form of a joint-stock company.

MAIN OBSERVATIONS AND FINDINgS

Main observations and Findings 5 5

3. all Charters of the banks participating in the survey rather comprehensively spell out the general principles of shareholder rights protection and procedures for convening a general meeting of shareholders. Less attention in the Charters is paid to rotation requirements regarding an external auditor or a responsible partner of an auditing firm, appointment and functions of a Corporate Secretary and conflict of interests resolution procedures.

4. in the majority of JSCs the Board of directors is responsible for approval of internal documents.

5. the major part of companies (52 percent) and banks (68 percent) consider a com-pany’s/bank’s investment attractiveness enhancement as one of the most important corporate governance goals.

6. Most of the respondents consider introduction of iFrS, development and adoption of a Corporate Governance Code and implementation of the internal control system as priority measures to improve the their corporate governance practices.

7. the main factors impeding improvement of corporate governance of banks include legislation, which needs to be modified, lack of information/knowledge and shortage of qualified professionals.

the shareholder Rights1. a general meeting of shareholders has larger authority compared to the board of

directors and executive body in the approval of the dividend size, share issues and annual financial statements.

2. the main information channel notifying shareholders of the date and venue of the general meeting of shareholders is the advertisement in mass media.

3. Normally, shareholders are informed of a general meeting of shareholders more than 30 days in advance (in companies – 40 percent, in banks – 60 percent).

the information disclosure and transparency1. the information on compensation of the board and the executive body members

is, factually, unavailable (in JSCs 85 percent of respondents mentioned this fact, in banks – 70 percent).

2. in JSCs the main information channel is an investor’s inquiry (59 percent), in banks – a public annual report, published on a bank’s website.


The International Finance Corporation (IFC) was established in 1956 and is a member of the World Bank Group with the status of a special organization of the United Nations. iFC’s sustainable economic growth in developing countries is achieved through private sector investment, mobilization of capital in domestic and international financial markets and provision of advisory services to businesses and governments.

Nowadays, iFC is one of the largest international organizations, which provides funding to private entities and renders technical assistance in cooperation with donor countries in order to attract private sector investment and create favorable conditions for doing business.

IFC Central Asia Corporate governance Corporation (the project) was launched in 2006 to assist companies in Kazakhstan, tajikistan and the Kyrgyz republic in improving their corporate governance practices, as well as strengthening the capacity of joint-stock companies in these countries to attract domestic and foreign investment.

the mission of the Project is to improve corporate governance practices of companies, including banks. to meet these objectives, the Project’s experts regularly deliver seminars and provide individual advice in order to raise awareness of companies of best international corporate governance practices. the Project also embodies the “Pilot Program”, which assists individual companies in developing and implementing recommendations on the improvement of their corporate governance practices.

the objective of the surveythis survey was conducted by BISAM Central Asia LLP from october 2007 to June 2008 upon request of the Project. the main objective of the survey is to analyze the practices of corporate governance in Kazakh joint-stock companies in order to evaluate their effec-tiveness, as well as consistency of the practice requirements with the national legislation and best international corporate governance practices.

the survey aims at identifying the relationship between the size, the shareholding structure, the management structure and the effectiveness of corporate governance, as well as areas, in which corporate governance practices in Kazakh companies need further

INTRODUCTION

introduction 7

improvement. the data collected in the course of the survey represents the practices of the companies existent in 2007.

the scope of the surveythis survey represented the first study of its kind in the republic of Kazakhstan. those republic of Kazakhstan joint-stock companies have been selected as the general popula-tion, in which the government or foreign entities were not a sole (100 percent) or a major shareholder (over 50 percent); additionally, these entities should be fully operational with the staff of no less than 50 employees. Further, the survey involved the commercial banks of Kazakhstan, the controlling block of shares of which (over 50 percent) did not belong to the government or foreign persons and the operations of which were not suspended by the governmental authorities. the sample size was 87 joint-stock companies (JSC) and 10 commercial banks.

out of 1,8 thousand joint-stock companies registered in the republic of Kazakhstan as of the beginning of the survey (January 1, 2007) 150 JSCs satisfied these criteria as a result of interviews carried out 97 JSCs were selected, including 10 banks. thus, the minimum sample size should be 100 joint-stock companies. therefore, 97 JSCs involved in the survey are representational, taking into account the confidence interval of 90 percent with 10 percent sampling error.

taking into consideration that the business activity in Kazakhstan is concentrated in major cities, 55 percent of the sample is represented by joint-stock companies, registered in almaty. the survey covered 11 major cities in Kazakhstan.

Schedule 1. The Survey Coverage of Major Cities and Towns of kazakhstan

N Cities and Towns of Kazakhstan

Joint-Stock Companies

Banks Total

1 almaty 48 10 58

2 aktau 1 – 1

3 aktobe 2 – 2

4 astana 3 – 3

5 Karaganda 4 – 4

6 Kostanai 1 – 1

7 Petropavlovsk 3 – 3

8 Semei 2 – 2

9 Ust-Kamenogork 7 – 7

10 Uralsk 3 – 3

11 Shymkent 13 – 13

total 87 10 97


the survey Methodology a questionnaire was developed prior to interviews with respondents (field work). in the course of field work preparation the Project staff held a series of training sessions for interviewers. the interviews were arranged beforehand and held on a face-to-face basis at the workplace of one or more respondents (employees/owners of a company). all of the surveyed respondents held the following positions:

1. the Board Chairperson2. the Board Member3. the Board Member – independent director4. the head of the Executive Body5. the Executive Body Member6. the Chief accountant7. the Financial director8. the Corporate Secretary9. the head of the Corporate Governance department10. the head of the Legal department/the Chief Legal officer11. the head of the Compliance department.

the general information on the sampleto conduct the survey the sample of companies was formed on the basis of data of the republic of Kazakhstan Ministry of Justice as of January 1, 2007. the sampling frames were built taking into account the distribution of respondents by districts within the country.

the sample was a simple random, i.e. the entities fell sampled randomly, resulting in equal and zero probability for each company.

regarding the sphere of activity, the majority of JSCs (53 companies), which par-ticipated in the survey operate in the area of general manufacturing and services (61 percent); 14 JSCs (16 percent) operate in the financial market, 9 JSCs (10,3 percent) repre-sent agriculture and food industry, 8 JSCs operate in infrastructure (9,2 percent), 3 JSCs are involved in petrochemical and mining industries (3.5 percent). the General Manufacturing and Services category includes the following sub-sectors:

1. Motor vehicles2. aviation3. Construction and construction materials4. Consumer services for business and recreation5. Service maintenance for electronic devices and technical equipment6. Services in hotel and tourism business.7. Machine building and metals industry8. Pharmaceutical industry. retail/Wholesale9. textile, sewing and leather products industries10. Wood-working and pulp-and-paper industries11. Metallurgical plants.

introduction 9

the financial market is represented by companies, which provide such services, as: equity and credit finance, insurance, leasing, pension funds, micro-credit/micro-finance, private equity capital and investment funds.

Nine respondents from 87 JSCs represented agriculture and food industries (livestock and poultry farming, processing and packaging of products, dairy farming and fruit and vegetable industry).

among infrastructure companies involved in the survey, 8 JSCs participated in produc-tion and distribution of electricity, ports and logistics, transportation and travel business, water supply, sewage and utilities, telecommunications and information technologies.

Petrochemical and mining entities included the following:

1. Mining2. oil and Gas recovery3. Production of organic/inorganic substances4. Production of petrochemicals and fertilizers5. oil refinery.

Figure 1. Industries Included into the Survey, in %

total Production and Services

Financial Markets

agriculture and Food industry

infrastructure

Petrochemical industry and Mining

0 10 20 30 40 50 60

53

14

8

8

3

Schedule 2. Sizes of Joint-Stock Companies Included into the Survey

N Size of Company (Total Number of Employees)

Number of Employees Percent

1 26–50 7 8

2 51–100 13 14,9

3 101–150 12 13,8

4 151–250 11 12,6

5 251–500 20 23

6 501–1000 17 20

7 over 1000 7 8

total 87 100


Respondent information (Joint-stock Companies)of all respondents involved in the survey the major share (47 percent) were initially regis-tered as joint stock companies, 32 percent were transformed into joint-stock companies following privatization and 21 percent of entities had been reorganized into joint-stock companies from other organizational legal forms.

Figure 2. Ways of Obtaining a Joint-Stock Company Status, in %

a Company was registered as JSC

Partners on other business activities

a Company was reorganized into JSC from another legal form

32

21

47

respondents from majority of entities, which were originally registered as joint-stock companies or reorganized into joint-stock companies indicated the requirement of Kazakh-stan law as the main reason for choosing this organizational legal form (62 percent), 27 percent of respondents noted an increase in the company’s capital due to additional issues of shares by the existing shareholder, 11 percent of respondents explained the increase in the company’s equity due to disposition of shares to foreign investors and 10 percent of respondents mentioned a large number of founders.

Figure 3. periods of Operations of Companies Reorganized into Joint-Stock Companies, in %

45

25

16

14

over 15 years

From 10 to 15 years

From 5 to 10 years

From 2 to 5 years

introduction 11

at the time of the survey over 59 percent of respondents said that their businesses had been operating in the form of a joint stock company from 10 to 15 plus years. the opera-tional period of other companies (41 percent) was from 2 to 10 years. the largest portion (23 percent) constituted 20 companies, which employed from 251 to 500 people; 17 companies (20 percent) had from 501 to 1000 employees. the smallest portion (8 percent) constituted 7 companies with 26 to 50 employees and 7 companies (8 percent) with the staff exceeding 1000 people.


according to the survey there was a high concentration of ownership: 42 percent of com-panies had 2 or 3 shareholders, 25 percent of respondents were from companies with 4 to 10 shareholders, 2 percent had 11 to 20 shareholders, 3 percent – from 21 to 50 sharehold-ers, 6 percent – from 51 to 100 shareholders, 6 percent – from 101 to 500 shareholders and 16 percent of respondents were from companies with over 500 shareholders.

gOVERNANCE AND OWNERSHIp STRUCTURES

Figure 4. Number of Shareholders in the Surveyed Companies, which have an Organizational Legal Form of a Joint-Stock Company, in %

25

16

23

6

6 42

three and less

From 4 to 10

From 11 to 20

From 21 to 50

From 51 to 100

From 101 to 500

over 500

according to 90 percent of respondents Kazakhstan residents legal persons owned 91 percent of ordinary shares and 9 percent of preferred shares; slightly over 80 percent of respondents said that foreign legal entities own 82 percent of ordinary shares and 18 percent of preferred shares.

Eighty percent of respondents said that the governmental entity/state-owned enter-prise owned 80 percent of ordinary shares and 20 percent of preferred shares. the majority of preferred shares were owned by employees, who were not members of the board and the executive body (38 percent) and by members of the executive body (32 percent) and the board (26 percent).

Governance and ownership Structures 13

Figure 5. Distribution of Ordinary and preferred Shares among Companies’ Owners Involved in the Survey, in %

Legal entities – residents of Kazakhstan

Owners of Companies

Foreign legal entities

Governmental entities/state-owned entities

individuals not included into categories a) or b)

the Board members

the Executive body members

Employees not included into categories a) or b)

0 10 20 30 40 50 60 70 80 90 100

Preffered shares ordinary shares

90.4 9.6

81.8 18.2

80 20

75.8 24.5

73.6 26.4

68 32

62.5 37.5

in banks the quantity of shareholders was, as follows: 10 percent of banks had 3 share-holders or less, 10 percent had 4 to 10 shareholders, 30 percent had 21 to 50 shareholders, 30 percent had 101 to 500 shareholders and in 2 percent shareholders exceeded 500.

Figure 6. Quantity of Shareholding in Banks, in %

three and less

From 4 to 10

From 21 to 50

From 101 to 500

over 500

10

30

30

102

in six banks with one major shareholder, the number of shares, which were in his/her ownership, was as follows: in 20 percent of banks – from 90 to 100 percent of shares, in 20 percent of banks – from 50 to 74 percent of shares, in 10 percent of banks – from 25 to 49 percent of shares and in 10 percent of banks – up to 24 percent of shares. that is to say, we can state the fact of a high concentration of ownership in the banks surveyed, because in 50 percent of banks one major shareholder owned over 25 percent of the bank’s shares.


Figure 7. Quantity of Shares Owned by a Major Shareholder (six banks with one major shareholder), in %

20

10

10

20From 90% to 100% of shareholding

From 50% to 74% of shareholding

From 25% to 49% of shareholding

Up to 24% of shareholding

only 2 percent of respondents reported the existence of a “golden share” in their companies. in banks, 100 percent of respondents said that a “golden share” was not avail-able in their banks. hence, we can make a conclusion that owning a "golden share" is not a common approach in governing a joint-stock company.

Figure 8. presence of Affiliation in Joint-Stock Companies, in %

relatives

Partners on other business activities

No affiliation

18

75

7

according to the respondents' answers regarding affiliation in JSCs we had the fol-lowing picture: there was no affiliation in JSCs with shareholders ranging from 11 to 20, the largest degree of affiliation (100 percent of respondents’ answers) was in JSCs with shareholders ranging from 21 to 50. the summarized statement regarding affiliation based on respondents’ answers from ten banks is, as follows: 100 percent of respondents were from banks with ‘3 or less’ shareholders, the banks with ‘101-500’ and ‘over 500’ sharehold-ers denied the existence of any affiliation. Fifty respondents from banks with shareholders ranging from 21 to 50 informed said that the shareholders were their partners in other busi-ness activities and only 100 percent of respondents with 4 to 10 shareholders noted that their shareholders were associated with each other in other business operations.

Governance and ownership Structures 15

Figure 9. The Banks Belonging to Holdings, in %

a holding

a Subsidiary

is not a member of a holding

30

50

20

of ten surveyed banks five banks (50 percent) did not belong to holdings, 3 banks (30 percent) were subsidiaries of their mother companies and two banks (20 percent) belonged to holdings.

investments and the Corporate governance in accordance with information obtained in the course of the survey, the shares of 86 percent of respondents were not traded on the secondary market. Seventy-two percent of respondents informed that during five years preceding the survey, they had never attracted any foreign investment. among respondents from companies, which attracted external finance, the majority of JSCs preferred to borrow funds from Kazakh legal entities.

Fifty-five percent of respondents said that they anticipate attracting external finance in the next five years. other respondents (45 percent) mentioned the main reasons, due to which they had no plans to attract external finance in the next five years:

1. domestic revenues generated were sufficient to meet domestic investment needs (27 percent).

2. there were concerns that terms and conditions of investment might be non-beneficial to the company and its shareholders (8 percent).

3. the company did no anticipate expanding its operations, that’s why there was no need for investment (7 percent).

4. investments had already been attracted recently (3 percent).

regardless of the number of shareholders the majority of companies anticipating attracting external capital preferred to take loans from Kazakh legal entities. in general, on the country-wide basis the share of companies planning to take such loans constituted 51 percent. Nineteen percent of respondents were for direct domestic equity investments and 17 percent of respondents anticipated attracting investments by means of new issues of bonds on the domestic market.


Figure 10. Forms of Foreign Investment, which the Banks Anticipate to Use in the Next Three Years (nine of ten banks), in %

direct domestic investment

domestic bond issue

Loans from foreign legal entities

Loans from international institutions

Cannot answer

Share issue and public offering

international bond issues

Loans from Kazakh legal entities

Securitization of assets

70

80

5010

30

60

70

2060

according to 67 percent of respondents, the shares of their banks were listed on KaSE, 8 percent of respondents – on LSE, 8 percent of respondents – the shares of their bank were traded on otC market, and 17 percent of respondents were not able to answer. one hundred percent of respondents from one bank with ‘3 or less’ shareholders were not able to answer the question on what stock exchanges their shares were listed.

over the past three years in 10 banks there have been no repurchases of shares from their shareholders. during preceding five years foreign investments have been attracted in 90 percent of banks, 10 percent of banks have not attracted any foreign investments. as far as the banks with ‘3 or less’ shareholders the largest investments have been made by foreign legal entities. in their responses to the question regarding their plans to attract foreign investment over three coming years, 90 percent of banks have responded posi-tively. the banks with the total number of shareholders within categories ‘3 or less’, ‘4 to 10’ and ‘2 to 50’ anticipate, primarily, attracting foreign investment by issuing bonds on the international market; they consider bonds issues on the domestic market as the second source of funds and the third source, in their opinion, might be loans extended by foreign lenders.

17

the survey noted that most respondents were not aware of the key corporate governance documents, including such documents, as: oECd Corporate Governance Principles, the Corporate Governance Code, approved by the Council of issuers of Kazakhstan and the Combined Code on Corporate Governance (Great Britain).

Forty-six percent of respondents said that they were familiar with oECd Corporate Governance Principles, 59 percent – with the Corporate Governance Code, approved by the Council of issuers of Kazakhstan and 16 percent – with the Combined Code on Corpo-rate Governance (Great Britain).

all top officials of ten banks, including the board members, were familiar with the fol-lowing documents:

1. oECd Corporate Governance Principles2. BiS Corporate Governance Principles (Basel Committee)3. the Corporate Governance Code approved by the Council of issuers on February 21,

2005 (Kazakhstan)4. Basel ii Principles (2004)5. the Combined Code on Corporate Governance (Great Britain)6. Basel Committee on Banking Supervision (BCBS).

the provisions of the abovementioned international documents were reflected in internal documents of the majority of respondent companies. Below are the results of the respondents’ Charters reviews dealing with important aspects of corporate governance.

only two of twelve provisions included into the questionnaire were present in the bank’s Charters. all respondents (100 percent) mentioned the general principles of share-holder rights protection and the procedures for convening a general meeting of sharehold-ers. the least attention in the Charters was paid to the rotation requirements of an external auditor or a responsible partner of an audit firm (30 percent), appointment and functions of a Corporate Secretary (40 percent) and procedures of conflict of interests resolution (40 percent).

ADHERENCE TO HIgH CORpORATE gOVERNANCE STANDARDS


two banks with the total number of shareholders exceeding 500 only 50 percent of respondents mentioned the following provisions in the Charter:

1. qualification requirements for Bod candidates;2. requirements to independent directors nomination and the independence criteria;3. requirements to rotation of an external auditor or a responsible partner of an audit

firm.

Figure 10. provisions Envisaged in a Bank’s Charter, in %

70 80 90 100

Procedures of GMS holding

General principles of shareholder rights’ protection

Segregation of powers and duties of the Executive Body and its Manager

Qualification requirements to candidate Bod members

requirements to election of independent directors and independence criteria

Procedures of Bod Committees formation

approval Procedure of related Party transactions

Shareholder rights in case of a bank takeover

Prohibitions or restrictions on the sale of shares

Procedure of conflict of interests resolution

appointments and functions of a Corporate secretary

requirements to rotation of an external auditor or an audit firm’s responsible parner

0 10 20 30 40 50 60

80

80

70

60

60

50

40

40

40

30

100

100

With respect to other internal documents the respondents noted that in their banks: 100 percent of respondents adopted internal rules for internal audit implementation and the corporate governance codes, 90 percent adopted the By-law on conflict of interests resolution, 80 percent adopted the internal documents governing the procedures of con-vening a general meeting of shareholders, the activities of the board and the executive body, 70 percent adopted the By-law on the audit Committee, the internal documents of information disclosure and dividend distribution, 60 percent adopted internal documents regulating activities of the board committees, 50 percent adopted the internal rules gov-erning the Corporate Secretary’s activities, 20 percent adopted the internal rules governing the operations of the revision Commission and 10 percent adopted the internal docu-ments on corporate governance in holdings.

it is anticipated to adopt the following: in 40 percent of companies – the internal docu-ments on corporate governance in holdings, in 20 percent of companies – the internal documents on dividend distribution, in 10 percent of companies – the internal documents governing the activities of the Bod committees.

adherence to high Corporate Governance Standards 19

Schedule 3. Corporate governance Documents, which have been Adopted and to be Adopted in JSCs (in decreasing order), in %

N Documents on Corporate Governance Improvement Approved To be approved

1 internal documents regulating activities of a general meeting of shareholders

71,3 10,3

2 internal documents regulating the Bod activities 69,0 16,1

3 internal documents regulating activities of the executive body 58,6 13,8

4 internal documents on dividend distribution 50,6 23,0

5 internal rules for internal audit implementation 46,0 21,8

6 a Company’s Corporate Governance Code 41,4 31

7 internal documents on information disclosure 40,2 23

8 the Code of Conduct 28,7 32,2

9 internal rules regulating a Corporate Secretary’s activities 28,7 21,8

10 internal documents regulating the Board Committees’ activities 24,1 14,9

11 the By-law on conflict of interests resolution 24,1 49,4

12 internal rules regulating activities of the revision Commission 23,0 13,8

13 the By-law on the audit Committee 20,7 62,1

14 internal documents on corporate governance in holdings 14,9 69

one issue of significant importance in the Bod activities is the responsibility of its members for approval of internal documents. the survey showed that the major-ity of respondents noted that Bod was responsible for the approval of the following documents:

1. internal documents regulating the Bod activities – 63 percent;2. internal documents regulating activities of the executive body – 46 percent; 3. internal documents on dividend distribution– 43 percent;4. internal rules on internal audit – 43 percent.

the respondents' answers on the responsibility of a foreign law firm (an advisory firm) for the development of internal company documents were rather interesting. the majority of respondents agreed on that an external adviser should be mostly responsible for the development of a corporate governance code (46 percent).


Plans on Corporate governance Practices improvementin responding to a question regarding selecting three most important objectives of cor-porate governance the majority of respondents in JSCs of the proposed fourteen pointed out the following objectives:

1. enhance a company’s investment attractiveness (52 percent);2. improve a company’s image (40 percent);3. improve a company’s operational efficiency (31 percent).

the companies that anticipate attracting investment in future, as noted by the respon-dents, have the following objectives in the area of corporate governance:

1. enhance a company’s investment attractiveness (68 percent of respondents);2. improve of a company’s image (38 percent of respondents);3. provide a greater access to capital markets in Kazakhstan and beyond (32 percent of

respondents.

of thirteen proposed answers to the question about the three most important to banks objectives the largest percentage of respondents of ten banks (50 percent) elected “enhance a bank’s investment attractiveness”, 40 percent – “improve a decision making process in a bank”, 30 percent – “assure a better access to capital markets in Kazakhstan and beyond”. the least number of respondents elected (10 percent each): “improve a bank’s image”, “prevent and/or resolve corporate conflicts”, “protect shareholder rights” and “cannot say”.

Seventy-two percent of respondents mentioned non-availability of a Corporate Gover-nance improvement Plan. twenty-eight percent of respondents provided positive answers to this question. however, such plan is available in half of companies anticipating attraction of foreign direct equity investment.

a similar situation (50 percent) was observed in companies, which anticipated a new issue of shares and a public offering at a stock exchange.

With regard to banks, 60 percent of respondents confirmed the availability of the Cor-porate Governance improvement Plans, 30 percent said that such plans were not available, 10 percent were not able to answer this question. one-third of respondents (33 percent) from three banks with shareholders ranging from 21 to 50 were not able to answer the question on the availability of such plans. one hundred percent of respondents of one bank with the number of shareholders from 4 to 10 and of two banks with shareholders exceeding 500 responded positively to this question.

one hundred percent of respondents of one bank with 3 or less shareholders denied the availability of such plans. it is interesting to note, that in one bank with sharehold-ers ranging from 21 to 50 one-third of respondents said that the Corporate Governance improvement Plans were available, one third of respondents answered negatively and one third of respondents were not able to answer this question. this situation evidenced of the fact that the respondents were not aware of whether the top management of these banks really anticipated improving their corporate governance practices.


Schedule 4. Three Important Objectives in the Area of Corporate governance for Banks with Various Numbers of Shareholders, in %

N In total ten

banks

Three or less (one

bank)

From 4 to 10

(one bank)

From 21 to 50 (three banks)

From 101 to

500 (three banks)

Over 500 (two

banks)

1 improve а decision making process in a bank

40 100 – – 66,7 50

2 assure better access to capital mar-kets in Kazakhstan and beyond

30 – 100 33,3 – 50

3 reduce costs associated with credit and equity finance

20 – – 33,3 – 50

4 improve a bank’s image 10 – – 33,3 –

5 Prevent and/or resolve corporate conflicts

10 – – 3,3 –

6 Ensure compliance with legal requirements

20 – – – 33,3 –

7 Protect shareholder rights 20 – – 33,3 33,3 –

8 Protect stakeholder rights 10 – – 33,3 – 50

9 develop a more effective liaison among shareholders and the Bod

20 – – – 33,3 –

10 Mitigate business risks 20 – – – 33,3 50

11 improve operational efficiency 20 100 100 – – –

12 Enhance a bank’s investment attractiveness

50 100 100 33,3 33,3 50

13 Cannot say 10 – – 33,3 – –

as far as the nine banks, which shares were listed on KaSE, 67 percent of respondents confirmed the existence the Corporate Governance improvement Plans, 22 percent responded negatively, 11 percent were not able to answer this question. in one bank, (please note again, that ten banks participated in the survey), which was only anticipat-ing to attract investment and which shares were not traded in the secondary market, 67 percent of respondents answered positively regarding the availability of such plans.

of the highest priority measures to improve corporate governance in JSCs, the first three were, as follows: introduction of iFrS, development and adoption of a Corporate Governance Code and the implementation of the internal control system. as figure 11 shows, the respondents mentioned “introduction of iFrS” (45 percent) as the first priority measure, the second priority measure was “involvement of corporate governance advisors” and “development and adoption of a Corporate Governance Code (23 percent each) and the third priority measure was “introduction of the internal control system” (20 percent).


Figure 11. priority Measures, which the JSCs Surveyed Anticipate to Take in Order to Improve their Corporate governance practices, in %

introduction of iFrS

development and adoption of a CG Code

involvement of CG advisors

introduction of the internal control system

inclusion of independent directors into the Bod

CG training of the Management Board members

CG training of the Bod members

introduction of the internal audit function

Quarterly disclosure of information

Establishment of a corporate secretary position

development of the conflict of interests resolution procedures

Establishment of the Bod audit Committee

introduction of the Bod compensation system

Establishment of the Bod Committees

None of the above

0 5 10 15 20 25 30 35 40 45 50

45

23

23

20

16

15

14

13

13

9

8

7

7

3

13

Schedule 5. priority Measures, which the Banks with Various Numbers of Shareholders Anticipate to Take in Order to Improve their Corporate governance practices (multiple-choice questions), in %

N In allten

banks

Three or less (one

bank)

From 4 to 10

(one bank)



Over 500 (two

banks)

1 include independent directors into Bod

10 – – – 33,3 –

2 Create a Corporate Secretary position

20 – 100 – 33,3 –

3 introduce compensation for Bod members

10 – – – 33,3 –

4 Establish Bod committees 10 – – 33,3 – –

5 disclose information on a quarterly basis

10 – – 33,3 – –

6 Provide corporate governance training to the Bod members

40 – – 66,7 – 100

7 Provide corporate governance training to the executive body members

30 - 100 33,3 33,3 -


Schedule 5. priority Measures, which the Banks with Various Numbers of Shareholders Anticipate to Take in Order to Improve their Corporate governance practices (multiple-choice questions), in % (continue)

N In allten

banks

Three or less (one

bank)

From 4 to 10

(one bank)



Over 500 (two

banks)

8 develop procedures of conflict of interests resolution and related party transactions

30 – – – 66,7 50

9 involve corporate governance advisors

20 – 100 – – 50

10 introduce corporate gover-nance principles in subsidiaries

10 – – – – 50

11 None of above 30 100 – 33,3 33,3 –

the priority measures to improve corporate governance practices in ten banks, which shares were listed on KaSE or other stock exchanges, the respondents, being able to select up to five answers, noted the following measures:

1. corporate governance training for Bod members (44 percent);2. corporate governance training for the Executive body members (33 percent);3. development of procedures of conflict of interests resolution and related party trans-

actions (33 percent); 4. eleven percent of respondents mentioned the following measures: “include indepen-

dent directors into Bod”, “introduce compensation for the Bod members”, “Establish Bod Committees”, “disclose information on a quarterly basis” and “introduce corporate governance principles in subsidiaries”;

5. none of above (22, 2 percent).

Figure 12. priority Measures that the Surveyed Banks, which Shares were Listed on kASE and Other Stock Exchanges Anticipate to Take in Order to Improve their Corporate governance practices, in %

44

33

33

22

22

11 22 Creation of a corporate secretary position

CG training of the Bod members

CG training of the Management Board members

development of conflict of interests resolution and related party transactions procedures

involvement of CG advisors

None of the above

other


Factors impeding Corporate governance Practices improvementaccording to the bank respondents the main factors hindering the improvement of cor-porate governance practices in the banks of the country are, as follows:

1. the republic of Kazakhstan corporate governance legislation, which needs further improvement – 90 percent;

2. lack of information/knowledge – 60 percent;3. lack of qualified personnel – 50 percent;4. costs incurred on improvement of corporate governance practices do not result in any

profits – 10 percent5. corporate governance is the least priority compared to other objectives – 10 percent.

Schedule 6. The Respondents’ Assessment of Corporate governance in Rk Banks, in %

N Quite Unsat-isfactory

Unsatis-factory

Fair good

1 the status of corporate governance in your bank – – 10 90

2 the status of corporate governance in Kazakh banks, in general

– 20 50 30

3 Legal and regulatory framework governing corporate governance in Kazakhstan

10 20 50 20

Schedule 7. Assessment of Corporate governance in Rk Banks provided by Respondents from Banks Listed on kASE, in %

N Quite Unsat-isfactory

Unsatis-factory

Fair good

1 the status of corporate governance in your bank – – 11,1 88,9

2 the status of corporate governance in Kazakh banks, in general

– 22,2 44,4 33,3

3 Legal and regulatory framework governing corporate governance in Kazakhstan

11,1 22,2 44,4 22,2


Schedule 8. Factors Impeding Corporate governance practices Improvement in JSCs with various numbers of shareholders, in%

N Factors Impeding Corporate Gov-

ernance Practices Improvement

Total JSCs

In JSCs with 3 or less share-holders

In JSCs with 4 to 10

share-holders

In JSCs with 11

to 20 share-

holders

In JSCs with 21

to 50 share-

holders

In JSCs with 51 to 100 share-

holders

In JSCs with

101 to 500

share-holders

In JSCs with over 500

share-holders

1 Lack of informa tion/knowledge

48,3 61,1 38,1 100 66,7 40 40 21,4

2 Lack of qualified personnel

35,6 36,1 33,3 – 33,3 40 60 28,6

3 increased transpar-ency can lead to increased risks

21,8 19,4 4,8 50 – 80 20 28,6

4 Costs of improved corporate gover-nance do not result in any profits

17,2 11,1 19 – 66,7 – 20 28,6

5 Corporate gover-nance information is a commercial secret and cannot be used by a company’s competitors

20,7 16,7 – 100 66,7 20 40 35,7

6 Corporate gover-nance is the lowest priority compared to other objectives

18,4 13,9 38,1 – – 20 20 7,1

7 Kazakhstan corporate gover-nance legislation needs further improvement

47,1 52,8 52,4 – 33,3 60 20 42,9

8 None 1,1 – 4,8 – – – – –


Schedule 9. Assessment by JSCs of Rk Legislation Effectiveness, in %

N Unsatis-factory

Fair good Excellent

1 registration/launch (establishment) of a company

12,6 37,9 29,9 18,4

2 a company’s liquidation 31,1 41,4 19,5 8

3 Convening a general meeting of shareholders

4,6 25,3 44,8 24,1

4 holding a general meeting of shareholders

2,3 23 49,4 25,3

5 Formation and organization of the Bod activities

2,3 36,8 37,9 21,8

6 appointment and competence of independent directors

16,2 37,9 31 14,9

7 Establishment of the Bod Committees 18,4 43,7 28,7 9,2

8 Formation and organization of the executive body activities

2,3 36,8 40,2 18,4

9 Segregation of authority among a company’s bodies

5,7 39,1 33,3 19,5

10 Monitoring of a company’s financial and business activities

5,7 23 51,7 17,2

11 Shareholder rights protection 9,2 32,2 41,4 13,8

12 disclosure of information to shareholders 15 36,8 33,3 14,9

13 disclosure of information to stakeholders 18,4 36,8 34,5 10,3

14 Securities issue (shares and bonds) 10,4 34,5 44,8 10,3

15 Corporate conflict resolution 26,5 44,8 24,1 4,6

16 Establishment of Bod committees 18,5 44,8 26,4 10,3

Compared to banks, the JSC’s respondents more stringently evaluated the effective-ness of Kazakhstan corporate governance law. the banks assessed as ‘unsatisfactory’ only two positions: “shareholders rights protection” and “corporate conflicts resolution”, while at the same time, the JSC’s respondents assessed as ‘unsatisfactory’ all of the said positions and specifically noted the imperfection of the law regarding a company’s liquidation (31,1 percent), corporate dispute resolution (26.5 percent) and formation of the Bod committees (18.5 percent).

the bank respondents generally assessed Kazakhstan legislation as ‘good’, mainly, regarding securities issue (80 percent), convening a general meeting of shareholders (70 percent) and formation and organization of activities of the executive body (70 percent).


Fifty percent of the banks’ respondents evaluated legislation on controlling a company’s financial and business activities as ‘excellent’, 40 percent of respondents evaluated the leg-islation on convening a general meeting of shareholders, formation and organization of the Bod activities and appointment and competence of independent directors as ‘high’.

We can conclude that the real sector companies and banks evaluate differently the effectiveness of Kazakhstan legislation, which, possibly, is due to the following reasons:

1. Financial institutions are, normally, regulated stringently and professionally, since the operations of financial institutions have a high social value.

2. the advanced standards and requirements of international documents on financial institutions’ operations are reflected in the local legislation.

Schedule 10. Assessment of Rk Legislation Efficiency by Banks, in %

N Unsatis-factory

Fair good Excellent

1 registration/launch (establishment) of a company

– 30 50 20

2 a company’s liquidation – 30 50 20

3 Convening a general meeting of shareholders

– – 70 30

4 holding a general meeting of shareholders

– – 60 40

5 Formation and organization of the Bod activities

– 20 40 40

6 appointment and competence of independent directors

– 40 20 40

7 Establishment of the Bod Committees – 50 40 10

8 Formation and organization of the executive body activities

– – 70 30

9 Segregation of authority among a company’s bodies

– 40 30 30

10 Monitoring of a company’s financial and business activities

– 10 40 50

11 Shareholder rights protection 10 10 50 30

12 disclosure of information to shareholders – 30 40 30

13 disclosure of information to stakeholders – 40 30 30

14 Securities issue (shares and bonds) – – 80 20

15 Corporate conflict resolution 10 50 30 10

16 Establishment of Bod committees – 50 40 10


Controlling and supervisory Bodies in Joint-stock Companiesa significant difference between companies and banks was in the assessment of their units overseeing their financial operations. Most of respondents (51 percent) noted the external auditor and 46 percent mentioned the Bod and the executive body. the bank respondents noted the executive body (90 percent), the internal audit function (50 percent) and the Bod (40 percent), as their supervisory bodies.

Figure 13. The Bank’s Bodies, which Supervise its Financial Operations (interviews with 10 bank respondents), in %

the Executive Body

the internal audit

the Board of directors

an External auditor

the Bod audit Committee

the Budget and analysis department

0 10 20 30 40 50 60 70 80 90 100

90

50

40

30

20

10

Availability of a Corporate secretary Positionit should be noted that the majority of the real sector companies do not see the need in a corporate secretary and/or in the involvement of a relevant professional. regarding the question on the availability of a Corporate Secretary in the company 74 percent of respondents answered negatively and 26 percent answered in the affirmative. the major-ity of respondents (75 percent) were of the opinion that a Corporate Secretary should be a full-time employee.

in the banks the situation is different: 60 percent of respondents confirmed the avail-ability of a Corporate Secretary in the bank, 30 percent said that a Corporate Secretary is unavailable in the bank and 10 percent refused to answer. Nevertheless, the majority of respondents (83 percent) considered a Corporate Secretary a full-time staff member of a bank.

Advice on Corporate governance issuesaccording to the results of the survey, in 80 percent of cases the banks do not engage external consultants for rendering chargeable advisory services on corporate governance issues and prefer resolve them on their own. only 20 percent of respondents said that they exclusively involve foreign advisory services.

in the real sector companies the situation is similar: most of the respondents from companies did not need services of external corporate governance consultants (69 percent). twenty-four percent said they resorted to services of local consultants and only 7 percent involved foreign advisors. Most commonly, companies required external advisors services in order to develop their internal documents and align them with the legislation


(65 percent), issue securities (50 percent) and develop the financing and governance strate-gies (42 percent).

the companies and banks showed different approaches to issues, on which they received advice from external consultants. While the companies focused primarily on risk management (48 percent), the banks put their emphasis on conducting a comprehensive corporate governance assessment (70 percent) and risk management assessment (70 percent).

Schedule 11. Issues, which JSCs and Banks Need Advice on or Training, in %

N Number of JSCs

Number of Banks

1 Shareholder rights protection 10 20

2 Bod efficient operations 30 30

3 independent directors’ activities 18,5 40

4 Bod Committees 15 50

5 Qualifications and functions of a corporate secretary 12 30

6 information disclosure and transparency 28 20

7 development and/or analysis of a company’s Charter and By-laws 21 20

8 Comprehensive assessment of corporate governance 34,5 70

9 risk management (the internal control system, financial statements, internal auditor)

40 70

10 Conflict of interests and related party transactions 48 30

11 absence of related party transactions 19,5 20


Protection of shareholder rights is an important aspect of corporate governance and a prerequisite for investors’ attraction, creation of a reliable image and prevention of corpo-rate conflicts. as is evident from the respondents’ answers protection of shareholder rights is one of key corporate governance objectives. Based on the review of the survey results it is clear that the general meeting of shareholders has a greater authority (compared to other JSCs’ governance bodies, such as the board and the executive body) to perform the following functions: approval of dividends (77 percent), issuance of shares and approval of annual financial statements (66 percent each).

according the JSCs’ respondents the main shareholder information channels were ads in mass media (51 percent), notices posted by registered mail (41 percent), notices deliv-ered directly to a shareholder and signed by a recipient (31 percent). With regard to banks, the main shareholder information channels were ads in mass media (90 percent), notices posted by registered mail (80 percent) and ads posted on KaSE website (70 percent).

the channels for information distribution among shareholders vary depending on importance of information. hence, the information on major shareholders in JSCs and banks is, generally, available upon request, less frequently – on a company’s web-site (in JSCs – 7 percent), regarding banks, the information is posted on KaSE website (10 percent) and distributed during the general meeting of shareholders (10 percent). in JSCs the finan-cial statements are, usually, distributed during the general meeting of shareholders and are available upon request (43 percent each), in banks – the information is included into a set of preliminary documents for a general meeting of shareholders (80 percent), it is available upon request and posted on a company’s web site (70 per cent each).

almost the same situation is in JSCs and the banks regarding information on their operating activities, members of the Bod, members of the executive body, as well as on internal documents and procedures.

SHAREHOLDER RIgHTS

Shareholder rights 31

Schedule 12. Information Channels for Distributing Information among a JSC’s Shareholders, (multiple-choice questions), in %

Finan-cial

State-ments

key perfor-mance Indica-

tors

Informa-tion on Major Share-

holders

Infor-mation on BoD Mem-bers

Informa-tion on

Executive Body

members

Internal Do cu-ments

and Rules

distributed during a general meeting of shareholders

43 35 26 26 25 22

included into a set of docu-ments for a general meeting of shareholders

40 26 8 22 16 20

Published in printed media 15 3 2 3 2 2

available upon request 43 45 45 49 51 62

Posted by mail 7 2 1 1 2 2

Posted on a company’s web-site 10 2 7 8 8 6

Posted on KaSE web-site: www.kase.kz

7 13 25 14 14 12

Schedule 13. Information Channels for Distributing Information among a Bank’s Shareholders, (multiple-choice questions), in %

Finan-cial

State-ments

key perfor-mance Indica-

tors

Informa-tion on Major Share-

holders

Infor-mation on BoD

Members

Informa-tion on

Executive Body

members

Internal Do cu-ments

and Rules

distributed during a general meeting of shareholders

60 50 10 50 20 20

included into a set of documents for a general meeting of shareholders

80 80 30 70 60 50

Published in printed media 50 60 20 30 30 10

available upon request 70 70 50 80 70 70

Posted by mail – – – – – –

Posted on a company’s web-site

70 40 40 70 70 20

Posted on KaSE website: www.kase.kz

10 10 10 10 10 10

Not available to shareholders 10 10 10 10 10 10


Convening a general Meeting of shareholders (gsM)regarding convening a general meeting of shareholders, it was mentioned that, gener-ally, shareholders are notified more than 30 days prior to the date of the GMS (in JSCs – 40 percent, in banks – 60 percent). in addition to the notice on the GMS the shareholders also receive the agenda (in JSCs – 92 percent, in banks – 90 percent), supporting documents to the agenda (in JSCs – 46 percent, in banks – 40 percent), the annual report (in JSCs – 39 percent, in banks – 50 percent) and the financial statements (in JSCs – 37 percent, in banks – 50 percent).

the situation with the involvement of shareholders in formulation of the agenda of the general meeting of shareholders was almost similar between JSCs and banks: the JSC’s agenda is prepared by the board (JSCs – 77 percent, the banks – 90 percent). the respon-dents noted that shareholders rarely offered issues for inclusion into the GMS agenda (in JSCs – 24 percent, in banks – 40 percent).

the main form of communicating the results of GMS to public is the report on the results of the GMS and decisions made during the meeting, which are delivered prior to a conclusion of a meeting (100 percent – in banks and 78 percent – in JSCs).

according to the respondents the initiator of the extraordinary general meetings of shareholders over the past two years was the Bod (49 percent – in JSCs, 67 percent – in banks). only the respondents of JSCs noted that the initiative of convening an extraordinary general meeting of shareholders came from a group of minority shareholders (20 percent), while among the bank respondents there were no such responses. the most frequently mentioned reasons for convening an extraordinary general meeting of shareholders were:

1. introduction of modifications into the Charter (in JSCs – 35 percent, in banks – 100 percent);

2. election/reelection of Bod members (in JSCs – 29 percent, in banks – 70 percent);3. changes in the sizes of an entity’s Charter Fund (in JSCs – 16 percent, in banks – 60

percent).

33

in accordance with article 16 of the Law of the republic of Kazakhstan “on accounting and Financial reporting” dated February 28, 2007, N234-iii, entities are required to prepare their financial statements in accordance with the international Financial reporting Stan-dards (iFrS). due to the fact that the survey was conducted at the end of 2007 – begin-ning of 2008, not all organizations had transited to iFrS. this is obvious from the fact that the audited iFrS-based financial statements in 100 percent of instances were posted on the banks’ websites, while only 1 percent of JSC’s respondents said such information was posted on their website. Forty-seven percent of JSCs’ respondents said that they had never disclosed such information.

the Bod and the executive body compensation information, both on individual and group basis, was factually not available both in JSCs and banks (70 percent of respondents from banks and 85 percent of respondents from JSCs said that they did not disclose such information). the situation is better with the banks’ Bod and the executive body members’ background information: 50 percent of respondents said that such information is disclosed on the websites of the bank and Kazakhstan Stock Exchange. at the same time it is difficult to find such information in JSCs – in 20 percent of cases, it was only provided upon request from public.

due to the fact that some of JSCs’ respondents were holdings, the surveyors focused on how regularly consolidated financial statements were prepared. So, to the question “if a company is a member of a holding because it is a subsidiary or a parent, are consolidated financial statements prepared regularly?” 38 percent of respondents provided positive answers, 22 percent responded negatively, 40 percent said their companies did not belong to any holding.

in JSCs the main information channel was an investor’s inquiry to the company (59 percent). Nineteen percent of respondents mentioned their company’s website, 14 percent – a public annual report, 8 percent – quarterly interim reports. the situation of obtaining such information in the banks is different: the respondents of 10 surveyed banks mentioned a public annual report, a bank’s website and an investor’s inquiry as the main information channels (90 percent each).

INFORMATION DISCLOSURE AND TRANSpARENCY


Figure 14. Information Channels for Obtaining Information on a JSC’s governance, its Operating Activities and the Financial position for potential Investors, in %

a Public annual report

Quarterly interim reports

a Company’s web-site

directly from a company upon an investor’s request

8

1959

14

65.5 percent of respondents in 57 JSCs said that during past three years their external auditor was a local accounting firm and 24 percent said it was an international audit firm. to the question “did your company change an external auditor over the past three years?” 69 percent responded negatively and 31 percent – positively.

the most interesting were respondents’ answers to the question “What description suits best your external auditor.” of the two responses – “an international auditing firm and “a local auditing firm” 100 percent of respondents chose “an international auditing firm”. hence, we can conclude that Kazakh banks, unlike JSCs, have more confidence in interna-tional rather than in domestic auditing firms. however, to the next question of changing the external auditor over the past three years, 90 percent of respondents answered nega-tively and 10 percent – positively.

according to JSCs’ respondents their external auditor also provides value-added ser-vices such as: tax advice – 24 percent, maintaining accounting books and preparing finan-cial reports or providing advice on these issues – 14 percent and 20 percent of respondents said that their companies’ external auditors did not provide any value-added services.

the bank respondents also noted that in addition to audit services their external audi-tors also provided value-added services. Most often, services were provided on maintaining accounting books and preparing financial reports or rendering advice on the said issues (60 percent). thirty percent of respondents mentioned provision of advice on taxation, 30 percent noted provision of advice and training on computerized accounting and financial reporting, 20 percent mentioned business advice and 40 percent of respondents said that their external auditor did not provide any value-added services.

35

the results of this survey demonstrate that the issues of corporate governance develop-ment are becoming more urgent for Kazakhstan companies. this is due to many factors, including intention of companies to go public, attract domestic and foreign investment and enhance operational efficiency and a company’s image. the majority of respondents confirms that adherence to corporate governance standards increases possibility of better access to capital markets and significantly enhances their investment attractive-ness. in addition, the companies become more sustainable from a financial point of view, as well as they become more careful to the rights and interests of shareholders and stakeholders.

despite the fact that the respondents are well aware of the necessity of corporate gov-ernance, there is an unbalanced approach to the improvement of corporate governance practices. the banks demonstrated a higher level of corporate governance compared to the real sector companies. this fact can be explained, on the one hand, by a more strin-gent and advanced supervision on the part of the government regulators – the National Bank of Kazakhstan and the agency for regulation and Supervision of the Financial Market and Financial institutions, and, on the other hand, by close attention of the market to the financial institutions operations.

the companies are more focused on development and implementation of internal corporate governance documents. in particular, the respondents noted an important role of the corporate governance code, internal by-laws governing operations of a company’s key governance bodies (a general meeting of shareholders, the board of directors and the executive body). additionally, the practice of including provisions into the Charter, regulat-ing in detail relations, which occur within the corporate governance framework is becom-ing more widespread. the position of a Corporate Secretary is becoming more widespread in Kazakh banks and companies.

alongside with effective implementation of individual corporate governance elements the companies noted a number of hindering factors, such as: imperfection of legislation, lack of corporate governance information and competence, high costs associated with the implementation of necessary reforms and lack of qualified corporate governance professionals.

CONCLUSION


in summary, nowadays many corporate governance initiatives are being implemented in Kazakhstan. Perspectives of corporate governance standards implementation seem very optimistic, because both the government and the business community recognize the necessity of improving the entities’ corporate governance practices.