Russia's Lack of American-Style Agency Principles: A Primary Cause of Corporate Governance Problems Today

C. Keith Marshall, Jr.1

With the collapse of the Soviet Union, Russia faced a massive, poorly-functioning economy that had to be redesigned before total collapse. The first step was rapid, thorough privatization of formerly state-owned entities, which set the stage for looting on an unprecedented scale. The second step was a complete overhaul of the legal system, but the legacy of civil-law pandectic compounded the problems of privatization: the code had no room for broad agency principles to protect companies and shareholders. The mini-oligarchs had little desire to protect shareholders that legitimately acquired their interests, and corruption and looting ran wild. The drafters of the new civil code failed to consider the bigger picture, and, without agency principles, the resulting failures of corporate governance should come as no surprise.