Employee Ownership and Corporate Governance in Post-Privatization Russia 

Summary

This paper brings into focus the impact of employee buyouts on corporate governance in transition ten years after the large-scale privatization took place in Russia.The analysis shows that although privatization employee buyouts have helped to reduce unemployment and prevent major social conflicts, it otherwise had a negative effect on corporate governance and firms’ productivity. An excessively large labor force and the management’s tendency to preserve the old Soviet-style corporate governance hampered the long-term growth of privatized enterprises in Russia.Unlike in many other transition countries employees in Russia were obedient to the directors who ruled the enterprises in the absence of any meaningful system of checks and balances. Employee ownership still remains a popular idea in Russia, but subsequent attempts of the Russian government to isolate enterprises from outside investors in the form of people’s enterprises have proved to be a failure.