The influence of the top-management and the board of directors remuneration on the value of the large Russian companies

Abstract

Recently the different researchers admit, that under the rapidly changing business conditions the boosted forecasts and expectations of enormous growth strategies have led some well-know multinationals to the essential financial distress before the financial crisis occurred. Partially the before-crisis financial distress was caused by the fact that managers tried to boost the value reporting because of the lack of the real growth opportunities and really very poor insufficient operating results, however the top-managers remuneration was merely based on the boosted value reporting. It is quite easier to increase the leverage by the boosted reporting, to implement different types of LBOs, than to optimize the processes by “cutting the excess fat” within the organization. Not so long ago before the crisis took place the corporate governance principles were executing by almost all well-known European and American multinationals, it was proclaimed that such kind of principles could give the company a chance to minimize process of the destructive, out-of-strategy solutions taking. We would like to note that almost all well-known European and American multinationals, which are nationalized or which are very much financially distressed now, executed last years such principles with large passion. We make the main proposal that the balanced top-management and the board of directors remuneration system can be one of the most sustainable levers, which can minimize the inefficiency of the corporate governance system. The results of our panel data research shows that to some possible extent the top-management and the board of directors’ remuneration of large Russian companies can influence the market expectations through the making decision mechanism, at last the market expectations can influence to some possible extent the market capitalization of the company. Accordingly, it is possible to eliminate partially the conflict among shareholders and managers and so to minimize the risks of the investors by the means of the balanced remuneration system. It is possible to investigate all other factors for the optimization of the corporate governance system on the basis of the results of this research. From the one hand, there is the positive influence of the top-management and the board of directors remuneration through the mechanism of the strategic, operating and financial decision-making process on the value of the company. From the other hand, there are contradictions concerning the components of the remunerations, as the remuneration transparency doesn’t lever the value of the company and that is a very arguable result to be investigated soon. Obviously, there is the optimal structure of ownership, which can prevent company from such a financially destructive process of the boosting the value reporting. Also for the future investigation it is important to widen and to diversify the range of the complex ratings of the corporate governance of the large Russian companies.Key words:the lack of the real growth opportunities, growth opportunities, business processes optimization, corporate governance, financially distressed companies, corporate governance system, remuneration system, top-management remuneration, board of directors, balanced remuneration system, corporate governance ratings, shareholders, options, ownership structure, market capitalization, decision-making process, transparency