Employee Ownership Developments in Russia

It has now been four years since the completion of the mass privatization in Russia, a transformation accomplished primarily through transferring shares to employees at little or no cost. Employees owned a majority of the shares in privatized companies in 1992, but, according to a forthcoming article in the NCEO's Journal of Employee Ownership Law and Finance written by Sergei Mitsek, dean of the commercial faculty at the Liberal Arts University in Yekaterinburg, that percentage is now under 40% and is falling quickly. Mitsek reports that employees, who can sell their shares freely, are often forced to do so because their employers are not paying them wages, often for months at a time. Managers continue to purchase shares to consolidate control, while outside investors are buying some companies. Companies often are diluting ownership by issuing new shares as well, sometimes to exchange for debt held by banks.

A new law is making its way through the Duma that would provide a legal structure that would encourage long-term employee ownership by limiting the amount individual employees could hold, giving the company a right of first refusal on share purchases, and allocating shares to new employees. Companies must have more than 50 employees, but not be publicly traded to qualify.