Reform Of Kazakhstan's Corporate Governance Framework

One of the expected draft laws that will soon be submitted to the Parliament of the Republic of Kazakhstan is the draft Law "On Amendments to Some Legislative Acts of the Republic of Kazakhstan on Issues of Corporate Governance" (hereinafter, the Draft Law). Its purpose is to improve the Kazakhstan corporate governance framework and bring it into line with the world best standards. The text of the Draft Law as of the date of the writing of this article was not published. However, based on the concept of the Draft Law (hereinafter, the Concept), available from open sources,1 we can already form our first opinion on the key areas of the proposed reform.

The most important, in our view, set of changes will be aimed at "separation of powers, functions and responsibilities of the bodies of a joint stock company." There is no doubt that for the purposes of corporate governance a balanced distribution of authorities between the bodies of a company is crucial. In our opinion, such changes must first address the issue of strengthening the control functions of the board of directors of Kazakhstan joint-stock companies. One of the main global trends in corporate governance development is to strengthen the control role of the board of directors of a single-tier board structure (towards which the Kazakhstan board structure gravitates).

Despite this, in the current edition of the JSC Law, very little attention is given to the control function of the board of directors. For example, the law does not establish such powers of the board of directors as the possibility to check the activities of the executive body at any time or appeal the decisions of the executive body in court. Another fundamental problem is that the board structure in Kazakhstan joint-stock companies as a whole is deformed: it does not have any flexibility of a singletier board structure (mandatory creation of an executive body), or strict division of the functions of control and management of a two-tier board structure (the chief executive officer has the right to be a member of the board of directors and its committees.) In this respect the Concept notes that the JSC Law does not reflect the general principle of delegation of authority, and that the board of directors should have full authority to manage the joint stock company and control its operating activity. On the basis of these statements, one may assume that the Kazakhstan board structure will be changed with a view to further...