Сorporate Governance of Subsidiaries in Russian Gas and Oil Industry by the case of OJSC Gazprom

Albert V. Pavlyuk, Ph.D. (Law), Associate Professor, Department of Public Administration, School of Governance and Politics, MGIMO University
Aleksandr A. Krylov, first year master degree student, School of Governance and Politics, MGIMO University

*The article was issued as a part of MGIMO University scientific grant for young researchers

The article is devoted to the structural study and analysis of legal regulation of subsidiary enterprises of joint-stock companies by the case of Gazprom. Considerable attention is paid to the features of the enterprise, as well as corporate culture and responsibility. The article considers key aspects of the Board of Directors, CEO and shareholders’ activity. Special attention is paid to the Code of Corporate Conduct and its key provisions.

Key words: OJSC, subsidiary, legal framework, Board of Directors, CEO, shareholders, Code of Corporate Conduct, Corporate Social Responsibility, rights and responsibilities.

The urgency of the research is stipulated by the importance of studying the problems of innovating and modernizing of corporate governance of subsidiaries.

The relevance of the topic is determined by the need to develop methodological proposals for improving corporate governance in corporations in modern Russian economy to protect the rights of shareholders and to achieve a high degree of freedom in implementing integration processes. Due to the prevalence of integration processes at the present stage of development of the global economy, one of the most pressing problems of corporate governance is the search for the best ways to organize the interaction of subsidiaries with an integrated structure.

The aim hereof is to understand corporate governance processes of the subsidiaries, as well as to analyze the current problems of corporate governance of subsidiaries and ways of its development.

In order to accomplish the goal set, it is necessary to identify the following objectives:

  • To analyze the legal framework of corporate governance;
  • To determine the essence of corporate governance of subsidiaries, clarify the concepts and categories;
  • To study the examples and best practices of corporate governance of subsidiaries in the Russian Federation.

The methodological framework consists of general scientific and special methods, including the classification method, historical legal method, comparative legal method, method of system analysis. The study also presents significant material collected during the observation of the activities of OJSC Gazprom.

Main body
The process of developing corporate relations in Russia began later than in the United States, however nowadays the Russian economy is also largely the economy of the holdings. Along with large vertically and horizontally integrated holding companies and conglomerates, a large number of relatively small groups of interrelated companies operate here. Driving motives for creating subsidiaries are different. This is the allocation of an independent legal entity type of activity requiring licensing, the separation of risky businesses in order to reduce the risk of loss in case of failure and the creation of subsidiaries in the framework of the project management approach used by the company, and the isolation of especially valuable property as a preventive measure against corporate takeovers. [1]

Subsidiaries carry out independent economic activities. In most cases, the parent company of the holding does not conduct economic activity itself. Such an organizational form of association of enterprises as a financial and industrial group is becoming widespread in Russia. This is a group of legally independent enterprises, financial and investment institutions registered at the federal level, the combination of material resources and capital of which is carried out under the terms of the Regulations on Financial and Industrial Groups and the procedure for their creation. The head organization of FIGs can be either an industrial enterprise or a bank or an investment institution. Classical holdings in the Russian industry are Gazprom, Svyazinvest, Norilsk Nickel and a number of oil companies.

Currently, the majority of Russian joint stock companies are in the hands of one or several major shareholders. This situation is typical primarily for the natural resources sector, for example, for the oil industry, but it is also observed in the communications sector, in the metallurgical and forest industries. Another major trend is the increase in the share of external shareholders (outsiders), individuals and legal entities not previously associated with those companies whose shareholders they have become. This is due to the development of the Russian stock market, the pre-crisis IPO boom (initial public offering of shares) of Russian companies on our exchanges and abroad.[2]

The state does not lose its position as the dominant shareholder of the largest Russian companies in the real and financial sectors (Russian Railways, Gazprom, Rosneft, Sberbank, etc.). It not only controls the production of a significant part of GDP, but also turned into the largest investor in the stock market. The high concentration of capital and the presence of large shareholders determine such a feature of Russian corporate governance practice as insufficient attention to the rights of minority shareholders [3].

Thus, large business groups in the form of holdings control many sectors of the Russian economy. They are characterized by cross-ownership of shares and other schemes that ensure the opacity of the ownership structure.

Russia has a huge hydrocarbon potential, satisfying both the needs of the country’s economy in natural gas and products of their processing, and the needs of Western countries through the export of significant amounts of energy. One of the biggest companies in the world in this sphere is the Russian corporation «Gazprom».

Gazprom has the richest natural gas reserves in the world. Its share in world gas reserves is 17%, in Russian — 72%. Gazprom accounts for 12% of world and 68% of Russian gas production. Currently, the company is actively implementing large-scale projects for the development of gas resources on the Yamal Peninsula, the Arctic shelf, Eastern Siberia and the Far East, as well as a number of projects for the exploration and production of hydrocarbons abroad. In addition, the company supplies gas to more than 30 countries of the near and far abroad.

The corporate governance of PJSC Gazprom includes a hierarchical structure, which consists of the Board of Directors, the executive body and the shareholders meetings. The main subjects of the corporate governance of PJSC Gazprom are the management and control bodies (General Shareholders Meeting, Board of Directors, Management Board, Chairman of the Management Board and Audit Commission). An independent audit of the company’s financial and business activities is conducted by an external auditor. [4]

The basic principles of Gazprom’s corporate governance are enshrined in the Gazprom Corporate Governance Code, approved by Gazprom’s General Shareholders Meeting on June 28, 2002. The corporate governance of PJSC Gazprom is aimed primarily at the strict observance of the rights of all shareholders. The key internal documents of Gazprom are built on the basis of fair treatment of shareholders, protection of their rights and interests regardless of the number of shares owned by them.

In 2015, the General Meeting of Shareholders of PJSC Gazprom approved the Corporate Governance Code, which was developed in accordance with the Corporate Governance Code of the Central Bank of the Russian Federation (Bank of Russia), generally accepted standards and principles of corporate governance and the main objectives of the Company. One of the most important components of management is the organization of labor of workers. In this direction there are several main tasks: to achieve high efficiency of labor and to ensure optimal staffing. As a product made by a more responsible and professional worker gains a tangible advantage over competitors. [5]

The corporate governance of PJSC Gazprom is characterized by the presence of one major shareholder in the person of PJSC Gazprom. It owns 95.68% of the shares. The rest of the ordinary shares are distributed between minority shareholders — individuals and legal entities, which in general determines the distribution of the balance of power between the various participants in corporate relationships. Corporate governance at PJSC Gazprom is based on the principle of sustainable development and raising the value of the share capital of Gazprom in the long term.

The corporate governance practice of PJSC Gazprom in the field of protecting the rights of shareholders is characterized by the following positive aspects:

  • The powers of the Board of Directors of the Company regarding decision making on significant transactions have been expanded;
  • А generally recognized auditing company selected on a competitive basis;
  • In determining the amount of dividends, PJSC Gazprom focuses on the indicators of net profit;
  • The annual General Meetings of Shareholders are posted on the Company’s website.

A comparative analysis of the current corporate governance standards in PJSC Gazprom and the provisions of the Corporate Governance Code approved by the Board of Directors of the Bank of Russia on March 21, 2014 showed that the corporate governance practices in PJSC Gazprom largely comply with the recommendations of the Russian Corporate Governance Code. This was also confirmed by the results of an independent comprehensive audit of the corporate governance practice of PJSC Gazprom, conducted with the involvement of specialized organizations.

The corporate governance of subsidiaries of Gazprom Neft Group is structured in strict accordance with the corporate governance structure of PJSC Gazprom. PJSC Gazprom is the main company in relation to the organizations of the Gazprom Neft Group. Effective corporate governance and control of subsidiary operations are provided, among other things, by introducing key issues of subsidiary activities for consideration by the management bodies of PJSC Gazprom. [6]

The Board of Directors of PJSC Gazprom makes decisions on the following business matters of the subsidiaries:

  • Increase or decrease in the authorized capital of subsidiaries;
  • Аcquisition of other organizations;
  • Reorganization or liquidation of the subsidiary.

The Management Board of Gazprom considers issues related to the strategic development of subsidiary operations.

The exclusive competence of the General Meeting of Shareholders / Participants of Subsidiaries established by law, related to decision-making on key issues of Subsidiaries, is supplemented by the approval of any transactions for an amount over a certain threshold performance indicators of the company.

Company has developed and approved procedures allowing, under the guidance of the Corporate Center, to successfully coordinate and control the activities of subsidiaries in the framework of the Company’s Development Strategy. The collegial decision-making on the participation of any organization belonging to the Gazprom Neft Group in a different organization determined the circle of decision makers.

The boards of directors of subsidiaries are formed in accordance with the established principles of functional subordination, participation of employees of the corporate function. The composition of candidates to the Board of Directors and the audit commissions of subsidiaries are approved annually by order of the Director General of Gazprom.

Corporate Governance Practice of PJSC Gazprom from the point of view of protecting the rights of shareholders is characterized by the following positive aspects:

  • Expanded competence of the Board of Directors in terms of approval of significant transactions;
  • The company holds a competitive selection of suppliers;
  • The company has a practice of working with minority shareholders: PJSC Gazprom on a regular basis holds meetings with investors and shareholders, holds investor day, and participates in all major conferences of investment brokerage organizations.
  • The company regularly introduces investors and shareholders, organizing on-site meetings for production and mining platforms.

The practice of disclosing financial and non-financial information about its activities is characterized by the following positive points: the company discloses information about the structure of share capital, details of the members of the Board of Directors and the Management Board, on the remuneration structure of members of the Board of Directors and the Management Board, on interested-party transactions. [7]

Gazprom adheres to high international standards of information disclosure and transparency, which imply timely publication of adequate information on the Group’s operating and financial results, as well as corporate governance practices. The basic principles of information disclosure are enshrined in the Regulation on the Disclosure of Information.

Within the framework of the legislation of the Russian Federation and internal documents of Gazprom, the Corporate Protection Service of PJSC Gazprom and the corporate protection units of subsidiaries are working to prevent and detect cases of corruption in the Gazprom Group. This work is carried out in constant interaction with the departments that perform the functions of internal audit, corporate cost management, property management and corporate relations, as well as with law enforcement agencies of the Russian Federation. [8]


To sum up, Effective corporate governance is a key factor in ensuring the financial transparency of corporations and the accountability of managers. Corporations that fail to comply with the rules of good corporate governance are not threatened with fines, but with loss of reputation in the capital market and a lack of trust in counterparties. This leads to a decrease in investor interest and a fall in stock quotes, and limited opportunities for further operations and investments by external investors. Therefore, corporations draw great importance to compliance with the rules of corporate governance in order to preserve the investment attractiveness for investors and shareholders. [9]

Shareholders are interested in the right to participate in the company’s profits. But other rights are also important: for example, to vote on issues of electing the board of directors, making changes and additions to the charter, increasing or decreasing the authorized capital, approving the annual report and financial statements, getting certain information about the joint-stock company, timely and regular receipt of necessary and relevant information about the corporation. These rights give investors’ confidence that the money they paid for the shares will bring in the form of dividends and increase the value of the shares. Thus, good corporate governance not only creates a positive image of the company in the eyes of potential investors, but also reduces the risks of investors and thus helps to attract funds. [10]

The main task of oil companies is to maximize profits and expand new markets. To accomplish this task they develop competitive advantages. In the business environment of the global oil supply system, companies focus on developing competitive advantages that maximize the efficiency of operations. A special role in this belongs to corporate governance.


  1. Mashchenko V.E. System of the corporate management. Sirin, 2017, p. 142;
  2. Christoforova. M. Corporate governance in Russia: the formation and development of a complex of integration strategies: a monograph / Under the general scientific editorship of IV, 2017. p. 62;
  3. Gillis D., Barta P., Leblanc R. Structure versus function: the evolution of corporate governance / Problems of Management in Social Systems. 2018. Vol. 8. No. 12. p. 201;
  4. The Civil Code of the Russian Federation (Part One) 30.11.1994 N 51-FZ // CZ RF 1994, No. 32, Art. 330;
  5. Federal Law of the Russian Federation N 14-FZ (as amended on 04.23.2018) «On limited liability companies» 08.02.1998 // CZ RF 1998. № 7. Art. 785;
  6. Nasibova M.D. Subsidiary companies in holding structures // Actual problems of Russian law. 2016. № 1. p. 13;
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  8. Gukasyan Z.O. Methodical approach to assessing the quality of corporate governance // Modern scientific research: historical experience and innovation. IMSIT. 2016, p. 97-102;
  9. Bezhenar A. Place and role of the board of directors in the corporate governance system in a joint-stock company, «Law and Economics», N 1, 2019, p. 15;
  10. Dugalova G.N. Management in the oil and gas sector: Economy, 2017, p. 115;
  11. Official web-page of PJSC Gazprom / Overview;
  12. The Corporate Governance Code of PJSC Gazprom, approved by the decision of the Annual General Meeting of Shareholders of PJSC Gazprom of June 30, 2017.