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Abstract

Vol. 54, No. 3, pp. 223-236 (2003)

“Legislative Structure of Russian Firm”
Ichiro Iwasaki (The Institute of Economic Research, Hitotsubashi University)

The legal form of business enterprises in contemporary Russia is diversified to almost the same extent as those in major advanced countries. Joint-stock companies are now the most common form of incorporation among leading industrial enterprise. The Company Law in Russia provides for the governance mechanism of joint-stock companies, in order to actualize the concept of a ''self-enforcing'' organization wherein the legal code of business management should be observed voluntarily by managers and large stockholders. This fundamental idea is embodied in many aspects of the current system, including the mechanism of management and supervision characterized as ''double-headed leadership'', the balance of power between stockholders and executives, and the internal audit system. However, the self-enforcing nature of the Russian enterprise system has been undermined by a number of factors, including the overwhelming expansion of closed-type joint-stock companies, the predominance of insider ownership, the short history of internal auditing, and the lack of legal enforcement power. As a result, breaches of the Company Law are rampant in Russia today. This raises serious problems for the Russian enterprise system, along with the legal peculiarity of privatized firms and people's enterprises, which complicates the joint-stock company system and deprives it of transparency.