COMMENT: Political interference in Naftogaz supervisory board operations is a major setback in corporate governance reform
Ukraine’s business community and its supporters abroad condemned the Cabinet’s decision to sack the widely respected CEO of Naftogaz, Andriy Kobolev, on April 28, calling it an abuse of corporate governance that will undermine what little confidence exists in the investment climate.
“Respect for corporate governance, transparency and integrity in energy sector personnel appointments – whether government or state-owned enterprises – is key to maintaining confidence in Ukraine’s commitment to reform,” Ned Price, the US State Department’s spokesman, said in a tweet from the official account.
Prime Minister Denys Shmyhal’s Cabinet dismissed Kobolev, Naftogaz’s chief executive officer since 2014, pointing to the $684mn loss the company reported in 2020. However, his sacking was highly irregular. Usually the supervisory board would fire the CEO, but the Prime Minister suspended the board’s work for two days and made the decision himself. Kobolev said the way he was sacked was illegal and he refused to step down.
“This is an outrage. Naftogaz CEO Andriy Kobolev was fired by the Ukrainian government w/o the supervisory board even being informed. After this, the Ukrainian government can't claim having any corporate governance,” tweeted Swedish economist and a Senior Fellow at the Atlantic Council Anders Aslund.
Naftogaz issued a scathing statement highlighting the irregularities and observed that the decision would hurt its campaign to attract investors to exploit Ukraine energy reserves. It could also hurt relations with the International Monetary Fund (IMF) that has supported Kobolev, who has overseen some key energy sector reforms.
By the next day the condemnation of the decision was swelling. The American Chamber of Commerce, the leading international business institution in the country that represents foreign investors’ interests in Ukraine, issued a statement of the decision. Below is the text of the statement:
“The recent Governmental decision to dismiss the Supervisory Board of NJSC Naftogaz of Ukraine for two days in order to make a decision on the dismissal of the chief executive officer and its re-election in the same composition violates the principles of state-owned enterprises' corporate governance, disrupts the role of independent supervisory boards in Ukraine, and undermines Ukraine's agreements with the International Monetary Fund and other strategic partners.
Investors rely on independent corporate governance to protect their investment, and this threatens to jeopardise privatisation, public-private partnerships, and any investment in state-owned enterprises (SOEs).
The business community, united by the American Chamber of Commerce in Ukraine (the Chamber) and the Ukrainian Corporate Governance Academy (UCGA), is deeply concerned about the decision of the government with regard to the supervisory board of NJSC Naftogaz of Ukraine.
[Driving] Ukraine's energy independence with a fully liberalised energy market and reform [of the] state-owned enterprises' sector are among the highest priorities for the business. This can't be achieved without accelerating corporate governance reform and strengthening the role of independent supervisory boards.
We stand in solidarity with the US Department of State that "respect for corporate governance, transparency, and integrity in energy sector personnel appointments – whether government or state-owned enterprises – is key to maintaining confidence in Ukraine's commitment to reform".
Good governance of SOEs is critical to ensure their positive contribution to Ukraine's economic efficiency and competitiveness. We are concerned by the setback in the SOEs corporate governance reform and the re-politicisation of the process. A transparent and well-structured process for selecting candidates for supervisory board members, including government nominees and CEOs of state-owned enterprises, is essential for Ukraine's economic growth and investment attractiveness.
The business community calls upon President Volodymyr Zelenskiy, Prime Minister Denys Shmyhal, and the Cabinet of Ministers to completely reboot the corporate governance and SOEs reform effort in the nearest future and ensure independence of the supervisory boards.
Chief Communications Officer”