THE VOLUNTARY EFFECT

The history of the development of business in independent Azerbaijan has passed through various stages. Whereas at the start of this path, the private sector in the country did not even have a broadly acceptable legislative base, today, apart from "cast iron" guarantees of the rights of entrepreneurs and their investments on the part of the state, it receives pretty much regular support in the form of far-reaching and comprehensive state programmes, numerous benefits and preferences, and so on.

All this is undoubtedly the reason for the development of the private sector, including the emergence in the country of more, large local companies, and is encouraging existing companies to improve their work, produce output and offer services to international standards. Achieving this requires, in addition to the aforementioned measures of state support for business, the creation of a healthy working environment within a company, respect for the rights and interests of shareholders, participants and the workforce and the development of effective cooperation between the company, state bodies and other interested parties. All these elements are regulated in international practice on the basis of the norms and principles of corporate governance.

In February of this year the Azerbaijani Ministry of Economic Development (MED) endorsed and presented the Azerbaijani Corporate Governance Standards. And recently the ministry prepared a sample copy of its Code of Corporate Ethics, drawn up on the basis of foreign experience and distinctive national characteristics.

Anar Hacizada, head of the sector for corporate governance at the Ministry of Economic Development, spoke to R+ about the measures taken by the MED to spread advanced experience of corporate governance and its significance for the development of the private sector.

- Today virtually any company worthy of the name in a civilized world adopts the principles of corporate governance. Observance of these principles is one of the most important conditions in gaining the confidence of investors, partners and clients. What is the situation in this sphere in Azerbaijan? Has the adoption of these principles been confined only to the banking and insurance sectors?

- First of all, let's make it clear what we understand by "corporate governance" and how beneficial it is to the private sector. Corporate governance is a combination of the principles and norms that regulate the management of companies with the aim of implementing the rights of shareholders (participants). The experience of the economically developed countries shows that building an effective system of corporate governance in companies creates the conditions to attract even more investment, to effectively control risks and to organize a reliable financial accounting system. In total, all these elements play a significant role in the quantitative and qualitative improvement of macroeconomic indices in the private sector.

It was precisely by taking into account all these positive elements that the decision was made to encourage Azerbaijani companies to adopt the principles of corporate governance. In connection with this, in the first instance a relevant working group was set up consisting of representatives of state structures, international organizations and the private sector to draw up the necessary documents in the sphere of corporate governance, the first fruits of whose work was the "Azerbaijani Corporate Governance Standards" project. Enterprises of all types of ownership, juridical and auditing firms, representatives of international organizations, and so on, were involved in the development of this process.

The document was presented to a global corporate governance forum, endorsed by the World Bank and the Organization for Economic Cooperation and Development, and received a positive response, in which it was noted that the standards bind together international experience and local characteristics, creating favourable conditions for disseminating advanced experience in the sphere of corporate governance in Azerbaijan.

One of the definitive features of Azerbaijan's corporate governance standards compared to similar documents of other countries is that, as well as joint-stock companies, they also extend to companies with limited liability. The fact is that in 2011 about 100,000 companies, of which only about 2,000 are joint-stock companies and the rest limited liability companies, were registered in the country. Another basic difference is that whereas in other countries such documents cover only the banking and insurance sectors, our standards also provide for the real sector.

Azerbaijan's corporate governance standards are of an advisory nature, but this in no way reduces their significance. A number of measures have already been carried out in Baku and the regions to explain their benefits for businessmen and with the aim of encouraging companies to adopt them, and this work will be continued.

- Recently the Ministry of Economic Development presented to the public a sample copy of its Code of Corporate Ethics. What meaning does this document have?

- You're right, the Ministry of Economic Development recently prepared and posted on its website (www.economy.gov.az) a sample copy of its Code of Corporate Ethics. The fact is these standards regulate organizational questions in the work of a company as a whole and its managerial bodies and officials - the powers of the managerial bodies, their areas of responsibility and the responsibilities of officials, as well as questions of the organization of an accountability system and the disclosure of relevant information and recommendations on the protection of the rights of shareholders (participants). And the Code will also contain the moral and ethical principles and norms which govern the company as a whole and each employee of the company individually. This document reflects the moral-ethical principles and norms regulating the company's external relations (relations with state structures, business partners, the population, etc.) and also relations within the company (between the administration and employees and between the employees themselves, etc.).

As far as the benefit of this code for companies is concerned, I would like to point out that world experience shows there are two important reasons for the formation of business ethics in a business environment and the emergence of such documents: the volume of business is increasing all the time and its structure is becoming more complex, and the unethical behaviour of management and employees of a company has negative consequences both for the company itself and those who have relations with it.

In order to prevent the latter, moral-ethical norms, as well as legislative acts are used all over the world. Adherence to moral-ethical principles and norms helps to improve the situation within a company and increases confidence among investors and partners. And at the end of the day this leads both to an improvement in a company's economic indices and an increase in the well-being of its employees. Thus, corporate ethics have a favourable impact on companies from both the economic and social points of view.

- Why was it the Ministry of Economic Development that prepared the standards and the code? After all, abroad, apparently such documents are drawn up by the private structures themselves.

- First of all, corporate governance as an economic instrument started to become popular in the world in the 1990s, and since then standards and codes in this sphere have started to be prepared by state bodies and non-state organizations and private companies. For example, in Russia and Ukraine such documents were drawn up by state structures, whereas in Germany it was a specially created government committee that dealt with this question. There are also instances of such documents being prepared by non-governmental organizations and business associations, as happened in some countries of Europe and the CIS.

As far as Azerbaijan is concerned, I would again stress that corporate standards here, unlike the majority of countries, extend to all companies irrespective of their organizational and legal form and the segment of the economy in which they operate. Taking this factor into account, as well as the important role of these documents for the development of business and the dissemination of advanced experience in the sphere of the organization and activities of companies, the Ministry of Economic Development has become the initiator and author of the documents within the framework of the policy of state support for the private sector.

I would like to point out that, taking into account the close relations between corporate governance and the private sector, the Ministry of Economic Development, as a body which draws up and conducts state policy in the development of and state support for business, is carrying out purposeful and consistent work in this direction. Thus, the ministry's work in the sphere of corporate development is not confined to preparing these documents and presenting them to the business community. Apart from this, there is a special section on the ministry's website devoted to corporate governance where a vast amount of information on this subject is regularly posted for business people.

I would like to add that the standards and the code will be improved in accordance with the changes taking place in the sphere of corporate governance, taking into account Azerbaijan's legal and economic situation.

- Among the provisions of the code there are principles concerning the observance of tax and labour legislation, the creation of equal conditions for all employees, avoiding unscrupulous competition, and so on. So one wonders whether the companies themselves are showing any interest in adopting the Code of Corporate Ethics?

- Many of the principles and norms of this voluntary document have been enshrined in legislation. As far as interest is concerned, we are currently engaged in explanatory work among companies, explaining how the observance of moral-ethical principles and norms could have a positive effect on their business image, foreign relations, and attract investments, etc. Furthermore, as has been noted above, corporate ethics have a favourable impact on companies both from the economic and social points of view. In other words, voluntary in no way means unbeneficial.

In summing up the ministry's work in the sphere of corporate governance, it is important to note that the main aim is to encourage companies to improve their corporate governance and to organize the running of their business in line with advanced experience, without ignoring any segment of the private sector.

This approach has been governed by the trends in economic processes in the world, especially in recent years. By that I mean the economic crisis that has affected the economies of many countries.

As we know, the "main devotees" of corporate governance are the banking and insurance sectors. The banks and the insurance companies were pioneers in this in Azerbaijan, too. But one of the main reasons for the world economic crisis was the inability of companies that received bank loans to pay them back. The reason for the insolvency of such companies was that the organization of corporate governance in them did not conform to established requirements. That is why it is important to encourage the improvement of corporate governance in all spheres of the private sector.

In conclusion, I would like to point out that we are prepared to assist companies in adopting the standards and the code.