Editor’s Note: The Ukrainian State-Owned Enterprises Weekly is currently on issue 153. The Kyiv Independent reposts it with permission.
Ukrzaliznytsia‘s corporate governance failures
In this special edition, Oleksandrlysenko and Andriy Boysun highlight a number of events that illustrate failures in corporate governance in Ukrzaliznytsia. These are the core mechanisms designed to deter political interference in state-owned enterprise (SOEs).
This issue is intended to bring the attention of the government to these setbacks in order to prevent negative consequences to this strategically important company. The Ukrzaliznytsia situation also shows that the new corporate governance law for SOEs, which was adopted in early this year, had little or no effect up to now.
The Cabinet has yet to start the selection of Ukrzaliznytsia’s new supervisory body, despite the new corporate governance law for SOEs.
The Cabinet made a decision on December 29, 2021 to appoint the incumbent supervisory board for Ukrzaliznytsia (see Issue 60). According to the decision, Anatoliy Amelyn, Alexander Doll Jakub Karnowski and Gebhard Hafer were appointed as independent members. Serhiy Leshchenko Serhiy Mokalenko and David Lomjaria, however, were appointed state representatives.
According to the law in effect at the time they were appointed, as well as the charter of the company, the maximum tenure of office for supervisory board members can be three years. The tenure of the supervisory board above should end as early as December 28, 2024.
Only the recent appointment of Oleksandr Kazyshin to the Ukrzaliznytsia Supervisory Board (state representative) since the formation of the board in 2021 has been made public. According to media reports Kamyshin took over Serhiy Mokalenko’s position (see Issue 151).
Ukrzaliznytsia does not provide the mandatory disclosures required by joint-stock companies under the Capital Markets Law and the disclosure regulations of the National Securities and Stock Market Commission. The information on the appointment of company officers such as the management board and supervisory board is missing.
This means that, in practical terms, it is impossible to know, based on the company’s disclosures, who its key executives are or if there is a supervisory council. Ukrzaliznytsia did not explain the reasons behind the changes to the executive committee or Pertsovskyi’s appointment. They only reported the news in the “News’ section of their website. [See below for more information on disclosure requirements.]
According to the new SOE Law requirements (which were introduced in Law No. 3587, effective on March 8, see Issue 122. The selection of candidates for the supervisory board of an SOE should begin no later that three months before the supervisory board member’s term ends (unless it has been decided to extend the term), or no later then 10 days after the termination of the supervisory board member’s powers.
The Cabinet, as the owner of Ukrzaliznytsia, must decide by September 29 whether to extend the powers of current supervisory board or announce a new selection of board members.
The Cabinet Resolution No. The Cabinet’s Resolution No. 643, dated 31 May 2022, abolished competitive selection procedures for supervisory board member for almost all SOEs including Ukrzaliznytsia. This resolution is likely to contradict the new SOE Law which states that the selection of board members for supervisory boards should adhere to the following principles: collective suitability; board diversity; equality of requirements; professionalism, openness and transparency.
The Cabinet has appointed a new CEO and executive member of Ukrzaliznytsia in violation of the new SOE Law
On October 18, the Cabinet of Ministers terminated all the powers of Ukrzaliznytsia’s executive board, including CEO Yevhen LIashchenko, executive board members Volodymyr Krot, Orest Logunov Anton Mishyn and Oleksandr Prentsovskyi.
In the same ordinance the Cabinet reappointed Liashchenko to the executive board until March 31, 2025 and appointed Pertsovskyi as the new CEO for three years. Volodymyr Crot, Orest logunov, Anton Mishyn, and others were also dismissed from the board.
According to the Law of the Cabinet of Ministers, which was in effect until March 8, the Cabinet held the authority to appoint the CEO and executives of SOEs that were under its ownership.
Ukrzaliznytsia’s charter also states that the Cabinet, as the company’s general meeting acts, appoints or dismisses the CEO, executive board members, and other employees based on a supervisory board’s proposal. This means the Cabinet cannot take these decisions without a supervisory board’s proposal. This charter provision likely did not limit the Cabinet’s power to make decisions without a supervisory board proposal.
According to the new requirements introduced by Law No. Since 8 March, the Supervisory Board has the exclusive power to appoint and dismiss CEOs, executive board members, and other executives of all SOEs.
We are also not aware of any provisions of the SOE Law or Law on Martial Law or other laws which would allow the Cabinet directly to appoint and dismiss the CEO of Ukrzaliznytsia or the executive board during martial law.
According to Law No. According to Law No. There is no evidence that this is the situation in Ukrzaliznytsia.
The Cabinet’s termination and appointment of the executive board of Ukrzaliznytsia was likely made without legal basis.
If the new CEO’s appointment and the executive board members are deemed illegal, the decisions made by the CEO or executive council of Ukrzaliznytsia may also be declared invalid.
Oleksandr P. Pertsovskyi is a member of the executive board and head of passenger services at Ukrzaliznytsia since October 2020. In the period 2016-2020 he was COO/First Vice CEO of Ukrposhta.
Pertsovskyi was employed by the largest logistics company in the world, Deutsche Post DHL Group from 2010 to 2016. During his six-year tenure, Pertsovskyi rose from consultant to associate and then head of business development for the Asia-Pacific Region, based in Singapore.
Yevhen Liashchenko resigned as CEO of Ukrzaliznytsia in early October. As we previously reported, he has been the CEO of Ukrzaliznytsia since March 2023. Liashchenko did not publicly comment on his resignation, but several reputable media outlets speculated about possible reasons. See Issue 151 for more detail.
Since the establishment of an independent supervisory body at Ukrzaliznytsia, in 2018, there have been six CEO changes. During the majority of this six-year span, the company was run by acting CEOs. Since its founding in late 2020, SOE Weekly has covered four of the most recent CEO changes within Ukrzaliznytsia. For more information, please see Issues 19, 39 and 80.
Ukrzaliznytsia has poor transparency and does not disclose information despite the law
As we have already stated, the Capital Markets Law and NSSMC’s Disclosure Regulations mandate certain disclosures for Joint-Stock Companies (JSCs). State-owned JSCs such as Ukrzaliznytsia are subject to even stricter disclosure requirements. According to the law they must disclose three types of information, including on their website:
(1) Regular information This information includes both annual and interim reports that provide comprehensive information on the company’s performance over the previous year or quarter. It also includes financial statements.
During martial law, JSCs, including state-owned JSCs, are legally exempted from the obligation of disclosing regular information for the period 2021-2024.
Information on the company’s activities. This category requires the immediate disclosure of any material change in the company’s operations, especially information regarding:
* the appointment and dismissal by the company of its officers, including members of the executive and supervisory boards.
* Related party and material transactions
* Dividend payments
* Approval of the remuneration reports
* Insolvency of a company
* The existence of business ties between a state aggressor and a company.
* and other information
The law does not allow for the disclosure or ongoing information during martial laws.
All regular and ongoing data must be available on the website 10 years after disclosure. Disclosure regulations also require that websites of companies have a section called “Information for Shareholders and Stakeholders” accessible from their main page, for the purposes of disclosure.
Ukrzaliznytsia has a section for this, but it does not contain any regular or ongoing information.
(3) Other information This includes the disclosure of the company’s charter, ownership structure and regulations of the supervisory board, executive body and other internal documents on its website, as well minutes of general shareholder and supervisory board meetings and reports.
During martial law, all such information must be available on the website in the respective section for a period of 10 years.
Ukrzaliznytsia has a section on its website titled “Information to Shareholders and Stakeholders” that contains a subsection called “Other Information.” However, this only contains a listing of regulations for Ukrzaliznytsia’s separate units and representatives offices.
The NSSMC as the responsible regulator may therefore impose penalties against Ukrzaliznytsia if they violate the disclosure rules.
(4) Responsibilities and responsibilities of the supervisory board in relation to Ukrzaliznytsia’s corporate governance
According to the Law on Joint-Stock Companies (JSC), Ukrzaliznytsia’s supervisory board has the responsibility of ensuring the timely disclosure of company information. The SOE Law also gives the supervisory board the power to appoint and dismiss the executive board of a company.
Despite these responsibilities, it appears that the supervisory board of Ukrzaliznytsia has not been transparent and communicative about recent events, such as management replacements and disclosure practices.
This silence raises questions about the board’s ability to fulfill its fiduciary duty. In fact, the law states that the supervisory boards should act in the interests of the company and shareholders. Supervisory board members are personally responsible for any losses the company suffers as a result their actions or inactions.
According to the SOE Law if a court rules that the member of the supervisory board has violated his/her fiduciary duty, this is a reason for an early termination of their powers.
Ukrainian SOE Weekly is a weekly independent digest that compiles the most important news about state-owned enterprises in Ukraine (SOEs) as well as state-owned banks.
The Ukrainian SOE Weekly editorial team is solely responsible for the content of this publication.
Andriy Boysun produces and finances the SOE Weekly. CFC Big Ideas provides and finances communications support. The SOE Weekly has not been influenced or financed by an external party.
Editorial team: Andriy Boysun, Oleksiy Pavlysh, Dmytro Yablonovskyi and Oleksandr Lisenko.
Ukrainian SOE Weekly is a weekly independent digest that compiles the most important news about state-owned enterprises in Ukraine (SOEs). Editorial team: Andriy Boysun, Dmytro Yabonovskyi, Oleksandr lysenko, Oleksii Pavlysh, Mariia Kramar.
Read More @ kyivindependent.com