The government intends to act on behalf of minority shareholders
On October 26, 2012 Spartak and Kommunarka confectionaries were de facto nationalized. It is anticipated that the issue of minority shareholders’ protection by the state will be decided on default. If so, the rights of large investors and minority shareholders will be violated and the feasibility of shares’ ownership in Belarusian enterprises will become even more questionable.
On October 25th, 2012 a meeting about how to improve public shares management was held.
Private shareholder’s stake in “Spartak” has been reduced from majority to minority by issuing additional shares and transferring to the state’s balance. It has been proposed to simplify functions of the Supervisory Boards at enterprises with state’s share larger than 50%. Private minority stakeholders are supposed to be protected by the state, even if they have not expressed interest in such protection. At enterprises with state’s shares less than 50% it was proposed to nominate a person to carry out state policy.
In fact, it implies a double standard in the field of corporate management. If an enterprise is owned by the state by 50% or more, the state does not care about the minority shareholders’ interests. The state will ignore opinions of shareholders about dividends and management in the name of public interest. If a private owner has the majority stake, the state formally denies it the right to control the enterprise, based on the assumption that it will focus on investment return, rather than on serving public interests.
Superficial concern about private minority shareholders is an attempt to control additional shares concentrated in the hands of private individuals. Private person, in state’s view, is incapable to decide whom and how to transfer the management of his/her stake. The state can therefore obtain the right to dispose of additional shares, without additional costs.
Thus, an investor is faced with choice: either to purchase the enterprise entirely to get rid of the state and private shareholders, or to invest at own risk, bearing in mind the potential risk to lose investments and control over the company, even if he or she is a majority stakeholder, as stakes can be taken away on formal grounds in the future. In these circumstances, privatization of state enterprises makes no sense for the majority of shareholders unless 100% of shares are sold.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.