How do you evaluate the development of CSR in Kazakhstan?

Companies and corporations that have international investors are more effective in this regard. At their level, CSR is a must. However, the results of the Republic’s “Paryz” contest have revealed that many small- and medium-level companies have met certain CSR benchmarks.  Such contests help develop a better understanding of CSR concepts.

One study of corporate governance practices in Kazakhstan, carried out by the Association of Financiers of Kazakhstan (AFK) and Ernst and Young in 2009, showed progress in the adoption of a code of ethics and a hotline to combat fraud: 80% of corporations surveyed had implemented a code of ethics, 50% a hotline to combat fraud (Diagram 1).

All the same, while these actions do not guarantee 100% implementation of CSR practices. It is a long proves. Different businesses go about it differently.

Could you comment on the current condition of CSR in Kazakhstan?

Our study showed that among the four levels of corporate governance (CG) highlighted by the International Finance Corporation (see below), our companies, on average, comply with levels 1 and 2.

• Level  1: Compliance with the requirements of the law
• Level 2: First steps to improve CG are made
• Level 3: Developed system of corporate governance (CG)
• Level 4: Leadership in CG

However, companies that have S&P’s GAMMA ratings and experience on the London Stock Exchange (LSE) and/or New York Stock Exchanges (NYSE) fulfill the third level and are currently working on reaching the fourth.

During the financial crisis, companies tried to improve their corporate governance with the aim of receiving direct investment funding or funding from “Roadmap 2020.”  This situation led to manual managing, and owners and boards of directors became involved in all aspects of operational issues. This deprived managers of strategic decision-making tools, which resulted in a shifting in the approach to meeting international requirements on corporate governance.

In 2005, the Corporate Governance Working Group of the AFK began an initiative to improve the investment appeal of businesses. We are now once again focusing our attention on this issue.

Why are the principles of corporate governance needed? What benefits can a company gain from implementing them?

Benefits are directly dependent on the above-mentioned levels of corporate governance. I would like to emphasize that this is not so much about rules and procedures, but about the reorganization of managers’ and owners’ thinking. Please see Diagram 2 for the potential benefits that come with increased levels of CG.

It is necessary for companies to be of financial interest to potential investors; at the same time, it necessary for companies to be of interest from a CG perspective. For this reason, I would recommend pursuing corporate governance at this time.

As regards CG, the Financial Supervision Agency is actively promoting measures to strengthen the personal responsibility of officials. Practice has shown that improved corporate governance protects honest and efficient officers from taking more risk.

The importance of effective management systems is also growing as a result of companies thinking strategically about their position on the Kazakhstan Stock Exchange. The securities market is developing, including the IPO market.

A recent S&P study showed a statistically significant relationship between the level of CG and the other performance indicators of a company. Management structures are also changing, with business owners no longer choosing family members to run their companies. Often they realize that this is ineffective due to insufficient skill sets. They look externally for good managers.

From your perspective, does CSR influence the success of the company somehow?

In the same way that honesty, integrity, responsibility, and the ability to execute a vision all influence an inpidual’s personal success in business, the same is true for companies. CSR influences the ability of companies to attract partners. Again, as I say, corporate governance is not just rules and procedures, but it is a system of qualitative and clear thinking.

Say a Kazakh company wants to implement the principles of corporate governance to their activities, how should it start?

Companies need to have team training in order to understand why corporate governance is needed, what result can be reached overall and at each stage of development, and whether collective thinking about indicators of financial and non-financial indicators of success can be changed. Lastly, the company needs to determine who can control, improve, and trace the whole process.

Could you please tell us about the Center for Corporate Governance and Business Ethics at the Association of Financiers of Kazakhstan?

Thank you for asking. During the last year, a working group from the Center worked on legislative proposals, conducted the above-mentioned study, and worked on various CSR-promotion projects. In the future, we will pursue our educational activities through publications similar to those published by CIPE. We will also give speeches and conduct seminars and implement projects. We are open to cooperation and strive to employ best practices.

We know that there is a working group on corporate governance at the Center for Corporate Governance. What is its purpose, and what does it do? Who may join this group?

Yes, a working group exists at AFK. Its goal is to promote CG practices in order to contribute to the development of business and the economy. We are working on drafting legislative proposals and making to existing legislation and regulatory acts. We also initiate projects and organize international conferences and seminars on corporate governance.

Gaukhar Kopbasarova
the Head of the Center for Corporate Governance and Business Ethics at the Association of Financiers of Kazakhstan
Consultant and professional coach
Editor and TV presenter of rubrics at Iske Sat program at Khabar agency
http://www.khabar.kz/rus/programms/Gauhar_Kopbasarova__vedushtaja_rubriki_v_programme__Iske_Sat_.html