Ukraine has been implementing corporate reform for the past 10 years. And in April, the President of Ukraine signed the Law “On Improving Corporate Governance of Legal Entities in Which the State Is a Shareholder (Founder, Participant).” This law significantly changes the rules of corporate governance of state-owned enterprises. On the one hand, the document makes the activities of state-owned enterprises transparent and understandable for investors and society. On the other hand, Ukraine fulfills its obligations to international partners and adapts its legislation to European requirements. Read more about the corporate governance reform in the material published jointly with the Ministry of Economy of Ukraine.

The Law “On Amendments to Certain Legislative Acts of Ukraine on Improving Corporate Governance of Legal Entities in Which the State Is a Shareholder (Founder, Participant)” provides a legal basis for creating a unified policy for managing state assets and takes into account the context of the war.

Here are the key changes in the document: 

• It separates the functions of the owner and the manager. Supervisory boards are given more powers to operate, but also more responsibility. The government receives tools to control supervisory boards. 
• Empowers the Cabinet of Ministers to approve the State Ownership Policy – the rules of the game for all state-owned enterprises. Strategic development plans, as well as financial and investment plans of state-owned enterprises, must be consistent with this Policy.
• Letters of expectations from the owner regarding the activities of enterprises appear. They will include a list of financial indicators – indicators of profitability, liquidity and solvency. 
• The document expands the powers of supervisory boards – members of the supervisory board will make key operational decisions – approve financial, strategic, investment plans based on the State Ownership Policy and owner’s letters of expectation, appoint and dismiss heads of state-owned enterprises.
• The law obliges the Government to develop and approve the Procedure for Evaluation of Supervisory Boards.
• It regulates the procedure for dismissal of members of supervisory boards – a clear list of grounds for this is prescribed.
• It introduces a system of internal control: instead of audit committees, there will be modern tools – compliance, risk management, internal audit.

The adoption of the law is an obligation of the Ukrainian government to the IMF, and it is also one of the economic prerequisites for Ukraine’s accession to the European Union. 

In addition, the law on improving corporate governance is one of the conditions for receiving EUR 50 billion under the Ukraine Facility program. 

The law brings Ukraine closer to the standards of the Organization for Economic Cooperation and Development. Ukraine applied for membership in the OECD in July 2022, and in October 2022, the OECD recognized Ukraine as a potential member and started a dialogue on accession. The adoption of the law is an important step on this path. The law takes into account OECD principles to the extent that wartime requirements allow. 

As for the internal benefits, the corporate governance norms enshrined in the law will make the activities of state-owned enterprises transparent and understandable for investors and society.  The law establishes clear responsibilities for supervisory boards and gives them tools for effective work. At the same time, the Government will be able to monitor and evaluate the activities of supervisory boards. This will make the work of state-owned enterprises more efficient and reduce the risks of corruption. After all, the majority of representatives on supervisory boards are independent members selected through a transparent procedure, who will have the powers and tools to fight corruption. 

More efficient operation of state-owned enterprises means higher taxes to the budget and the ability to attract more money for recovery and investment. The corporatization of enterprises, i.e. their transformation from the outdated form of “SOEs” into business companies and a clear approach to management, will help strengthen cooperation with international financial institutions and private investors.