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Corporate Governance Viewpoints

Lessons from Russia

by Bruce Misamore


Bruce Misamore was Chief Financial Officer and Deputy Chairman of Yukos, Russia’s largest oil company, from 2001 until 2005. While there, he introduced world-class standards in corporate governance, financial transparency and accounting. However, Misamore’s reforms were unwound when the company had its domestic assets seized by the Russian government after 2004 and Russia arrested its chief executive Mikhail Khodorkovsky. Misamore resigned in December 2005 and has since been instrumental in a global legal campaign to ensure that Yukos’s thousands of legitimate stakeholders receive compensation from the Russian government. Before joining Yukos, Misamore held senior-level finance roles with US oil companies PennzEnergy, Pennzoil Co and Marathon Oil. Misamore taught finance at Bowling Green State University in Ohio in the 1970s and says that the winters there are even colder than in Moscow.

Why did you choose to move to Russia and become Yukos’s CFO?

During my initial conversations with the CEO of Yukos, Mikhail Khodorkovsky, he made it clear that he wanted Yukos to become a transparent stakeholder-focused company. His aspiration was, in fact, to set the agenda for other Russian companies and oil companies globally, making Yukos a world leader for operational excellence, corporate governance, financial reporting, and investor relations. It seemed like a place where I would be able to make a major positive contribution, not just to the company itself, but also to the wider Russian economy.

What processes did you introduce to improve transparency and the quality of reporting and what did you find most questionable about Russian accounting practice?

Russian accounting had not really evolved since the Soviet era. It was primarily cash accounting, and they had no such thing as consolidation accounting. This meant that each individual legal entity was treated as a separate accounting entity and had to report to the government as such. This made it impossible to create a consolidated financial statement, which in turn caused a lack of sensible financial reporting and other practical problems. Michel Soublin, Yukos’ former CFO, and Khodorkovsky had already recognized that Russian accounting standards were inappropriate for a company like Yukos and had made a choice between International Financial Reporting Standards or US GAAP. Before I arrived, they had chosen the latter, in view of their plan to seek a listing for Yukos on a US stock exchange.

Were there any tensions between the use of US GAAP and statutory requirements Yukos had to also report using Russian accounting?

Yes. Despite the move to US GAAP, Yukos was still required to maintain Russian books for domestic tax and financial reporting purposes. As Russian accounts could not be consolidated, the eliminations you would normally make in consolidated statements needed to be tossed out the window, and accruals to reflect the true state of the business were non-existent. Because of the lack of inter-company eliminations, no reader of the Russian financials could have been properly informed of the true situation of the group as a whole.

What about the tensions over the reporting of oil and gas reserves? Does that remain a criminal offence in Russia?

In the Soviet Union the reporting of reserves was illegal, and technically that remains the case in Russia today. In the late 1990s and early 2000s, companies like Yukos, Lukoil, and TNK-BP elected to begin reporting in either International Financial Reporting Standards or US GAAP, which compelled them to report reserves. In the early Putin years, the government turned a blind eye to the existing Soviet-era law and didn’t bother to harass companies over this. The government seemed to recognize that, if Russian oil companies were going to raise capital in the international financial markets, they were going to have to comply with Western rules. However, after the Kremlin decided to renationalize a large portion of the country’s oil reserves, Yukos and other companies started to be harassed by the Ministry of Natural Resources over their reporting of reserves. While we certainly did not ignore these calls, we were committed to reporting our reserves, and did not believe that we would be subject to criminal sanctions.

Was Yukos one of the first Russian companies to adopt US GAAP?

Yes. We were the first Russian oil company to publish full US GAAP financial statements, including quarterly US GAAP financials. From 2002 onwards, there emerged a movement called “Yukos-ization,” in which other Russian companies sought to emulate what we had achieved in financial reporting and corporate governance. There were even seminars on it. The focus on transparent financial reporting and good corporate governance meant that Yukos had become recognized as a leader in financial reporting, corporate governance, and investor relations not just in Russia, but across the emerging markets. This was why I had gone to Russia—not only to improve Yukos but to drive forward standards across Russia’s industrial base.

However, when Yukos was attacked by the Russian government, most of the other companies backed off, especially on the corporate governance aspects. A key issue was over the identity of major shareholders. No other company in Russia had done that before we did. Companies that had been considering following us down that road scrapped their plans. Once the real Putin stepped forward, there was a significant regression in terms of corporate governance in Russia.

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Further reading


  • Baker, Peter, and Susan Glasser. Kremlin Rising: Vladimir Putin’s Russia and the End of Revolution. New York: Lisa Drew/Scribner, 2005.
  • Economides, Michael J., and Donna Marie D’Aleo. From Soviet to Putin and Back: the Dominance of Energy in Today’s Russia. Houston, TX: Energy Tribune Publishing, 2008.
  • Jack, Andrew. Inside Putin’s Russia. London: Granta Books, 2004.
  • Norman, James R. The Oil Card: Global Economic Warfare in the 21st Century. Walterville, OR: Trine Day, 2008.

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