Miami University Professor Karen Dawisha recently published a scathing indictment of the United States and Europe’s complicity in the Russian ruling regime’s wrongdoing, particularly its corruption at the elite level. Professor Dawisha argues that Putin and his supporters treat the West like an “a la carte menu” by protecting and multiplying their wealth abroad under the safe haven of Western rule of law, while avoiding the consequences of being held accountable for their “marauding” within Russia. This is damaging not only for Russia, but for the West as well. According to Professor Dawisha, the “presence [of Russian oligarchs] strengthens the worst aspects of our system, and weakens the best.”
One of Dashiwa’s central examples for this claim is Russian companies’ presence in Western stock markets. She argues that Russian companies’ foray into foreign stock markets has failed to “improv[e] the quality of Russian corporate governance and transparency” and should be lamented. While I will not attempt here to evaluate Professor Dawisha’s broader argument, I do believe that this particular example does nothing to support her broader point–and may ultimately illustrate its weaknesses–for two reasons:
- First, as Professor Dawisha herself acknowledges, Western investors are not blind to Russian corruption, and Western markets discount the value of Russian companies because of that corruption. Professor Dawisha notes that Gazprom, “despite having the world’s largest net profits,” trades at “one-third the stock market valuation of Exxon Mobil, due to what is widely regarded as rampant and Kremlin-directed corruption.” If markets punish Russian companies for corruption through lowered prices, then it is hard to see how American or European investors and markets are harmed by the participation of Russian actors.
- Second, and more important, research shows that participation in foreign primary markets does have the potential to improve corporate governance for companies based in corrupt countries. A 2013 study analyzed foreign IPOs by companies from emerging economies and concluded that companies from more corrupt countries tend to disproportionately emphasize “organizational virtue” to potential investors. Furthermore, IPO performance increases with greater emphasis on “organizational virtue.” Although these companies may not ultimately deliver on the promises in their prospectuses, it is significant that companies based in corrupt countries embrace stronger corporate governance values to appeal to U.S. investors. This study suggests companies from corrupt countries bend their practices to suit American standards, not the other way around.
Thus, although I agree with Professor Dawisha that Europe and the United States should be taken to task for failing to make life more painful for Russian oligarchs, I do not think that the listing of Russian firms on U.S. or European stock exchanges is a particularly compelling example of Western complicity in the bad behavior of Putin’s cronies. Nor do I think it’s appropriate, at this point, to contemplate such extreme remedies as the complete exclusion of Russia from Europe or U.S. markets. There remains a lot of productive middle ground to explore, and a lot of ways that the West can put pressure on Russia without excluding Russian firms from U.S. capital markets.