First, SOEs in Russia are decentralized and heterogeneous. The key federal property owners are state corporations that control a broad portfolio of companies, resembling a classic holding company structure that governs subsidiaries and affiliated organizations based on direct, indirect or cross-shareholding. Their portfolio companies have a commercial focus and are very diverse in terms of industries, supply chains, markets and organizational structures.
By contrast, despite being referred to as “corporations”, state corporations are unincorporated non-profit entities that have a clear non-financial focus: the interests of the Russian state. This means that state corporations are not driven by financial incentives, and are not the main sources of revenue. Rather, their portfolio companies are. In other words, state corporations are inadequate targets for economic sanctions while their portfolio companies are hardly spotted by the sanctions.
Second, the state is a minority shareholder in half of all incorporated SOEs in Russia. Notwithstanding its minority shares, the state still utilizes several governance tools to pursue its interests, including board and audit commission nominations, cumulative and qualified majority voting, access to financial and other corporate documents, “golden shares” and legislative provisions that protect the state’s shares from dilution. These mechanisms allow the state to exercise actual control over a much larger number of companies.
Third, there is a missing correlation between management renumeration and the financial performance of companies in the management of state assets. Within many SOEs, including the largest, energy giants Gazprom and Rosneft, there is no direct link between profit and management incentives. Therefore, financial losses resulting from the sanctions would not substantially affect existing incentive structures in these SOEs.
Finally, as of December 2021, as one of Russia’s top trading partners, China was responsible for 13.2 percent of Russia’s total exports. Along with other BRIC countries and important Russian trade partners, China has been slow to adopt sanctions. In 2020, European countries aggregately accounted for almost 38 percent of Russia’s total exports in 2020. The same year, 26 percent of the EU’s oil imports and 40 percent of gas imports were delivered by Russia. The explicit dependence on Russia’s mineral resources explains why Western countries have avoided targeting Russia’s commodity exporters directly until recently. Only after Russia’s invasion, amid public pressure, have multinational oil companies openly distanced themselves from their Russian partners. Earlier, Germany announced that it had frozen the Nord Stream 2 pipeline project, and the US declared a ban on Russian oil imports.