Chapter 6: The Northern Russia Electric Company Case: To Whom is the Director-General Accountable: The Company, the Board of Directors or the Controlling Shareholder?
James Gillies INTRODUCTION Uri Katinov, the General Director of Northern Russia Electric Company (NREC), faces a very difﬁcult problem. He has just heard that a project requiring, at a minimum, a doubling of the available supply of electricity in the region is going ahead and he fears that, if his company cannot increase its output relatively rapidly, a new competitive company will be built that in the long run might put his organization out of business. Although NREC has been doing well, earning a 15 per cent return on equity, it does not have anywhere near the amount in reserves necessary to ﬁnance an expansion that would almost double output. Moreover, he is almost certain that the controlling shareholder of the ﬁrm will be unwilling to either advance the funds necessary to expand operations or sell more equity to another investor to raise the funds needed to ﬁnance growth. Indeed, the regional manager of the controlling shareholder, United Electric Power Transmission System of Russia (UEPTSR) had more or less indicated to him last year that, given the holding company’s many areas of activity throughout Russia and the possibility of it making some investments abroad, it would not make any new substantial investment in NREC for several more years. And yet Uri is certain, given the fact that there are great economies of scale in the production of electricity, new investment to expand output would be very proﬁtable and he does not want to see the opportunities presented by...
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