11.05.2026
Corporate governance in the energy sector is moving beyond internal company procedures and becoming a matter of trust in the state, the market, and investment stability. Energy Club is dedicating its new project to this topic, shifting the focus from formal rules to actual management practices: how decisions are made, where the line is drawn between state influence and “manual control,” and why procedures in state-owned enterprises are not bureaucracy, but a guarantee of legitimacy.
As part of the project, Oleksii Hnatenko, Partner and Head of Dispute Resolution at Juscutum, explained how corporate governance affects investment confidence and the cost of capital, why mixing the state’s roles as owner, regulator, and political center creates systemic risks, and why even formally independent supervisory boards can lose their independence if procedures are violated.
– Mr. Hnatenko, why can corporate governance in the energy sector no longer be viewed as a company’s internal affair, but must be perceived as an issue of market stability, investment confidence, and energy security?
– Corporate governance in energy has long transcended internal organization. This is especially true for companies with state ownership that manage critical infrastructure and influence markets, tariffs, investments, contracts, financing, and security of supply. In such companies, a management decision is not merely a personnel or corporate act; it becomes a specific signal to the market.
State-owned companies must act cautiously, predictably, and within clear procedures defined by law. The state’s discretion as a shareholder exists, but it is not a “blank check” for any action. This is the fundamental difference between the state as an owner and the state as a political decision-making center. When this line blurs, the market sees an unpredictable center of influence rather than a strong owner and partner.
Unlawful or procedurally questionable decisions have consequences beyond a specific company or supervisory board member. They affect investors, banks, international financial institutions, counterparties, and businesses operating in the sector. The risk of weak corporate governance always has a price. This price is factored into the cost of capital, insurance and legal costs, contract reserves, and risk premiums, ultimately being passed on to the consumer. The OECD, in its 2026 review, directly links the quality of SOE governance with economic resilience, recovery, and trust in Ukraine’s public sector.
– In your opinion, where is the line between the state’s legitimate influence as a shareholder and the “manual management” of a company that destroys the very logic of corporate governance?
– This is a complex but fundamentally important question for understanding the limits of discretion. Corporate governance is not just a set of formalities. It is intentionally built as a complex system where decisions pass through defined bodies, procedures, competencies, quorums, protocols, potential conflicts of interest, fiduciary duties, and the possibility of subsequent review. While it may seem like bureaucracy, large companies, holdings, and entire industries cannot be managed through linear, “manual” decisions.
In legal terms, the state’s legitimate influence as a shareholder is influence exercised within the powers defined by law, the charter, and internal policies. Its source is the law, not extra-procedural influence or factual control. Its form is a decision by a competent body made in compliance with the procedure. It can be verified, challenged, explained, and correlated with the company’s interests.
“Manual management” begins when formal bodies exist but cease to be real decision-making centers—when “telephone law,” political expediency, personal instructions, informal approvals, or administrative pressure replace procedure. In such a model, responsibility is blurred. Formally, a decision may look corporate and lawful, but in essence, it is the result of external influence.
The key difference can be summarized as follows: legitimate influence is power through procedure, while manual management is power outside or above procedure. This is why the Law of Ukraine “On Joint-Stock Companies” details the separation of governing bodies, the procedure for electing supervisory board members, the status of independent directors, and termination procedures. For companies where the state owns 50% or more, the law explicitly requires independent directors to constitute the majority of the supervisory board.
– In state energy companies, a conflict often arises between political expediency and legal procedure. Why is procedural compliance a key guarantee of the legitimacy of management decisions, rather than a formality?
– In the public sector, procedure is not a formality. It demonstrates that a decision was made legally, with proper grounds, and in good faith. If a decision is made transparently, within competence, and with proper motivation, it possesses a different quality. It can be explained to the market, auditors, courts, international partners, and society.
Business literature often claims that a fast “wrong” decision is sometimes better than a correct but delayed one. This might make sense for private business where speed and operational results are paramount. However, the management of state-owned companies is governed by different fundamental requirements: legality, transparency, economic expediency, accountability, and the minimization of systemic risks.
Therefore, the question isn’t whether bureaucracy is needed, but whether the procedure serves as a safeguard against arbitrary decisions. In strategic energy companies, that is exactly what it is. In the long run, proper procedure reduces the risk of litigation, blocked decisions, and doubts regarding the legitimacy of governing bodies.
The 2026 OECD report specifically notes that Ukraine’s reform has formally advanced, but the practical application of standards remains uneven. Procedures must work not only in law but in the actual management cycle.
– To what extent does the Ukrainian model of SOE management meet OECD standards in practice, rather than just on paper?
– At the level of legislative architecture, Ukraine has indeed taken a significant step forward. In its report dated April 1, 2026, the OECD recognizes Ukraine’s progress since 2021, including the adoption of Law No. 3587-IX, strengthening the role of independent supervisory boards, and moving toward OECD standards. Ukraine has also officially joined the OECD Guidelines on Corporate Governance of State-Owned Enterprises, which is an important political and institutional signal.
However, the main problem today is not the text of the laws, but the practice. The OECD explicitly states that reform implementation remains uneven, and ownership functions are still fragmented among numerous ministries, agencies, and the Cabinet of Ministers. In some cases, the same bodies combine political, regulatory, and ownership functions, creating a conflict of roles.
Ukraine has moved significantly closer to OECD standards at the regulatory level but has yet to prove that these standards have become a stable management practice and culture. For an investor, the predictable behavior of the state as an owner is just as important as the law.
– What are the most typical mistakes the state makes as an owner in relations with the supervisory boards of energy companies?
– The first mistake is mixing roles. The state simultaneously tries to be the owner, regulator, political arbiter, and operational manager. In this model, the supervisory board exists formally, but its autonomy is under constant pressure.
The second mistake is neglecting procedure. In state companies, procedure is often perceived as a technical obstacle to be bypassed for quick results. This is a flawed approach. If a decision regarding a supervisory board is made without sufficient motivation or proper process, it immediately creates legal risk.
The third mistake is temporary and sporadic decisions becoming permanent practice. The OECD points to the issue of incomplete or temporary boards, delays in appointments, and the impact of wartime exceptions on board autonomy.
The fourth mistake is the weak professionalization of the ownership function. The state should act as a professional shareholder, setting expectations and evaluating results without substituting the company’s management bodies.
– Can independent supervisory board members be considered truly independent if their powers can be terminated prematurely without a clear procedure?
– I would split the answer. First, the formal legal aspect: Ukrainian law distinguishes between board members representing shareholders and independent directors. According to the Law “On Joint-Stock Companies,” an independent director is a member free from any influence in decision-making. Second, the practical aspect: independence does not mean the impossibility of termination, but this should not become a tool for political replacement. If a director can be removed without a clear procedure or stated motives, their independence becomes a facade.
– What risks arise for a company when there are doubts about the legality of forming or terminating a supervisory board? How does this affect management decisions, contracts, and interaction with partners?
– These risks surface as soon as a dispute enters the courtroom. For the company, this means legal uncertainty regarding the legitimacy of governing bodies. If the legality of the board is questioned, every subsequent decision—approvals, financing, transactions—is also called into doubt.
For an external partner, such a dispute is a signal of corporate risk that could affect contract performance or investment projects. In a strategic energy company, these consequences are even more sensitive because the management affects infrastructure and national security.
– How are court disputes over corporate governance perceived by investors and international financial institutions?
– Investors and creditors evaluate management quality and the predictability of the state as an owner. A legal conflict over a supervisory board is an indicator of management risk. Institutions like the IFC directly link high-quality corporate governance with access to capital and risk reduction. The World Bank also notes that well-governed companies have lower risks and better access to external financing. In wartime, when energy requires massive investment, instability is particularly dangerous.
– What is the main danger of legal uncertainty for the energy sector during the war?
– The main danger is that all these risks—slow decision-making, litigation risks, doubts about legitimacy—work simultaneously. During the war, energy is under constant stress. We need quick repairs, procurement, and infrastructure protection. Speed cannot be an excuse for legal chaos, as one questionable corporate decision can trigger a chain of litigation that destabilizes the company’s operational capacity.
– What safeguards should be in place so that changes in supervisory boards do not look like political interference?
– First, a clear procedure (who initiates, on what grounds, and how it can be verified). Second, a public logic for the decision—the state must be ready to explain the management expediency. Third, professional and depoliticized selection. Fourth, linking board changes to performance evaluations rather than the political cycle.
– Are there enough legal mechanisms in Ukraine to protect independent supervisory board members?
– Formally, yes. However, the problem lies in their effectiveness and speed. Protection shouldn’t be limited to post-factum litigation; the dismissal procedure itself should be built so that an unlawful decision is difficult to make. We need to link the termination of powers to performance evaluation, as recommended by the OECD.
– What three steps should the state take now to make corporate governance a real system of rules and trust?
– First: Separate the state’s roles (policy center vs. regulator vs. shareholder). Second: Standardize the appointment, evaluation, and dismissal of board members across all sectors. Third: Make the State Ownership Policy—approved by Resolution No. 1369 of November 29, 2024—a practical tool rather than a declaration.
Ukraine needs a shift in management culture. The state must learn to act as a professional, predictable shareholder. For the energy sector, this is a matter of capital, resilience, and security.
Ultimately, corporate governance in energy is no longer about structures or formal procedures. It is about whether the system can make decisions predictably and lawfully. Today, not only the efficiency of individual companies but the energy sector’s ability to withstand the war and attract investment depends on this.
