Strong Corporate Governance; Stronger Family Business
Pavlik Terehov is a true business visionary. A textbook example of the entrepreneurial spirit—a blend of energy, optimism, and willingness to take risks —Terehov saw unique opportunity at a time when his homeland, then called Kyrgyzstan, was rocked by political and social upheaval following the breakup of the Soviet Union.
With the nation’s economy in decline, millions of people were left without work or means of subsistence. Manufacturing operations were at a standstill as business owners focused on less-expensive ventures that offered a more rapid return, such as reselling food products.
A young Terehov sized up the bleak situation and predicted rising demand for corrugated packaging materials. In 1995, he and his siblings created Altyn-Ajydaar, a small corrugated packaging supplier to food resellers, the one industry that seemed to be in growth mode.
Terehov’s early gamble has paid off. In the ensuing decades, as the Kyrgyz Republic’s manufacturing base returned and the economy rebounded, Altyn-Ajydaar expanded its offerings. The company kept a strategic focus on industries with a positive outlook, even as it retained its family-centered operational approach.
With growing domestic sales and exports, the company has prospered, supported by a series of IFC loans. The first, in 1996, represented IFC’s first investment project in the country. Since then, IFC has provided three more loans to the company to finance its production and expansion.
The complexity of operations also increased over the years. Realizing that the company had outgrown its original governance framework and management infrastructure, the owners turned to IFC’s corporate governance team for guidance. The IFC team undertook a corporate governance assessment that uncovered key gaps in the company’s governance structure, including a lack of focus on succession planning.
“Many corporate governance studies show that family-owned businesses often overlook the importance of processes to identify and prepare the next generation of leadership. This is a real concern because these companies sometimes struggle to survive the transition to the second or third generation,” explains Darrin Hartzler, Manager for IFC’s Global Corporate Governance Group.
Following on IFC’s recommendations, Altyn-Ajydaar’s owners formalized their approach to succession planning. “We set a goal to carefully nurture and groom the second generation of the company,” explains Terehov. The company also addressed other aspects of its governance in need of improvement, such as strengthening its internal control system.
“A major impact of Altyn-Ajydaar’s corporate governance initiative was the change in the owners’ perception about how to run a business owned by one family,” notes Yuliya Holodkova, IFC’s Corporate Governance Officer in the Kyrgyz Republic.
Altyn-Ajydaar’s patriarch and original entrepreneur Pavlik Terehov concurs. “These changes helped us address the family business corporate governance dilemmas of our company,” he says. “By differentiating business issues from family matters everyone is aligned. Mechanisms are in place to objectively govern family involvement in the company and to regulate share ownership.” Also of critical importance, he says: there is agreement on how the next generation should be managed.
All of these changes have enhanced Altyn-Ajydaar’s capacity to access capital. In early 2015, IFC rewarded Altyn-Ajydaar’s corporate governance improvements by reducing the relevant spread on the existing loan of the company’s Kazakhstan subsidiary from 6 percent to 5.2 percent.
“It is obvious to me that with the implementation of the governance changes, Altyn-Ajydaar’s sustainability into future generations has improved dramatically,” Terehov says. “We are ensuring the continuity and further prosperity of our business.”
Read this and other corporate governance success stories from Europe and Central Asia.
May 2016
