Interfax-Ukraine
09:44 08.02.2022

Author VADYM GRYB

How Ukroboronprom selects and appoints directors of defense companies?

5 min read
How Ukroboronprom selects and appoints directors of defense companies?

Vadym Crib, Chairman of the Board of Directors and founder of the TEKT Investment Company, Ph.D. (Economics)

 

Being a private investor, I am extremely worried and disappointed at the processes for selecting and appointing directors of state-operated defense companies. Despite the launch of a reform at Ukroboronprom, a transparent procedure for selecting candidates for top management positions has not been put in place so far. As follows from the register of contracts made with top managers in the public sector that was  published on February 1, 2022, directors of 16 out of 97 Group companies were appointed by a resolution passed by Yuriy Husyev, CEO of Ukroboronprom, at his sole discretion; a competition was announced at the further eight companies, which, however, resulted in the appointment of only two directors, and the results of other competitions have not been made public so far. Employment contracts with the directors of other 16 companies ended in Q4 2021, but these positions have not been advertised yet. Detailed information about all companies is set out in the table below.

To be fair, I admit that the representatives of the G7 diplomatic missions and independent anti-corruption NGOs, such as NAKO and State Watch, have been invited to participate in the selection commission. Everything appears to be fine, but this pretended transparency and openness of the selection process is used to disguise a canning nature and real intentions of the Group’s management because Yuriy Husyev has the last word while opinions of independent experts are disregarded. The thing is that completions are announced, and leading specialist are invited only to create the appearance of an honest approach to the selection of the directors. The real aim is to appoint loyal directors of state-operated defense companies before the liquidation of Ukroboronprom and thus secure an opportunity for getting unrestricted control over state-owned assets. In fact, the manipulations of the management appointment process are visible to the naked eye as completions have been announced only at those companies that were involved in the numerous media scandals, while directors of all other companies have been appointed personally by Yuriy Husyev.

It is this unacceptable behavior of the Group’s management during the selection and appointment of directors of defense companies that pushed me as a private investor into action. I am preparing a number of complaints in connection with the violation of international corporate governance standards, lack of common sense and logic, and attempts to pursue personal interests. I will send these complaints to the ambassadors of the G7 states and international organizations.

A completion for the position of the Chairman of the Management Board of the Meridian OJSC makes a vivid example of a non-transparent scheme involved in the selection and appointment of directors. As a result, it is highly likely that the current infamous director who has been holding this position since 2001 and is a person of interest in a number of criminal proceedings will be re-elected to this office for a new term.

The selection process has arrived at its critical juncture: according to my information, the current top manager of the company, V. Protsenko, and V. Hankevych, who is a former director of State Enterprise “PLANT 410 CA”, entered the second stage of the competition.

Meridian OJSC is a tasty morsel for government bureaucrats as its assets include over 160 thousand sq. meters of buildings and 22.3 ha of land in Kyiv. Moreover, the company’s revenues from the manufacture and repair of military equipment in 2020 totaled UAH 25.7 million, while the value of its assets was UAH 609.8 million, so there is no chance of production performance. This is why the company was allocated to the restructuring category during the reform of the Group, which means that all its assets not involved in the manufacture and repair of military equipment will be sold.

Who is running for director of the state-operated defense company?

Viacheslav Protsenko, a current director of the company who tarnished his reputation by cooperating with sham companies and funneling at least UAH 50 million; who was involved in a scam with leases, which resulted in monthly losses for the company exceeding UAH 3 million, and is notorious for catastrophic outflow of skilled personnel, as a result of which the company currently has only 100 employees. All the other employees exist on paper only and repay half of their salaries personally to the company director, who also misappropriated a portion of the company’s real property and transferred the ownership to his wife. These actions resulted in criminal charges brought against V. Protsenko and enforcement proceedings opened against the company to recover overdue debts.

Victor Hankevych is a former director of State Enterprise “PLANT 410 CA”, who was involved in numerous media scandals and was a person of interest in criminal proceedings while holding this position. He is remembered by the massive outflow of skilled research and development personnel of the defense plant and funneling of state money through his private companies, which has almost resulted in the failure to perform an aircraft maintenance international contract made with India.  

However, neither the selection commission nor Ukroboronprom CEO paid any attention to those facts and declared V. Protsenko and V. Hankevych eligible for participating in the competition. Moreover, Ihor Fomenko, the Chairman of the Commission, who is well aware about the abuse of powers committed by the current director of Meridian OJSC, did not object to his getting into the second round.  The worst thing is that the representatives of the G7 diplomatic missions and independent anti-corruption NGOs NAKO and State Watch were among the members of the commission, but their opinions were completely disregarded, as Yuriy Husyev is the one who has the final word.

For information: S. P. Korolev Meridian OJSC is one of the companies operating in the Ukrainian defense sector; the state owns 50 % + 1 share in the company, which is operated by Ukroboronprom State-Operated Enterprise.

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