The Russia Conundrum

Yukos became one of the first Russian companies to adopt Western standards of corporate governance and respect for shareholder rights, including the preparation of financial accounts that complied with US Generally Accepted Accounting Principles (GAAP). An independent board of directors was appointed, with a mix of Russian and Western representatives, such as the international investment specialist Bernard Lozé, the prominent French banker Jacques-Antoine Kosciusko, the Washington lawyer Sarah Carey Reilly and others. We revealed who owned what in the company, with details of all our shareholdings, and we adopted a new company motto, ‘Honesty, Openness, Responsibility’. The result was that Yukos American Depository Receipts (ADRs) were accepted for trading in the US market, and US investors – including state pension funds – bought nearly 15 per cent of our shares. By conforming to Western norms, we boosted our standing and our profits at the same time. Yukos became a poster-child company, a symbol of how the Russian economy and its shady business culture could transform itself. BusinessWeek wrote that US investors were rewarding our new approach. Yukos’s share price rose 250 per cent. ‘If Khodorkovsky can keep this up,’ BusinessWeek concluded, ‘the Russian energy industry with Yukos as its standard bearer may finally get some respect.’

My partners and I were lucky. We teamed up with consultants from the oilfield services specialists, Schlumberger, and other advisers from Western countries, who were marvellous to work with. They not only advised us on how to transform and restructure our company, they helped us to restructure our whole way of thinking. The Schlumberger team showed us the best things about Western business ethics and why integrity matters. They worked according to proper codes of conduct, honest people who commanded respect both as professionals and as decent folk with real values. Even today, I remember them with the greatest admiration. This convinced us that the conmen who had previously rushed into Russia were perhaps not the true face of Western capitalism after all.

My respect for Western values was boosted and restored but, for the majority of Russians, things seemed very different. Many had been badly hit by the economic collapse of 1998 and a substantial number of people came to blame the West. Russian government officials who had to cut public spending and imposed economic austerity measures were quick to cite the demands of the International Monetary Fund as the reason for their tough decisions. The result was a growing, generalised antipathy towards ‘Western interference’. When Russian banks failed and people’s savings were lost, the public seized on the explanation that this too was the result of conditions imposed on Russia by the IMF. They believed that the West was implementing a deliberate policy of destroying Russian banks in order to clear the way for Western financial institutions to come and take their place. Things had gone badly wrong and the West – especially its financial institutions – was a convenient scapegoat. A wave of national resentment grew, attaching itself to the ‘traitors’ in the Russian government who had ‘sold Russia out’ to foreign interests. The Yeltsin administration’s commitment to Western-style market democracy was blamed for all the nation’s ills, and the conditions were created for the coming to power of a new breed of politicians – people with a background in the security services, who would restore order with the iron grip of centralised autocracy.

It seems to me that Russia in the late 1990s was suffering from a sort of Weimar syndrome. In the 1930s, the population of the Weimar Republic had become convinced that Germany’s poverty and humiliation were caused by the harsh terms of the Treaty of Versailles, imposed on them by the victorious First World War allies. In a similar mood of national discontent, Russians now began to blame Western Europe and the United States.