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Financial Times: GUEST COLUMN: Approach that is globally acceptable but better suited to home

By Igor Yurgens
Published: April 20 2007 11:20 | Last updated: April 20 2007 11:20

Russian companies’ expansion into world markets has been notable in the past year. It is a sign of maturity and growth.

At the beginning of restructuring, after the collapse of the Soviet Union, capital flight was a way of safeguarding money from inflation, and political and other risks. Now, we see benign export of capital into areas of strategic interest or higher margins.

In some cases, companies are building on Russia’s advantage in markets where the Soviet Union was strong. We had fantastic industrial, political and diplomatic ties with the developing world. Their temporary loss for 15 years after the Soviet collapse was due only to lack of resources and internal restructuring.

Now Russia has competitive advantages in those markets in oil, gas, metals, civil and military construction, and so on. We’ve seen numerous recent high-level visits to South Africa, Angola, Vietnam, and India, not to mention China.

But Russian businesses are facing barriers in some markets. There are two kinds. First, there are non-discriminatory barriers, not specifically against Russians, but, for example, against non-EU members. These are benign difficulties that can be overcome through bilateral negotiations.

Then there are hurdles aimed only at Russia. Sometimes, these are objective hurdles based on the image of the country not being good, of its corporate governance rules not being compatible, or the behaviour of its companies as arrogant or aggressive. But there are some malign subjective hurdles – the worst category. This is simply crude anti-Russian behaviour, motivated by military, political, or geo-strategic reasons.

Sometimes Russia is guilty of similar behaviour against certain countries, I’m sure. But since we are the pupil, and the west is the teacher, we look to the west to set an example.

Some actions by the Russian state have damaged the country’s image – sometimes unnecessarily. The Yukos case was a tragedy which could have been tackled differently. But in the cases of Gazprom’s treatment of Ukraine and Belarus, or Royal Dutch-Shell and the Sakhalin-2 project, sometimes I think there is a cultural gap between Russia and the west. In the substance of most of those conflicts, I would say the Russians were right. But the way things were explained to the outside world was clumsy, and the behaviour sometimes appeared uncivilised. Gazprom is now hiring public relations experts, which shows they understand things need to be rectified.

Russian companies undoubtedly have a reputational problem. Inside the country, the population still questions the legitimacy of some acquisitions of huge wealth, concentrated in some big groups. So why should public opinion in the west not also question that?

But after 15 years of effective management of their assets, we have people who I think should be considered legitimate owners. By this time, they’ve paid enough in revenues, taxes, and job creation. Those who did not are either in jail, dead or bankrupt.

So I would call that history, and draw a line under it. There was a wave of gangster capitalism in the 1990s, but it has subsided, and now I don’t think Russian business poses any threat. The research facilities available to any major corporation or business association in the west are good enough to be able to know very well with whom you’re entering negotiations.

Russian companies planning acquisitions or IPOs abroad go through regulatory procedures that are highly compatible with those in the west. You cannot list on the London Stock Exchange without three years of auditing by one of the top four auditors, and without a huge bunch of documentation. The pre-IPO system of verification is such that there is minimal danger.

And here in Russia, we are working hard to deliver the message to Russian businesses that there are rules they must abide by.

I head the committee of independent directors at the Russian Union of Industrialists and Entrepreneurs, where we have worked on choosing candidates for a national register. There are now 150-200 people available for independent, non-executive directorships. We worked out rules of ethics, behaviour and selection. Now we’re working on their compatibility with international rules.

Fortunately, Russia avoided the obligatory corporate code a former regulator was trying to impose three or four years ago when the country was not ready. We accepted some voluntary rules instead and started to build from the bottom up.

Now, for example, the National Council on Corporate Governance, of which I am a member, will have an important conference in New York in June where we will listen to regulators, lawmakers, and the authors of the Sarbanes-Oxley legislation.

We are trying to find the middle ground between the strict and sometimes over-zealous corporate regulation of the US, and the creativity, transparency and drive which exists in some other, more relaxed regimes of corporate governance.

We are working hard to build something which will fit the Russian environment and mentality, while conforming with international norms. I am confident we will succeed.

The writer is chairman of Bank Renaissance Capital, and chairman of the Co-ordinating Council of Business Associations of Russia

Copyright The Financial Times Limited 2007


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