Tuesday, June 27, 2006

Russian Ethics

Three articles in the Financial Times today discuss the difficulties of business in Russia. Each presents a gloomy picture. The prevailing image is that of the Wild West where might was right and law and justice were suborned.

In the first, we see Rosneft's recently published IPO prospectus which catalogues a series of dangers for investors. Among those mentioned are:

"There are weaknesses in legal protections for minority shareholders and in corporate governance standards under Russian law." Nicely understated.

"Crime and corruption could create a difficult business climate in Russia." You've been warned.

"The Russian government, whose interests may not coincide with those of other shareholders, controls Rosneft and may cause Rosneft to engage in business practices that do not maximise shareholder value." That is, you could lose the lot.

So that one is absolutely clear about this, the chairman of Rosneft's board is Igor Sechin who is deputy chief of staff at the Kremlin. He belongs to the siloviki, military and security people who have flourished under Putin. Sechin has been one of the key ideologues behind the legal attacks on Yukos.

The FT's second article reports the appeal made by Mikhail Kasyanov to the G8. Kasyanov, a former prime minister, is likely to be a presidential candidate in 2008 and he has expressed concerns about the "drift away from democracy in Russia". There is general political oppression. Also, he said:

"The judiciary cannot be said to have any sign of independence."

The last article discusses Putin's expression of "managed democracy" where the state and corporate interests combine to prevent anyone influencing their behaviour. Managed democracy means using the clout of the state as articulated through corporate entities to control the media and human rights. Gazprom owns a major TV channel, NTV, and the newspaper, Izvestia. The Moscow City Council owns another channel. These forms of ownership conspire to suppress freedom of speech and criticism. Independent journalists usually find themselves independent of any source of programming. But game shows, soaps and reality TV are hugely popular. The philosophy of bread and circuses has found an hospitable home in Russia. Managed democracy" sounds like corporatism or facism by another name.

The shining feature for the west that shines through all this is the amount of money to be made in Russia. That trumps all. It is that which brings in the investment banks and the big law firms. As the FT succintly summarises the Rosneft IPO and therefore all Russian business: "Some things are just too big to fail." Will this be the epitaph?

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