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You once said in an interview that the secret
behind your success is that already at an early
age you could compare and learn from the differences
between the so-called 'West' and Russia. How would
you compare corporate governance between Russia
and Western countries?
I think that we can see a great progress in
Russia. In the middle of 1990s, it was very difficult
even to speak about corporate governance because
there were practically no standards for it. Russia's
level of transparency was very low and the level
of legislation was not adequate enough to sustain
the country's economic development and a market
economy.
Now a lot of things have changed, and we have
some very good examples of good corporate governance,
including companies such as Yukos, Sibneft, and
Vimpelcom. In this list, I would also like to
include Norilsk Nickel, which is a part of our
group. All these companies and some other companies,
are paying a lot of attention to their corporate
governance, and are already showing considerable
success in this area. This sets a good example
to others. Otherwise, it would be quite difficult
to explain the benefits of good corporate governance
to the people questioning this. The answer is
self-explanatory, because these companies are
more successful and they have a bigger capital
value. Moreover, they pay higher wages to their
employees and more dividends to their shareholders.
Nobody needs to prove to anyone anymore that good
corporate governance is indispensable. The importance
of corporate governance has proven its worth in
Russia, and this is a fact. Now, it is merely
a question of timing, increased cooperation between
companies and investors, and for the government
to better implement the rules. In this respect,
we have made improvements at a legislative and
regulatory level. The Federal Commission of Securities
Market (FCSM) is now protecting the rights of
shareholders in a more efficient way.
Of course, we are not suggesting that Russia has
the same standard as Western and more developed
countries, but the year-on-year increase in efficiency
is clear in Russian corporations. There is a psychological
aspect that is significant as well. Currently,
it is considered to be almost fashionable in Russia
to follow corporate rules. It is like a school
in which it is not prestigious to be a bad pupil.
Similarly, it is not prestigious to be a company
with poor corporate governance. This is important,
because in theory you can easily change legislation
and rules, but it is very difficult to change
the mentality of businessmen. The mentality of
Russian businessmen is changing in favour of good
corporate governance.
Despite these changes that are taking place
in Russian business, it could be said that Russia
has long been stigmatised by the West. Do you
feel that the West has a good view of Russia or
are their views still somewhat blurred by the
past?
I think that there are two factors, which do not
allow a fair and adequate understanding of Russia
and what is going on in here. First of all, a
significant number of people in the USA and Europe
still remember what the Soviet Union was, and
they do not see a big difference between now and
then. They are not paying attention to the changes
that have happened in the Russian economy, and
in general. Russia is surely a normal country
right now. We were absent from the family of developed
countries for a long time, but we are coming back
to this family in which there are people who sadly
fail to recognise Russia's changing face. That
is a problem. Some people still have in mind the
"evil empire" and Russia's old style.
They often read about communists, bureaucrats,
komsomol etc. But, one should realise that this
is now in the past. This was 13 years ago, and
certainly for Russia this is a long time. We were
living in a different century. Therefore, the
first problem is old memories.
Another problem is that Russia became less important
than the Soviet Union. There were two Super Powers,
and they had a discussion on the level of Cold
War. This was a big confrontation. People were
paying a lot of attention to the Soviet Union,
and they all knew about the importance of the
Soviet Union. Whether it was positive or negative,
the importance given to the Soviet Union was very
high. When reforms started in Russia, the world
lost this confrontation. This is probably the
most positive result that we saw at the end of
the last century. The whole world is no longer
divided between two big rival systems. Still,
the interest in the Soviet Union was much higher
than that in Russia.
Finally, one should take notice of Russia's loss
in the economic sphere. The Soviet Union was the
second country in the world in terms of GDP production.
Unfortunately, today, Russia can only boast the
18th place. Despite its potential, the current
situation is that we are not second; we are not
third, but only 18th. This is why for businessmen,
the economic elite, China is more interesting
than Germany or France. Russia must prove its
potential. Therefore, old memories, lower GDP,
and consequently less economic influence in the
making of global economic policy, makes it relatively
difficult for Russia to change its image promptly.
You have indicated in several interviews that
Russia needs to enter the international community.
Could you indicate to our readers the expectations
that you have surrounding Russia's imminent entry
to the World Trade Organisation (WTO)?
I think it is very important for Russia to come
back to the civilized society, to be together
with Europe, integrated in Europe, and generally
more integrated in the world economy. The entrance
to the WTO is not a bad step to start with. But
the real question is whether the entrance to the
WTO is the target or the instrument. In my opinion,
it is not a target in itself. It is an instrument
to become more integrated into the world economy
and adapt to world standards. When you use the
instrument you should understand very clearly
how you want to use it. In our country and in
our government there are two points of view.
According to the first point of view, we must
enter the WTO in order to gain distinct advantages
and greater access to international markets for
our products production. It is hereby reasoned
that we must protect as much as possible our own
industry and our own branches of the economy.
This thinking assesses more protection to be better.
Frankly speaking, I do not share this point of
view. I think that the entrance to the WTO is
the instrument to solve other problems. Our country
and our economy suffered many years of isolation.
We did not have a real exchange of ideas and we
did not compete with the most competitive foreign
companies. That was why the efficiency of the
economy and its productivity were was suffering.
We were simply too isolated. Maybe because of
the inefficiency in governance and economic ineptitude
that the Soviet Union collapsed.
In any case, it is clear that the Russian economy
and companies are suffering, because we did not
get used to competition. My idea is that the sooner
Russian companies and Russian branches of the
economy feel real competition, the better it is
for them. If you want to be a player in let us
say the NBA, you should practice and play in the
NBA, otherwise you will remain a player in a provincial
club. It is not advisable to postpone this direct
competition. What is the reason to protect different
branches of Russian economy? I think there is
only one reason and that is the potential social
problems, which could arise from the fact that
some branches of our economy are not in the position
to counter increased competition. For example,
in agriculture, every country in the world, starting
with from the United States of America and Europe,
protect their own agricultural sector, because
it carries great social consequences. If people
were to lose their jobs in agriculture, it could
result in a very volatile social situation. It
does not mean that countries, which are protecting
their agriculture, are making this branch of the
economy more competitive. It means that the country
and its people are ready to pay for this.
What is the nature of this protection? It means
that from the budget, one way or another, you
subsidize a certain branch of economy. Subsequently,
you take money from somewhere and pay to protect.
It also means that the consumers are paying a
higher price for this service. There should be
some very important reason why one would want
to pursue this. The only valid reason is that
the opposite decision creates social problems.
But, these potential social problems exist only
in a very restricted number of areas. We mentioned
agriculture and it is important to note that 40%
of the Russian population is living in the country.
Naturally, this means that there is a relatively
big price to pay by us, as a society, to avoid
social deprivation in agriculture. Similarly,
there are other branches of the economy in which
there are a lot of workers and a lot of jobs,
or branches that are concentrated in one city.
We have in Russia an old problem and that is the
high level of monopolization in the economy. That
means that during Soviet times there was an idea
to make very big plants, which produced some very
narrow list of goods, but for the whole country
or maybe even for all the former COMECON countries,
for the whole world. Now that the level of international
integration and exchange has become very high,
it is very difficult to keep those enterprises
competitive. Still, some of them can be the only
company in a big city somewhere in Siberia, and
if it closed several hundred thousand people would
be unemployed. In this case, we have no choice
but to have a long-term program to change the
profile of this plant with a lot of investments
or we must keep them for a while in order to avoid
social problems.
Anyway, this issue of protection is a question
of paying for something; it is not a question
of gaining something. This is what I am trying
to explain to some of my colleagues and to some
representatives of the government. Sometimes I
am told that Russia has been successful in negotiations
with the WTO because our partners agree that we
have to protect this or that branch of economy
for many years. It is difficult to call this a
success, because in reality they have been given
permission to finance a certain level of development
from their budget. It would be very strange to
refuse this request if you have extra money to
pay for your problems. You do not want to compete?
No problem. Just pay for this from your budget
and your consumers will pay a bigger price for
the production. For example, we are going to protect
the sphere of medical services. I really do not
care whether it is a Russian physician or German
one who treats me, and my family, as long as I
get a positive end-result. I want to be healthy.
I do not care whether my banker is my friend from
Rosbank or an American banker, because I want
order in my finances, etc.
My understanding of the problem is that all things,
like the entrance into the WTO or any other agreement
to become more integrated into world economy,
mean that we are in a direct contact with international
competition. This means that only healthy branches
of the economy and only the most competitive enterprises
are going to survive. Importantly, the less fortunate
and uncompetitive branches should be protected
through the withdrawal of money from the strong
sectors. This is a problem as it is not an advantage
to protect them. But, it is a problem that we
cannot solve immediately. When we have competitive
branches and competitive enterprises, it means
that they are producing competitively, selling
at competitive prices, gaining satisfactory profits,
paying high salaries, paying a lot of taxes. And
as the internal market is developing, we have
money for social problems, etc. When we are protecting
everything and producing without competition,
we gain less money, we pay lower salaries, we
pay less tax, and it is a circle without an exit.
When people are saying we are going to protect
20-25 branches of economy, they are dragging us
into a vicious circle.
You started "Interros" with a capital
input of $10 000 and have boosted the assets of
the holding to more than US$4bn today. There must
have been a very strong will behind this build-up
of "Interros", and there must a core
idea of what you would like to achieve. What is
this core idea behind the initial diversification
and subsequent selling of non-core assets?
You have to understand that after 70 years of
the Soviet era, suddenly within 2 years everything
changed. We had the level of development of a
modern country, but the age-old rules could be
compared to the Wild West in the United States.
It means that there were a lot of possibilities,
a lot of ways to gain money, but also several
dangers. First, there was a high level of crime.
The first target was therefore to avoid contacts
with the criminal sphere, which not only me but
practically all the big names in the Russian economy
managed to do. It was not easy. It meant that
the choice of how and where to gain money was
not as vast as it could have been, but still very
far removed from all criminal contacts. There
were people who started with very easy businesses,
with cash money, but they had problems afterwards.
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Then they did not know
how to invest, and then almost all of them lost
their money. And then there were the criminal contacts,
which was bad not only for business but certainly
also for future reputation.
Secondly, because the level of legislation was very
low, the rules were not clear. In order to be successful
in business everyone should have good links, political
links, a network, and the possibility to lobby one's
your interest and to protect one's your interest
at the political level. The fewer rules you have
in the country, the more connections you need. This
had changed drastically during the last 10 years.
It is still far from being perfect, but the changes
have been paramount. From the very beginning it
was very important to have good relations with all
kinds of authorities and we managed to establish
those links with the Moscow authorities and with
the government. This contributed considerably to
our development.
Thirdly, one should always choose something in which
you can prove your competitive advantages. Frankly
speaking, we could not completely avoid this tendency
during our first steps, and first the composition
of assets was not 100% logical. We had some ideas
in mind, but nobody gave us any advice. That is
why it took us some time to make our investments
absolutely logical and well structured. But we understood
from the very beginning that we had to buy assets
and work with them, and that we had to quickly find
the logic of how to structure this. Moreover, we
had to come to grips with the idea that is not possible
to keep everything all the time. Basically, we had
to determine very rapidly the logic of the composition
of our assets. As soon as we understood where we
had the competitive advantages, we started to structure
for the long term. When we thought that it was not
quite our thing, because we could not find the right
management etc., we took the decision to exit. Sometimes
it took 5 years to exit. What is important is that
we understood from the very beginning that without
a strategic view how to structure a company in 5,
7 in 10 years; it would not be possible to survive.
To be honest, the crisis of 1998 was very painful
for us, but it gave us the necessary push to restructure
the business completely.
And now "Interros" represents an investment
company with 5-6 main sub-funds in 6 branches of
the economy, with a clear logic. We can explain
to all investors why we are in this business, where
our competitive advantages are, and what we are
going to do with these businesses within 5 or 7
years. In each business we have a 5 to 7 years'
strategy. This understanding helped us to find the
right way in our decision of whether, or not, to
buy particular assets.
Finally, and this counts not only in Russia but
everywhere else, a lot of money and intellectual
power is in the people. From the very beginning
we tried to have a very good team, and we worked
a lot to improve the climate within the team and
their professional growth. It helped us very much
during the 1998 crisis. When every part of your
company is growing very fast, and it is one of the
leading companies, everything goes effortlessly,
but when difficult times come you can see the real
climate in your organization, i.e. how people really
react when they do not have a chance to increase
their salary and when they must suffer together
with the whole system. The crisis of 1998 helped
us to understand that our investment in people,
in the social environment of our team was accurate,
because we did not lose a single person. We did
not want to fire anyone during the crisis. Everybody
stayed with us, despite the fact that there was
very strong pressure, and a lot of things happened
that we would not like to repeat. Some people left
afterwards, but for higher positions in other organizations,
which is understandable. We always think that when
people are leaving for better positions in different
organizations, in government organizations, and
even with our competitors, it proves that we are
a good source of education for people.
You are very much focused on international society
and say that Russia should be part of it. Yet, when
I look at the major investments of "Interros"
Holding, 98% of them are in Russia. Is there not
a contradiction? How important is international
expansion for the future of "Interros"?
The fact that the major part of our investments
is in Russia is very logical and easy to explain.
When we declare that in our investments we must
have some competitive advantages, it means that
we should understand the market, the people, and
the social and political environment. Obviously,
we understand very well what is going on in Russia.
This is why, when we invest money, our knowledge
and people are best suited to be invested in Russia.
We have within our 5-7 years strategic plan as a
target to be more diversified not only in terms
of economy branches, but also geographically. Still,
this target cannot be achieved solved without working
step by step on different markets. We are doing
this but it takes time. We are trying to evaluate
adequate opportunities. We do not have competitive
advantages in the United States of America, in Europe,
etc. We have them here in Russia, in the former
COMECON countries. As soon as we find what kind
of competitive advantages we could show to investors
in other countries, we will do this. Currently,
we are trying to find them, which is why we are
not inviting our investors to invest in other areas.
On the other hand, some of the Russian companies
are already key players on the global market. For
example, Norilsk Nickel is an important player worldwide
as they are producing 20% of the world's nickel
and 30% of platinum group metals. Our integration
into the international economic community can be
seen in Norilsk Nickel as they are trying to systematically
implement the best rules of corporate governance
and transparency. They are increasing the capital
value of this company. About 17% of this company
belongs to different international investors. Norilsk
Nickel are attempting the to position the company
in the USA through the acquisition of the Stillwater
Mining Company, which is in my opinion a very interesting
and strategically smart move. It will lead to a
situation in which Norilsk Nickel will become more
and more important globally. This is also a way
of becoming more integrated in the world economy.
I am sure that Russia is an interesting country
with great opportunities, and in the future we will
have for sure several big Russian international
players, like we have American, English, French
companies that are international. I think that Norilsk
Nickel is one of these companies. It goes two ways:
we are looking for possibilities to invest in different
markets, but we are not strong enough for the time
being. Still, with Russian companies, we are coming
to international markets, and are starting to have
better and better positions there.
Next to being a famous and very successful businessman,
and one of the so-called Russian Oligarchs, there
is the socially and culturally committed Vladimir
Potanin. What brings you to form the Vladimir Potanin
Charity Fund and programmes like the Northern scholarship
program? Do you have a strong feeling that you owe
Russia and the Russians something more than economics?
The charity, the fund is in my deep understanding
very personal, and all normal human beings have
this drive. When you are strong, you try to protect
those who are weak. If you are rich, you seek to
share your fortunes with somebody who really is
in dire straits. When you know something, you want
to share it with someone who did not read or hear
about it. It is human nature to share, and when
you are strong enough or rich enough to assure you
family and your friends' well-being, you start to
care about people whom you do not know.
I would like to stress that this comes very naturally
and has nothing to do with advertising or something
similar. Of course, people can use charity to improve
their image but it is not the reason, it is the
consequence. The motivation is the need to share
what you have with people. We have a lot of examples
when people are sharing their flats with refugees,
for example. Several years ago Mr. Yeltsin awarded
me for charity activities, together with another
woman who was awarded as well. She was a pensioner,
who for many years created her own library, which
was very precious because there were a lot of remarkable
books, including very old editions of interesting
authors. The collection contained books that were
not allowed under Stalin as well as books that were
not allowed under Khrushchev. Hers was a really
good collection and she gave these books as a contribution
to a local library in a small city.
We know that Khodorkovsky (CEO and Chairman of the
Board at Yukos) is spending a lot of money on Internet
education. I spent some money to support Russian
culture through a project with the State Hermitage
in Saint Petersburg and I support students. It does
not matter whether people are rich or not rich;
it is a sense of wanting to do something good and
to share with others. This is very personal and
it helps me to understand that when you get something
in your life, of course, it is your own achievement,
but it is also a matter of luck, and thanks to your
friends, colleagues and partners. Consequently,
you want to use the opportunity, which others did
not use, even though there is this potential. It
does not matter whether they could do this or not.
Destiny gave you the chance, and you used it successfully.
Share it with those, who were not in the position
to use it, did not know how to use it, were sick
at this moment, or not strong enough, etc. It helps
you to hope that God will give you another chance
in the future. You should use this chance, but you
should not squeeze it. You can be a very tough chief
and require hard working, but you should never squeeze
people. Instead, you should to support people. This
is basically a very interesting moral question.
On the one hand, when I hire people I have the right
to fire them if they do not work. Still, after years
of work I understand more and more that you are
responsible for everybody whom you invited in your
circle. This level of responsibility is different
for those who are just working for you. You should
assure good pension plans for them and you should
work on this despite difficulties in legislation
etc. We have the first private pension fund in Russia,
license no.1. Frankly speaking, I am proud of this
fact because we started to think about it many years
ago. People who are working with me should think
not only about their pension but also about their
professional growth, careers and families, etc.
When I am thinking about charity projects, it is
the expression of this kind of life understanding.
It does not matter whether it is shown on TV or
not. Yesterday there was the first TV footage mentioning
about our program for with the students, which has
existed for 4 years already. It is a pleasant fact
but it cannot encourage me to do this, and cannot
stop this if it does not, because I need this. One
very important person in Russia, very intelligent
person, attended one of our ceremonies with the
students. The students are very young and energetic,
and each time I am in contact with them I am very
excited, and it really gives me energy. During the
ceremony there were a lot of jokes, a lot of pleasant
things, and there was a small buffet after this
for the important quests. At this buffet this guest
told me: "Look, I see that you gain more from
it than you pay." It is important to me to
see in the eyes of the students that they are really
feeling welcomed in this life. I remember how I
needed this when I was a young man. I wanted to
know that society needs me. I wanted to do something.
I felt a certain potential but needed the indication
that somebody needs what I have to offer. That it
is important not only for me but for people in general.
It is really important for these boys and girls
to see that they are leaders, they are bright, and
receive good marks at university. This way they
change their minds and become more self-confident.
In other words, they believe more in their efforts.
When I see them and talk to speak with them, it
makes me realise that somebody really needs me,
and I am a normal human being not only to those
to whom I pay salaries or my relatives, but to people
who really appreciate my activities. I do not ask
them to say thank you. The realisation that they
are in need of my backing means already a lot for
me. This understanding is enough, and you cannot
buy it for money. It is correct that maybe I gain
from charity activities more than I pay in terms
of money. It is true.
Bearing in mind that this report will be read
by international business community, as well as
the extensive report on the internet, we would like
to ask you for final message to the readers of Red
Herring, who are looking towards Russia, and maybe
need a little bit of encouragement to come here.
What would be your final message to them?
My final message to your readers is: "Look,
we are Russians; we are coming back to the family.
We want to be welcomed in this family. We want to
live in this family for a long time. Please, recognize
us. We were just absent for a long time."
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