Alexei Navalny on the program “The Day After Tomorrow” on Echo of Moscow

Hello, you are listening to and watching

the program The Day After Tomorrow. My name is Tonya

Samsonova, and with me is my colleague, the host of

this program, Sergei Guriev, rector

of the New Economic School in Russia.

Hello, Sergei.

Hello.

Today we’re talking about how to defeat

corruption in companies, in large

companies with state ownership, and

we’re speaking with Alexei Navalny,

a minority shareholder. Hello,

Alexei.

Hello. Alexei, “minority

shareholder” sounds impressive, but could you

explain what it means?

Well, it sounds impressive, but in practice

minority shareholders in Russia

are in a far less dignified

position. It simply means that you have

less than half. In the context of

Russian realities. And when we use

the word “minority,” most often it

means an individual shareholder. In other

words, someone who was conned,

talked into buying shares in a “people’s IPO,” or who

did it on their own and then runs around looking for

justice.

So you were conned, and now you’re...

I wasn’t conned; I did it completely

deliberately. But most of the people

whose interests I defend were absolutely conned,

and it was the state that conned them.

Let’s listen to a profile of this 21st-century

figure, prepared by our partner,

Forbes magazine.

The Russian edition of Forbes and

correspondent Anna Sokolova have prepared

a fairly detailed biography of Alexei

Navalny.

A profile of a 21st-century man.

Alexei Navalny, 33, was born in

the Moscow region to a military family.

He graduated from the law faculties of

Peoples’ Friendship University and the Financial

Academy under the Government of Russia.

He is married and has two children. In 1999

he began his political career, joining

the Yabloko party (a Russian liberal party). He was one of the

organizers of the youth movement Da.

He took part in political debates. In 2008

he was expelled from the party for calling to replace

its entire leadership. He still regrets

the last years of his party life and

calls them attempts to revive

Frankenstein. He describes himself as a democrat

who is not thrilled by liberals.

Navalny’s life credo: Do what you must,

come what may. “It’s banal, but I

really do think that way,” says

Alexei. He spends most of his time

defending shareholders’ rights.

He organized several high-profile campaigns to

expose corruption among officials and

managers of state-owned companies. In April he called on

internet users to file complaints

about bribes involving the Daimler car company in

Russia. About

a thousand people responded. After their appeals,

law enforcement agencies said they

would investigate the case. What irritates

Alexei most is social

passivity and apathy. “People are having their legs

chewed off, and they just complain and

aren’t even capable of kicking those legs,”

he says indignantly. Alexei is trying

to change the situation and offers

readers of his blog various

options for collective action against

corrupt officials. He likes visiting the United States.

He believes that Americans are, on the whole, very

similar to Russians, which is why a Russian

person feels comfortable there.

Alexei, it’s actually rather amusing. Wherever

you go, you always call for replacing

the leadership. Yes, that’s my favorite

sport and hobby—replacing management. In

fact, in the Yabloko party I didn’t start out

trying to replace the leadership. I

joined it in 1999.

No, I did it completely

consciously. The issue of changing the leadership

only came up in 2005, well, after the well-known

events, after the leadership

showed its ineffectiveness. So,

generally speaking, I don’t start

actively demanding something like that from the moment I submit

an application.

Alexei, tell us, why do you need all this?

If you say that

things really aren’t going well for minority

shareholders in Russia, and this

motto of yours is probably also close to

many executives at state-owned companies, and

we’ve heard it from Nikita Mikhalkov (a Russian film director):

“Do what you must, come what may.” And

in principle, it doesn’t contain much

hope of success. Why do you spend your

money on buying shares and your time on

defending the interests of minority

shareholders?

You went to the market and someone pulled

your wallet out of your pocket. Will you

be outraged? Most likely you will be outraged

at the market. In any case, you will

be outraged, even if you bought those shares yourself.

Ah, that’s a very

common claim made by the state

authorities. Let’s

remember that we had three so-called

“people’s IPOs”: Rosneft, Sberbank, and VTB.

If we recall VTB’s IPO, for example,

top officials—Putin, Kudrin, and all

the others—were saying: “Go ahead, folks,

invest, citizens. Come on, invest

your money in our bank. Everything here

is under state

control. Your deposits and your investments

will be securely preserved, protected, and

will multiply and grow. And what have we

seen so far from you and your

abilities? You created a political

movement, you organized debates,

you are a public figure, a media personality,

you are, one might say, a showman. It’s just that you haven’t

found a better use for yourself, you didn’t

go into, say, a career as

a television host or someone

like Andrey Malakhov (a well-known Russian TV host), and instead you took up

advocacy—you simply didn’t find

a better use for your talents. And

now it has become this beautiful legend. It’s

not a beautiful one, I think. It seems to me that we

still haven’t heard the legend itself, because

Alexei still cannot explain to us

who forced him to buy shares in

VTB. It’s not a beautiful legend. There is

an absolutely clear fact that in our

country, hundreds of thousands of people are

shareholders in companies. The largest

companies are under state

control. And these companies are robbing their

shareholders. In the literal sense, they

are robbing them. And in particular, in my case, uh, I

am conducting investigations into many

companies. There are very clearly

opened criminal cases, there are

formal charges, there are cases

that have been proven or are currently under

investigation, including by

law enforcement agencies, where we

are proving that these people are looting, they

are stealing hundreds of millions of dollars. If we

look at the dividend yield on

the shares of our companies, and look at how they

operate, then I think no independent

observer, including you, Sergei,

would claim that our companies

are performing wonderfully.

Ah, Alexei, we’ll get to that, but

we still can’t get an answer to

the question. Were you forced to buy shares in

it?

Ah, no one forced me. I believe that in

our country, investing money in

shares is, in principle, a wonderful

idea in theory. There is only

one subjective point, but a very

important one: the fact that, uh, oil companies,

gas companies, commodity firms, the banking

sector—whatever it may be—is under the

control of the state and crooks from

the state first and foremost. Therefore I

have the right to invest in our

companies. I want to invest. I just

do not agree that they should steal. That’s all.

Do you invest in other companies?

Which ones?

Non-Russian ones.

I invested in Russia in, probably,

around twenty companies. Besides,

why should I invest in non-

Russian ones?

Wonderful. There is Gazprom,

which is owned in part by

the radio station. Broadly speaking, by

fundamental indicators, this is

a company that is perfectly capable of

developing and generating excellent

profits. There is Transneft, yes, a wonderful

monopolist that controls the entire

infrastructure and ought to be making

profits. And by all indicators, by

any analysis of this company, by investing

money in it, I should be getting a decent

return. And so should everyone else along with me. Yet

we see no profit at all.

What we do see, however, is how somewhere in

Courchevel or Spain, splendid

villas are springing up

for this company’s management.

All right, this problem obviously

concerns not only minority

shareholders, but the population as well, including

because the state holds stakes

from my thoughts, yes, how much is not

being received in percentage terms, how much we

are not receiving. I am absolutely certain that

by implementing the program that, among other things,

I am presenting today—these

six simple steps—the profitability

and efficiency of companies will grow by no

less than 30%.

Well then, let’s hear the six steps.

What needs to be done so that by 2020

state-owned companies would be, as we are

promised by officials, including the very highest-ranking ones,

a model of corporate

governance?

Yes, you invited me here in order

for me to present a specific program.

I tried to create a truly

concrete program that my colleagues and I

developed. These are not some

abstract reflections on the subject of

corporate governance. These are six

specific steps that I maintain—and

can prove—can be implemented

as soon as tomorrow. No

changes to legislation or anything

of the sort are needed. First, it is necessary to drive out, in the

literal sense, drive out all

officials from governing bodies, first and foremost

from companies’ boards of directors,

because they sit there

and in practice make all the decisions.

These are not the people who should be

doing this. And I maintain that they are either

bad directors or bad

officials, because doing both

is impossible. Indeed,

an official sits on the governing body of

Rosneft, reading the board meeting minutes

in the car on the way to that

board meeting. He cannot properly

manage the company and simply carries out

some kind of interests in this company, most often personal ones.

Well, that means that

he really is a bad director. You

as shareholders can prove that — that

he reads the board meeting minutes

in the car, or doesn’t read them

at all, and is not fulfilling his duties.

Proving that he reads them in the car,

of course, is fairly problematic for us from

a legal standpoint. But the fact that they

are bad directors — I, for example, get

confirmation of that every day. For instance, they

simply do not respond to shareholders’ letters.

They are obliged to do so. They

ignore them. Here’s a perfect example. Last

year there was a meeting of VTB Bank.

It is the second-largest bank under

state control. And for its supervisory

board, I think around 15 people were nominated.

And yet only two of them came to the

general shareholders’ meeting; the rest

didn’t even show up. These people, whom

the state nominated, receive

millions of rubles for sitting on the

supervisory board. And at the same time,

I think officials do not receive

money for serving on the board.

That is prohibited.

Well, not all of them are officials. That is,

many of them claim that they are

independent directors. In practice, they

are not. One way or another, they

sit on the board of directors, and they do not

consider it necessary — or do not find the time —

to come to the general shareholders’

meeting.

Alexei, it seems to me that you are beginning

to contradict yourself. At first you were talking

about officials, and now you have started

talking about how officials are

bad, right? Now you are talking about those

people whom the state nominates,

who are not officials. They

are bad too. Where do we find good

directors?

And as for good directors, I believe

if the state owns the money,

then according to the logic of good

corporate governance, the state

should nominate its candidates to the

board. Yes. And you are saying that those people

whom the state nominates are also

bad.

Apart from you, are there at least any

candidates who

I am simply saying that the very mechanism

of nomination — the way the state

does it — is fundamentally flawed because it is

closed off, no one understands it. Some

people sit in the state property management

committee, and as a result of lobbying

efforts by various sides, two

faces appear there, a list appears, and

there is simply a directive to vote for it. I

believe this is fundamentally wrong. And I

believe we can absolutely use

mechanisms for nominating these people. The

state has a stake in VTB — 85%.

It can say to institutional

market participants — say, the committee of the

Association of Independent Directors,

exchange councils across the country, I

don’t know, the Chamber of Commerce and Industry, and so

on. There are quite a lot of such, uh,

business, professional,

and even academic associations, if you like, which can quite

well analyze these lists and, from among

their own ranks, nominate independent

directors. I maintain that they would certainly manage no

worse than a person who

draws a salary somewhere in the White House (the Russian government building).

But beyond all that, there are also the interests

of the state. And they consist not only

in the fact that the state holds a significant

stake in the company, but also uses

it as a strategic resource for

shaping the future.

Well, if the state merely wanted

to make money from this company,

merely to receive dividends, then probably

it would be more efficient to sell

the company. Presumably, state-owned

companies remain in state ownership

because they have some other

That is an absolutely excellent question. And

our state-appointed directors are very fond of

saying: "We are pursuing

certain state interests here." But

what are state interests? At

Rosneft, it means Rosneft is made

to sponsor the Olympics. At

Gazprom, it means Gazprom is made

to buy mass media outlets. At

Sberbank, I don’t know, maybe they make it

finance some kind of

Skolkovo school. In reality, all this

pursuit of state interests

comes down precisely to the fact that they

make corporations, with their own money,

take part in quasi-state

projects. That is, they are simply

redirecting financial flows. I

absolutely maintain that

the state can perfectly well influence

the market and all these companies through the

regulatory measures that already exist.

That is, well, there are an enormous number of

tools — our state certainly has a million

levers to make Gazprom do

what it wants it to do, within the framework of

implementing strategy in the gas sector.

Alexei, are you sure that you are absolutely

fully informed about what is happening?

For example, a few weeks ago, sitting where you are now,

was Ruben Vardanyan, and he

did not say that Sberbank

is being forced to finance Skolkovo. He

said that this is market-based, on market

the terms on which the loan was taken out.

Well, I have a slightly

different view on this, and somewhat,

but Vardanyan's point of view is more

informed, yes, because he knows

the interest rates. And that is banking

secrecy, which... But why is it that

Vardanyan is the better-informed

person here? He is the director of this

Skolkovo school. And Sberbank there is more than 50%

owned by the state. I am a shareholder. And

Sberbank is carrying out a rather strange

transaction. It is financing, uh,

an educational institution which clearly, in the

foreseeable future, will not generate

significant profits. And everything is

completely secret. When it will start

making money, when problems with the

loan arise, then Vardanyan and Gref

and if they want, if they are acting in

the interests of the state and everyone, then let them

come and tell me, as a shareholder,

and everyone else, that we are financing this on

such-and-such terms and at such-and-such

interest rate, because confidential

banking information...

nothing terrible will happen if, in such

politicized matters, the rate on them is disclosed

— nothing terrible will happen. That is,

the Skolkovo school does not have in Russia

a huge number of competitors or anything

of the sort. So there will be no

business problems here either for Sberbank or for the

school. Therefore they are obliged to disclose

the interest rate and the terms of those transactions

that, broadly speaking, raise

legitimate questions from the public and

shareholders.

Gentlemen, I suggest we pause here. Alexei has

six points, and so far you have only managed

to cover the first one and raise...

Well, yes, yes, yes, that's right. Quickly tell us

the second one.

Let's hear the comments on

the first point so that later we do not

have to come back to it. Alexander

Privalov, science editor of the magazine

"Expert." A word from the man of the century.

A word from the man of the 20th century.

Mr. Navalny's proposals are, on the whole,

quite reasonable. Only a few questions arise.

So, depriving

officials of the right to sit,

for example, on boards of directors, is clearly

an anti-corruption measure. There is really

no question about that, but it turns out to be only half a measure.

That means the state may not participate in

some governing bodies of state companies,

but may in others, because you cannot

forbid the state from voting

its shareholdings at shareholders' meetings.

That removes one temptation, but the others

still remain, though the temptations will be a bit

more indirect. It seems to me that

we need to talk about clearer measures, namely

a ban on participation in any

governing bodies at all, a general ban

on, in any form, managing

state property and state shareholdings other than through

legislative acts. If you need

say, Russian Railways (RZD), in which

you own a controlling stake or

even 100 percent, if you need

them to do something, pass a law

requiring them to do it; do not leave it to

the governing bodies. Then, perhaps,

something will come of it. But in principle,

I repeat, I like this idea. There will be

just a little less theft almost

immediately. The other issue is that it is not very

clear how to force

the state, out of all types of

owners, to limit its own rights. It is

hard for me to imagine that this

could be done. So, two, uh,

substantive questions for you. First, regarding

Mr. Privalov's comment,

science editor of Expert magazine.

First, if, uh, as in the case of

Sberbank, the state owns 60 percent of the

shares, how exactly will you exclude

the state from management? How

will you exclude the main shareholder from

managing the bank?

Well, Privalov's questions are, in general,

quite reasonable, but we

He is accusing you of not going

far enough, of not being sufficiently

radical.

Exactly. It's just that since we

were talking about my presenting

a program that can be implemented

here and now, Privalov's proposal is

reasonable, but it requires serious changes

to legislation. That is, uh, and in

some sense, his proposals are

reflected in my sixth point, where I

say that in the future it would generally

make sense to create some kind of fund with a

special council that would, among other things,

resolve voting issues,

because right now, tomorrow the state

could refuse to have its

representatives, direct

officials, on boards of directors. Well,

of course, with its stake at the

shareholders' meeting, it has to vote,

because under the law on joint-stock

companies that has to happen. But overall

that too can be transformed. But

here a somewhat longer

path is needed.

And even about the here-and-now there are plenty of

questions. It's a wonderful program.

One can also make a program about how

apple trees will grow on Mars. But who

is the actor here, who will implement your

program? In principle, in it

large companies and

top management are interested, but unfortunately,

for some reason this is not happening. You

say what needs to be done, how to achieve this?

program. This is not some kind of

Navalny's know-how. Medvedev talked about this

too. He did. Dvorkovich talked about it

too. He did. All of them

Medvedev and Dvorkovich do not manage

companies. Who does inside companies?

Medvedev is the president. He is responsible for

running everything. Therefore, as of

today, by his own decision and through

the government, he can push these

reforms forward. As for who supports me

inside companies, genuinely independent

directors, I think, are on my side.

The overwhelming majority of shareholders not

connected to the state are on my

side, I am sure of it. But,

of course, the company's management and all

the others are opposed,

because what kind of, excuse me,

idiot would vote to have himself

thrown off the board of directors?

I am not going to get any support there.

So Medvedev is on your side,

along with some abstract people who

have found themselves in the same situation as you, but

against you are the people who actually

run the company day to day.

On my side are certain theoretical

ideas of state

leaders about how things ought to

be. In practice, as very often happens in

Russia, things are against me. Well, in principle,

there are probably managers whose

compensation depends on the value of

the company's shares. And if all the points

that Alexei is talking about

lead to the company's share price rising, then those

good managers who do not steal and

are compensated based on increases in the

company's share price will also be

interested in implementing them.

Do they really exist, Sergei?

Of course they do. At Sberbank, unfortunately,

management compensation does not

depend on the company's share price. There are,

unfortunately, companies whose shares are not

traded at all. We will talk about profits,

rather than share prices. We will talk about that

after a short break. Let me

remind you, we are talking about how to reduce

corruption in large

companies with state ownership.

Alexei Navalny, a minority

shareholder, is our guest; Sergei Guriev,

rector of the New Economic School (a Russian university),

and the host of this program is Tonia Samsonova.

We will be back in a few minutes.

Hello again. You are listening to and

watching the program The Day After Tomorrow. Tonia

Samsonova and my colleague Sergei Guriev,

the co-host of this program, rector of the

New Economic School. Good

evening once again.

Good evening. And

Good evening. Alexei Navalny,

a minority shareholder, with whom we are

discussing how to reduce corruption,

or at least reduce it, yes, not defeat it, in

large state companies, companies with

state ownership. Hello.

We had stopped at the first points of your

great program, and

for defeating everything bad in this

world. What are the other four points?

And since we are short on time, I

will try to present my great program very

briefly. The third point concerns

the creation of a system for anonymous reporting

of abuses. I maintain that

the audit committee that exists on

every company's board of directors

must, as a top priority, create

a system under which company employees,

yes, rank-and-file staff, middle managers, and so on,

anyone at all, upon discovering

any violations, theft, schemes,

fraud, and so forth, can without

fear for their future careers

report it to the proper place. In Russia

people very often say: "Well,

informing, snitching, and so

on." I believe that this is a completely

wrong approach. And in order to

achieve real transparency and

actually stop

abuses, every employee

of the company must know that there is

a system under which if he reports something, then

a proper investigation will be carried out, and he

himself will not suffer. This system, broadly

speaking, has been adopted in a significant

number of Western companies and it works.

And here too, there is no need to reinvent anything.

This is not some kind of

How does it work? Roughly how

could it work? And you,

Well, it should be said, it should be said, that

whistleblowers, these anonymous

informants, sometimes not anonymous, and

in America they report not only to management

or to a board member, but also to

regulatory authorities. Right. And in fact

it really, truly

works. Alexei, how do you

think, could this work at all in Russia?

For example, let us take some

of the best, best, best Russian private

companies whose corporate

governance is at the level of Western

standards. We have several

telecommunications companies, for example,

whose corporate governance ratings

are at a decent

level. Do they have such a system there?

And

or are you not a minority

shareholder in a good company?

I understand that in the best

telecommunications companies, from this

point of view—for example, MegaFon and

others—such systems still do not

work. But there is movement in this direction,

and I am absolutely certain that in

Russia this system could take root as well.

Of course, if such a system were introduced

now, say, at Gazprom or

Rosneft, these people would be afraid

the very next day, because they understand that instead of

an investigation, people would simply come for them to

kill them, or at the very least throw them out of the

company.

Well, if it is an anonymous, anonymous

report,

if there is a genuinely well-developed

system for anonymous reporting and protection is

guaranteed for these people, I am sure that

such a system will work.

If corrupt practices exist in a company,

they do not exist only among two

bad actors. They are spread throughout the company.

Every person who would

use this whistleblowing and

anonymous reporting understands that if

they start this process, it

will start working against them too. To figure out

who does what, you know, is not difficult. In

a large company, 200,000

people work there, 300—the system itself

punishes itself—not exactly. Not quite like that.

Alexei wants to say that in large

companies there are many good people working.

Hundreds of thousands of people, and naturally

90% of them are not involved in any

corruption. And they, I assure you, are

more outraged by all this than you and I are,

because they may be

entangled in it and forced to facilitate

the corrupt process, but they get nothing

out of it, and it irritates them very

deeply—especially since they are afraid

that sooner or later someone will get taken out, and

they will get caught up in it too.

Remember the story of Major

Dymovsky, who, uh, went after

his superiors, but then it surfaced

somehow that general

information appeared suggesting that he too was not, in

short, exactly a prince in white robes. That is how

it will be with everyone. The main thing is, he did not report it

anonymously. So what we are talking about is that we

will—what we are talking about here is that there must

be—I am not saying that this system

can be built in 5 minutes and that it will be

perfect. I am saying that it can begin to be built

tomorrow and be put in place within

a reasonable period—2 years, for example.

That is the third point.

That is my third point. As for

the fourth point, a significant portion of our

state-owned companies are listed on

international exchanges or are traded there in the form

of ADRs and so on. All these exchanges

have their own disclosure standards,

standards of corporate

governance, and so forth. I believe that

our state-owned companies can вполне take on

such a voluntary commitment

to comply with these principles that

are accepted on European exchanges first

and foremost, as well as in Britain and the United States. And I

am absolutely certain, and I also think that

the majority of experts here would support me,

that if companies themselves

take on these obligations,

it will significantly improve their market capitalization and

give shareholders additional

rights without creating problems for

management.

Alexei, well, this can also be done by

companies that are not publicly traded, right, on

Exactly. But first and foremost,

those that have gone public have, at the very least,

already formally stated that they

are ready, ready to strive for this.

That is,

Alexei, why do you think this

is not happening? It really is a very

simple step. And Igor Ivanovich

Shuvalov, speaking publicly 2 years ago,

said that we would make state-owned companies

the best in Russia in terms of

corporate governance. What could be

simpler? To take on

the obligations of a comply-or-explain code, or a very

simple measure. For example, I am a member of

the minority shareholders’ committee of

Sberbank, where you, Sergei, are

a director, by the way, and when they

were discussing where to issue depositary

receipts, such absurd

options as Hong Kong and so on were being discussed.

When I ask, my friends,

why not go straight to the U.S.

stock exchange?

The disclosure standards are too

strict. We are not yet ready to tell

the public the whole truth about ourselves. And so

it is still customary in our companies

to think that if pensioners find out

what Gref’s salary is, they will come out

somewhere with pitchforks. So let us simply

close this subject altogether and provide as

little information as possible, because

people should not know too much. But this is

actually reasonable information,

a reasonable salary, and pensioners will not

I am sure that yes, Gref does indeed have a large

salary, and it can, generally speaking,

be estimated—not down to the last kopeck, but

roughly. It was even reported in the newspapers

almost exactly how much. I do not want

to name that amount, and I certainly will not.

in this case, to comment on whether this corresponds

to the report. So, well, here is the information

that you saw there in the newspaper

Moskovsky Komsomolets, where this information was published.

Do you think this

compensation is sufficient or insufficient?

I assumed that his level of

compensation would be like that, given that Sberbank

is the largest bank in Eastern Europe. I

don’t see any problem here with his large

salary. He’s not getting 100,000

trillion upon trillion, right? It’s a normal

salary that can be compared with

similar salaries at similar

banks. There’s no problem.

Unfortunately, in America it’s much higher,

than that. Yes.

Now, for a listener who may not be very

sophisticated, or not

a hundred percent your fan, this sounds

strange. You go after big

companies so hard, you’re not afraid of anything, you

say things like that. And here you are defending Gref.

defending him.

I’m not defending Gref. Not at all. And when

Gref says that he will receive his

large salary and manage the bank properly,

there’s no problem. But when someone at

another company—I won’t say which one—

gets a salary twice as high,

and on top of that steals 100 times more, that’s where

I start raising objections. I

have a huge number of complaints against Gref.

I’ve had fairly aggressive correspondence with him,

but his large salary specifically

doesn’t bother me, because

as long as he doesn’t add to that

large salary

whatever people might start bringing him in little suitcases.

That’s all. And that, of course, is a criminal

offense. I hope, I hope that he

is not involved in that. Let’s move on to

your points.

The next, fifth point I wanted

to make concerns the documents that

companies are required to disclose. Under our

law on joint-stock companies, companies

are required to provide shareholders with

a number of documents. First and foremost,

the minutes of the board of directors. Given that

these companies are public, and you, Tony,

for example, could go tomorrow and buy

a Sberbank share, request these documents from Sberbank,

and within five days

receive them without any problem, the question arises:

and then actually read them too.

Read them, yes. Well, the assumption is that

you’re interested in the subject. And these

documents are quasi-public. Any person,

any sinister spy, can get this

information within ten days

without any problem. So the question is: why

hide it at all? That’s why I

think it would be right to make life easier

for ourselves and for others, and already now

simply publish this information on

the website.

And what will we get from that?

We will get shareholder access.

Well, you know, you would find out, for example,

how much I am paid as an independent

member of the board of directors, because my

my, my compensation is

available. Exactly. Shareholders

are interested in that; as a shareholder,

naturally, I care about it.

For example, Guriev gets such-and-such an amount, while

there was, and still is,

a director at Sberbank, Gupta, a gentleman

who receives, I think, half a million

euros—or how much does he get?

440,000. And after that you speak badly of him.

of him.

I’m not the one speaking badly of him; rather,

he is now being called out by American

regulatory authorities, which, as I

understand it, have opened an investigation against him

over insider trading. Let’s not

go deeper into that topic, but in any

case, I, as a shareholder, consider it

necessary to know how much

Guriev receives and how much Gupta receives, and

to ask questions at the shareholders’ meeting

in that connection, for example.

Ah, all right. I also have questions about the sixth

measure. You believe this is a measure that

cannot be implemented here and now, but

to place

all assets into a special fund,

that is, in effect, to create an independent board

of directors for a fund managing

state property.

Yes. This measure has drawn a certain amount of

criticism, and people tell me, well, you’re

actually going to create

a super-monopoly and some kind of mega-

But it already exists. This monopoly

already exists.

Exactly. That is precisely what I’m saying:

the monopoly exists right now.

There is an agency for managing

property, where there sit, well,

some people—understandable, or more often incomprehensible people—appointed by

unclear criteria, and so on. They

decide how to vote. They

issue these voting directives, and so

on. I believe that such a fund

really should exist. It should

have a proper, well, proper board

of managers who will make

decisions about how to vote, including

at shareholders’ meetings, which is what

Privalov was talking about. This is entirely

feasible; it is normal practice. And

most importantly, then shareholders and simply

citizens, taxpayers, will

understand why one decision or another is being made,

how it was made, and who voted.

for situations when some state-owned company

disposes of its subsidiary at some unclear price,

to who-knows-where; right now we know nothing

about it. You can go to your

member of parliament, and the MP can ask the prosecutor's office

to look into it.

The prosecutor's office will tell the MP to get lost.

Alexei, may I ask a very basic question,

sorry, but your sixth point is just

completely unclear to me. So, there is

some kind of state management body for companies,

and on top of that you also want to create a fund

and move all the same things there. Not exactly.

Right now there is FUGI, the Federal

Agency for State Property Management,

which, essentially,

owns everything in the country, from

unfinished, half-built hospitals

in the town of Uryupinsk (a byword in Russia for a remote backwater), all the way to

kindergartens, land

plots, including shares in

companies. And right now there are some

people sitting in offices there on salary,

writing directives. They write

to a director at Sberbank to vote

in a certain way at the shareholders' meeting.

Not Sberbank, I think, because

Sberbank belongs to the Central

Bank. Gazprom, though. Yes.

Yes, yes, yes. Yes, exactly. VTB,

for example, yes, they write:

"Our shareholding will vote on such-and-such

a related-party transaction

this way, not that way." Why they make

such a decision is impossible to find out. And we

understand perfectly well that such decisions

are currently made, once again, as a result of

clashes between lobbying groups. These

people want one thing—just imagine, this is the main

center that does the managing. Absolutely

right.

Alexei, imagine that you became

a member of such a board. How could you

make decisions about managing such

a diverse set of assets? It's

like being a member of the

supervisory board of the state corporation

Rostekhnologii (Russian Technologies), managing hundreds and

thousands of companies. How would that work?

Sergei, that's exactly what I'm talking about. The point is

that, first of all, right now this FUGI

manages everything under the sun, whereas this proposed

fund would manage only the shares

of the largest joint-stock companies. I'm not

saying everything should be dumped into it. We need

to start with the largest public companies,

that is, those listed on the

stock exchange, where there is a significant number of

shareholders—the biggest companies we have.

Start with five or ten of them. I'm not

saying that tomorrow we should merge everything

and once again create some obscure

office that no one will be able

to manage. But the 20 largest

companies by market capitalization could easily be

managed ten times more sensibly than

they are now through this fund. Gentlemen, what really

fires my imagination is, uh, the idea that

there are peo—do we know the names of the people,

who make these decisions and write

these directives, or are they all anonymous robots?

Are they known? No, they're not anonymous robots.

In fact, if you need

some company like Gazprom or Rosneft to do

something for you somewhere, you'll find the name

of the relevant little man, go to him,

make a deal with him, and he will make the decision

you need. I know that.

No, but the directives are signed by very

specific officials, they have

surnames—but the decisions behind the directives

are made in an incomprehensible way. These are

the key people in our country, and we don't

go looking there.

Exactly.

Alexei, I still have a question

going back to your motivation. We've already

established that no one forced you

to buy shares, apart from your sense

of injustice and your desire to

change something in the country, to have the right

to invest in the country

and to become famous

and to become famous, obviously, yes, to become

a glamorous public figure. Right. But many

people complain about the following. Look,

you obviously cannot obtain all the information,

all of it. And many people

say that the Prosecutor General's Office

doesn't very often open criminal cases

based on complaints from random people off the street. And the fact

that you manage to bring about the opening

of criminal cases means that

someone is backing you, someone is paying you

money. For example, when you, uh, go after

VTB, it's obvious that you, as a member

of the minority shareholders' committee

at Sberbank, uh, want

somehow to harm

VTB's management, which is surely

a competitor to the management

of Sberbank in the struggle for, uh, I don't know,

the attention of the country's leaders or for

market share in Russia or abroad. Who is

who is paying you for all this, who

is leaking information to you? How does it all

work?

Well, first of all, Sergei, you rather

sarcastically used phrases like

"sense of injustice" and so on.

That is the main motivation. That is,

first of all. Second, I am a rational,

sensible person.

No, it's just that earlier you said that

someone stole your wallet. Before your

wallet was stolen, you were dragging it around on a string

through the market. It wasn't stolen just like that. It wasn't from

me—it was stolen from that old lady I can see.

On June 4, at the VTB meeting, which will also become

say that after hearing

Putin on television, I invested my last money. Where is that

money? That is why I am defending, among others,

that grandmother. That is the first point. Second. I

have a completely realistic view of my

work and I understand that when I, well,

go after, yes, or put pressure on

one group of managers, say at Gazprom or

a company in general, I am, one way or another, playing into the hands of

their opponents. And there is

an eternal struggle of bulldogs under the carpet. And I

within the framework of my work, of course,

get in some people’s way, but help others. And

someone is trying to devour someone else, and I too

run up somewhere and poke them with a sharpened

stick. But I am absolutely

ready, and I understand what I am doing. I am taking

this on. Give me the rope with which I will

hang you all. Let them leak all this

compromising material to me. I receive a huge amount of

compromising material and so on. And the part of it that

can be, well, verified through

alternative sources,

and is confirmed, I act on it. I do not care

that someone wants to

take down Miller and therefore leaks information about his

fraud. Another crook of the same kind gives me

information on him. I do not care about that,

about any of it. And any information that comes

to me that I consider reliable, I

will act on.

But you do not take money for this?

Of course not.

Then what do you live on?

I am a lawyer. And, in fact, that is what

makes it possible; it reduces the cost of my

work defending minority

shareholders, because I am doing roughly the same

thing anyway.

Well, excuse me, but you do so much work

defending minority shareholders that

when do you find time for

your legal practice?

I like it. I practice law

for exactly one reason:

to finance this work. If it were possible

to do this completely

for free and I did not have to support

staff, maintain an office, and feed my family, I

would do nothing else except

this. Alexei, returning to your

motivation, are you not afraid? For example, I

once spoke with a

person, an opposition politician,

who criticized Gazprom a great deal, and people

said to him: "Well, if you are not criticizing

Rosneft, then you have probably just been

bought by Rosneft." He said: "You know,

I am a little afraid to criticize

Rosneft." Right. And the previous

shareholder activist was Bill Browder, right,

and people said that this was

his business model; he did not really

hide it. He bought small

stakes in companies that were undervalued

precisely because there was a lot of stealing

going on in those companies. Then he initiated cases. The cases

he lost. But they created publicity. That

publicity was covered by The Wall Street

Journal and the Financial Times. As a result,

managers were forced to improve

corporate governance. The share price rose.

Well, Mr. Browder is not as

spotlessly pure a person as Mr.

Navalny, but still somehow it became dangerous for him.

No, his life is not in

danger, but he lives in London, and he has no visa

to travel to Russia, and he no longer has any business in

Russia either.

Yes. So, in your view,

how much of a future does your work have

in Russia?

If I did not think it had a future, I

would not be doing it. I can see that,

first of all, I get a response from people. I see

that people support me. I see that I

consider, inwardly consider my

work to be right. And even if

tomorrow I realize that I will not be able to put anyone

in jail and will not win a single case, I

will still continue

doing it, because it is the right thing to do.

Is that why you are going to study at Yale?

That is exactly why I am going to study at Yale, in order

to learn new ways of

putting pressure on them. One must understand very clearly

that the people who embezzle

money here invest it there. And

all of this is money laundering and unjustified

enrichment. Therefore, in fact, abroad there are

quite a lot of tools

for going after our crooks on the merits.

Ladies and gentlemen, everyone has seen people who go abroad,

study in America, and then do not return

to Russia. Well

Well, Guriev is sitting right

next to you, for example. Uh

Guriev is not just sitting there, he is hosting the program.

Hosting the program next to you. He came back. I

know a huge number of people who

studied there, gained knowledge, and

are now bringing a great deal of

benefit to the country.

And now we have a comment from a man of the 20th century, another

gentleman who will

criticize your arguments; he has read them carefully.

Igor Belikov, director

of the Russian Institute of Directors. The floor is

to the man of the 20th century.

A major company with state participation is

a complex economic entity that

is not 100% purely market-based. Representatives

of the state apparatus must be present,

because they must have a clear

understanding of what the state

needs. All decisions must

be made through boards of directors.

If one assumes that government bodies will have

some other means, as proposed here, of

imposing decisions on state-owned companies

without participating in their governance

structures, that is completely wrong. That is

precisely the problem. The decision-making

body here should be only the board

of directors. Next, that is all, point two.

All appointments to senior positions

in the company should be made by a nominations

committee composed entirely of

independent directors. But all such

highly categorical claims that everything

must be done exclusively by them are rarely

justified. In a properly functioning board, a committee never

makes decisions.

It can only recommend something for

the board of directors to decide on.

Only the board of directors should

make appointments to senior

positions in companies with state

ownership. Before that, as a mandatory

preliminary step, this issue must

be reviewed by the nominations

and remuneration committee. On the third point, we

know that there are documents that

contain trade secrets, so

the company must clearly distinguish

which documents are

publicly accessible. And access to them

must indeed be provided upon

first request and without delay. And

documents containing commercial

secrets. That list must also be

properly justified.

Alexei, so what would you say? Igor

heads the Russian Institute of

Directors, one of the, or probably the

most

longest-standing, longest-operating

organizations working in the

field of improving corporate

governance in Russia. In your view,

how much more realistic are his views

than yours? I would say this with

respect for that organization,

but it is not long-lived so much as long-surviving.

In other words, Mr. Belikov is offering us

defeat disguised

as compromise. And we very often see

from organizations like this

statements like: "Let us

pretend to be sheep and rub up against

state officials a lot, and then

perhaps we too will be appointed somewhere." And

once again we hear talk about some kind of

state interests that

are supposedly advanced by state officials. I do not

understand what state

interests are. State interests

are pursued through mechanisms

such as tax and social policy, which

is how things are generally supposed to work in

normal countries. The fact that, well,

a company is managed not by an outside

director but by a person sitting there

on the payroll at the White House (the Russian government building), one person today,

another tomorrow, does not mean they will advance

any special state

interests. In practice, I see—and I am speaking

here about practice—that all this pursuit

of state interests is simply

most often money laundering and fraud, only

wrapped in a kind of pompous

rhetoric.

So in your view, officials cannot

advance state interests at all,

is that right?

I do not understand what

state interests are.

State interests can be advanced by

any independent

director. Guriev, who is here with us,

serves the state interest. And I

do not understand why his

understanding of state

interests should be worse than that of some Sergei

When you make decisions as an independent director, what do you

base them on?

Well, you know, you know, I am an independent

director at Sberbank, where I defend

the interests of minority shareholders, and there

I am not guided by state

interests; I defend their interests. They

run counter to the interests of the state.

You know, no, you know, there are

interests—perhaps Sberbank has

certain interests in maintaining

stability in the Russian economy. And

in that case, let the chair of the

Central Bank and other

representatives of the Central Bank vote. My

interest at Sberbank is to protect

the interests of minority shareholders,

to make money for the shareholders—that is

a different matter. But I am an independent

director at state-owned companies with

100 percent state ownership, where

I represent, probably,

the interests of society indeed. And when we

what do you base your decisions on,

I am guided by my own, my own

understanding of state

interests. That is correct.

And you are paid a salary for that work.

I am paid a salary for that work. Yes.

On the other hand, of course, I am not

a government official, so I probably, probably know less

about what goes on inside the

corridors of power.

How interesting.

But you do not need to know, you see? And at

Sberbank, directors should

vote not so that Sberbank

can ensure some kind of macroeconomic

stability. That is what the

Central Bank is for; that is what the Finance Ministry is for.

They have all the instruments they could possibly need, whereas

they can fully implement

state policy within the framework of

the law, yes, that's what we're talking about, and within their

authority.

Then it's not clear why we own

Sberbank at all. We could

privatize it. I firmly believe that

the state's stake in Sberbank should be

reduced to 25% without any problem.

Alexei Navalny, minority

shareholder. We discussed how to reduce

corruption in companies with state

participation. I would like to thank our partners,

the Russian edition of Forbes magazine. I

would like to thank the producer of our program,

Irina Boblayan, Sergei Guriev, rector

of the New Economic School (a Russian university), Toni

Samsonova. Until our next meeting on

air. Bye.

All the best.