"The Profession of Shareholder"

— Alexei, many people call you a professional minority shareholder and a serial litigant... — I made almost all of these investments simply to place capital; I did not buy shares with the intention of suing anyone. Today I hold stakes in Rosneft, Gazprom Neft, Surgutneftegaz, LUKOIL, Sberbank, VTB, Gazprom, Transneft, E.ON Ruhrgas, ENI, and more than ten power-sector companies that were created after the breakup of RAO UES (Unified Energy System of Russia). Of all these holdings, the only shares I bought specifically “to litigate” were those of the Western companies E.ON Ruhrgas and ENI. The reason is that I am suing Gazprom and its managers, while these companies are Gazprom’s co-owners and partners. They hold fairly large stakes in the monopoly, so they can force it to disclose the information I am interested in. As a shareholder, I can now demand that they put pressure on Gazprom. — Why did the conflict arise? — Because of dividends. After buying the shares, I began regularly reading company reports and following what the press was writing about them, and I was horrified. At that point there was not even a hint of any crisis, oil prices were smashing records, the companies whose shares I had bought were doing extremely well, yet their reports said: there will be no dividends. As a shareholder, I found that unacceptable, so I decided to find out where the companies’ profits were going and why they were not being shared with me. — And what did you find out? — Take Rosneft, for example, whose shares I bought first. It exports 85 percent of its oil and petroleum products, but it does not do so itself; it uses the Swiss company Gunvor. Why? Rosneft could easily have created such a trader itself. It could have bought any trader, but for some reason it did not do that and instead chose to work through a strange intermediary. So the company’s management seems to think that producing oil matters, but selling it does not. But the money is made on the sale! I began to suspect that a significant share of Rosneft’s profits was ending up in Gunvor, and that this was being done deliberately. A scheme had been created to siphon money out of the company. I wrote to Rosneft’s management with several questions: do you work through Gunvor, and if so, in what volumes, at what prices, and on what terms do you sell oil through this firm? I am convinced that under the law on joint-stock companies, I have the right to receive that information. But the company refused to provide it. Surgutneftegaz and Gazprom Neft also refused. In the end, I went to court to demand disclosure of this information. I am pursuing a similar case against Gazprom. Only there, money was siphoned out of the company not through gas exports, but through gas purchases on the domestic market. In that case, I managed to get a criminal investigation opened against Gazprom employees and the intermediary firm. The third group of lawsuits concerns Transneft. The company is profitable, but again pays very small dividends. I started reading its report and discovered that over the previous two years it had spent $500 million on charity. That sum is comparable to the company’s annual income. The report did not say what exactly the money had been spent on. I sent them a request: break down your spending. How much went to orphanages, how much to churches? The company refused. The situation is very strange and suspicious. On paper, Transneft is the biggest charitable donor in Russia and one of the biggest in the world, yet no one has seen any trace of this charity. I spoke to all the major charitable foundations, for example the Russian Aid Fund and Pomogi.Org. None of them had ever seen any money from Transneft. A few months ago, I accidentally managed to find out where part of the money had gone. The company published a bond prospectus stating that 300 million rubles went to the Kremlin-9 foundation, created to support employees and veterans of the Federal Protective Service, while another 645 million rubles went to an obscure foundation called Sodeistvie (“Assistance”). I got the impression that money listed under “charity” was simply being embezzled by the company’s management, and that part of it was then being paid to law enforcement and security officials for protection. So I went to court to demand disclosure of the information. — What have the court cases resulted in? — In the cases against the oil companies, I went through every level of the courts and lost everywhere. Under the law, a shareholder, even one who owns just a single share, can obtain any information about the company’s operations and any documents, except management board minutes and accounting documents. And that makes sense, because accounting documents may contain trade secrets. That is the clause the managers latched onto. At the same time, it is perfectly obvious that this is a trick. The mere fact of cooperation with Gunvor, information on oil shipment volumes, the procedure for selecting traders, and especially information about charitable spending have nothing to do with accounting. The Transneft situation is downright absurd. In the courtroom, the judge himself asked the company’s representatives: “Is your charitable activity a commercial secret?” They said, “No.” He asked, “Then why won’t you tell your shareholders about it?” They replied: “We are not obliged to report to anyone.” In the Gazprom case, I succeeded in getting a criminal investigation opened against several managers, including Igor Dmitriev, deputy general director of Mezhregiongaz. I understand why the courts side with the companies. The chairman of Rosneft’s board of directors is Igor Sechin, and this man’s influence over the courts and the security services is enormous; judges are afraid to go against him. The situation is similar with managers at other companies—they are all influential people. I had no illusions that I would win these cases. But I wanted to draw attention to the problem, above all among shareholders themselves. Rosneft is a large public company that carried out a “people’s IPO” (a mass retail share offering aimed at ordinary citizens); it has 135,000 individual shareholders alone. All of these people are simply being robbed. — Are any other shareholders suing? — Dozens of shareholders read about my lawsuits against Rosneft on my blog and also began requesting information from the company. Many asked the managers questions at the shareholders’ meeting. There were proposals to file class actions, but I refused. Because of the peculiarities of our legislation, class actions differ little in their practical consequences from individual suits, while the costs of running such cases are much higher. In the end, it is more выгодно to go to court alone. But many shareholders are following my cases. I am sure that as soon as I find a way to pin the managers down, as soon as even one lawsuit is won, hundreds of minority shareholders will go to court with similar demands. — At the beginning of summer, companies hold their annual shareholder meetings. What are your impressions of this season? — My main conclusion is that the management of Russia’s largest companies treats them like giant collective farms and acts on the principle: “everything around me belongs to the collective farm, therefore it all belongs to me” (a Soviet-era saying mocking abuse of common property). To them, shareholders are suckers. The clearest example was Gazprom’s meeting: the largest company in the country, with shares held by hundreds of thousands of people, yet it holds its shareholder meeting in a hall with 250 seats. Half the people were simply not allowed into the hall and were told to watch the meeting by video feed. The meeting, whose agenda had nine items, lasted only two hours. There were no speeches, no answers to questions—nothing. The height of cynicism toward shareholders was the election of the board of directors. The chairman of the current board, First Deputy Prime Minister Viktor Zubkov, said: “So, next on the agenda is the election of the board of directors. There is no report on this matter, therefore there will be no speeches either. Thank you.” The board election took less than a minute. Minority shareholders naturally tried to object about the dividends. But there were two security guards for every shareholder at the meeting. At Rosneft’s meeting, there were more guards than shareholders. — But perhaps minority shareholders earned this kind of treatment: many of them, after all, seemed more interested in the sandwiches served during the break than in the meeting itself... — Many minority shareholders are pensioners. Naturally, such people have their small weaknesses. And many companies play on that: they lay out sandwiches, hand out gifts, so that people will not make trouble, will quietly have a bite to eat, and then go home. Rosneft, for example, gave shareholders calculators, while Gazprom organized a sale inside the company building. Yes, they come to the meeting carrying old shopping bags, and maybe they look funny, but they invested their savings in the company—they are shareholders. And they have no fewer rights to participate in running the company than Bogdanchikov, Sechin, or Miller. — Why don’t minority shareholders unite, like defrauded homebuyers, for example? — There are more minority shareholders than defrauded homebuyers. The difference is that each homebuyer was cheated out of a much larger sum of money. Often they have nowhere to live. As a result, they are backed into a corner and forced to behave much more aggressively. But minority shareholders are also beginning to unite. Two years ago there was nothing; now there are already structured initiative groups. I am sure that in another two years this movement could become a powerful political force. — “People’s IPOs” were conceived as a showcase for state capitalism. Why did it turn out the opposite way? — Managers of state companies had been siphoning money out of them for years. And they assumed that after the IPO nothing would change, that minority shareholders could still be ignored. It came as a terrible shock to them when these people suddenly started asking: where are our dividends? I think that now, looking back, all these companies regret having carried out “people’s IPOs.” For example, if Rosneft had disclosed information about its work with Gunvor, it would have gained points in every ranking, its market capitalization would have risen, and I would have stopped making a fuss. But to disclose the information would mean depriving someone of a lucrative feeding trough. As a result, they all abandoned their political flirtation with ordinary shareholders—they turned out to be too expensive a project. One sign of this is the disappearance of stories about ordinary shareholders from state television channels. VTB’s “people’s IPO” was personally promoted by Vladimir Putin, Alexei Kudrin, and the leadership of the Central Bank. Today the subject is no longer covered. And it is obvious why: 150,000 people were effectively conned. For every 100,000 rubles invested in the IPO, a VTB shareholder received 6 rubles in dividends this year. Meanwhile, the souvenir merchandise handed out at the meeting was worth 60 rubles—ten times more. — Have you managed to establish cooperation with the companies? — In most cases, no. The funniest part is that mid-level managers often support me. Recently, for example, one of Rosneft’s lawyers came up to me after a court hearing and said: “Well done—keep it up!” My criminal cases against Gazprom are based in part on information I receive from inside the company. These people are quietly giving their own bosses the finger behind their backs. The only company whose management has begun cooperating with me is Sberbank. On the one hand, Gref understood that blunt confrontation is pointless, that you cannot gag 100,000 shareholders. On the other hand, he understands that people steal in his bank and will continue to steal, and he is just as interested as we are in establishing proper oversight. As a result, a council for interaction with minority shareholders was created, and I was invited to join it. So far, all of the fairly tough statements I have brought to that council are being considered, and the managers promise to take them into account. There are also examples of real cooperation. At the council’s first meeting, I brought Standard & Poor’s transparency ranking, in which Sberbank was in 70th place, and proposed: let’s make the bank more transparent and move it up the ranking. Everyone agreed, met with S&P consultants, received their recommendations, and drew up a transparency-improvement plan that the bank is conscientiously implementing. Compared with other companies, this is a colossal breakthrough. That said, cooperation does not work on some issues. For example, a loan for the construction of the Skolkovo business school or the purchase of Opel seem to me politically motivated deals. I request information from the bank about them, and at that point I am politely refused. The same thing happens when I try to sort out certain loans to construction companies that, in my view, were issued in exchange for kickbacks. — Why don’t other companies engage? — It comes down to approach: there are managers who genuinely want to change something, and there are people who sit in company leadership in order to steal. — Perhaps you are unfairly blaming management, and the losses suffered by minority shareholders are really the crisis’s fault? — This was discussed extensively at the VTB shareholders’ meeting. The bank’s president, Andrei Kostin, said exactly that: it was all the crisis. But VTB shares fell by 75 percent, while comparable shares in Sberbank and Gazprombank fell less. And their dividends are higher. Of course the crisis is to blame too—it accounts for at least 35 percent of the drop—but the rest is bad management. — What is the result of your war with the companies? — What I am doing is attracting interest. Shareholders come to me and say: teach me how to write a lawsuit, a request. Every day now I receive three letters containing compromising material on company management. We are accumulating material, and I am sure the time will come when all these documents will be put into motion. A shareholder movement is emerging that could become a powerful lever of pressure on these companies—and on the authorities as a whole. It is hard to calculate the exact cost of my legal battles with the companies, but if you estimate how much my lawyers and I ourselves could have earned during this time, then of course the costs are greater than my original investment in the shares. Given that I invested half a million rubles, the total is substantial. But this is no longer a question of money; it is a question of whether to give up or not. I do not want to give up. If you like, this whole legal battle is a kind of small personal “March of the Dissenters” (an opposition protest movement in Russia). Some people take to the streets; I go to court.