Article: "Ten Questions for Alexei Navalny"

1. You are probably the best-known investor activist in Russia today. Did this happen by chance—that is, naturally—or did you consciously choose this path for yourself? Naturally, but not by chance. My second degree—my first was in law—was from the Financial Academy, where I specialized in securities and stock exchange operations. There was even a brief period in my life when I traded stocks professionally. So I have always kept a close eye on what was happening inside companies. What always amused me was how much attention Russian investors paid to technical analysis or classical fundamental analysis of the stock market, when in our market the decisive factors are, first and foremost, completely subjective things. Here there’s a document seizure, there an arrest. Elsewhere, “their own” top manager gets installed and starts openly working in the interests of a small group of shareholders at everyone else’s expense. Any support or resistance level on a stock chart is meaningless compared with a crook in government who has been allowed to make decisions. A couple of years ago, I decided to invest my own money in stocks, and very quickly I felt that media reports about corruption in companies no longer caused mere irritation—they provoked a deeply personal kind of rage. They’re stealing from me! So I decided to defend my money. 2. Which companies are you currently targeting as an activist? First and foremost, commodity companies. Gazprom is the leader in outright corrupt lawlessness. In oil: Rosneft, Gazprom Neft, Surgutneftegaz—those that sell significant volumes of their output through the trader Gunvor. In banking: VTB, which is the banking equivalent of Gazprom, and Sberbank. I would very much like to take on the power sector too—there is a sea of violations and theft there—but I simply don’t have the time. Some power companies I am already “working on” through Gazprom, which owns them—OGK-6 and Mosenergo. And of course Transneft. That lot is rotten to the core. 3. Can you list your successes in this field? What exactly do you consider a success—what concrete achievements? I consider it a success that you are asking these questions. I have managed to put the problem on the agenda. I am trying to make people see it not in the abstract—“oh, so much stealing”—but through the examples of specific people who invested their modest savings and were robbed. The corruption cases I investigate are of interest not only to company analysts but to the broader public as well. I’m especially pleased when I manage to bring other people into these investigations: hundreds of people mobilized through my blog filed complaints with the Ministry of Internal Affairs about attempts to derail the case involving theft at Gazprom. I am very grateful to those people, and the fact that they trust me is my main success. And of course, the processes now underway in some companies—for example, at Sberbank—to establish a proper, systematic approach to working with minority shareholders and to improve disclosure, would have been impossible without the work being done by me and people like me. 4. How much more could the shares of Russia’s leading companies be worth if their management were not stealing? It’s not just about theft. Take Surgutneftegaz, for example. The country’s fourth-largest oil company belongs to who-knows-who, does not publish international financial statements, and so on. I am sure that if Surgut disclosed its ultimate beneficial owners and produced proper reporting, its shares would rise by 20 percent tomorrow. Gazprom still has not even completed a proper stock exchange listing. It trades as an unlisted security. The largest company in the country. Is that normal? If Gazprom carried out basic disclosure procedures, clearly explained the situation with assets being siphoned out of the company through Gazprombank, and finally stopped pouring colossal sums into non-core businesses—from skyscraper construction to a media holding—then of course its market capitalization would rise significantly. Overall, I believe that opacity, and the theft that follows from it, reduces the value of Russian companies by 30 to 40 percent. 5. How does investor activism in Russia differ from its Western counterpart? Does this kind of activity have a future in Russia? If we are talking about large corporations, it is impossible here to obtain judicial protection. Gazprom, Rosneft, VTB, and the rest do not even buy judges—they appoint them. Judges are just low-level service staff for a semi-state corporate mafia. That does not mean court work is pointless—lawsuits create plenty of headaches for companies in any case, even if they boast that they can “make any issue go away.” The same applies to the law enforcement system. I file a request to open a criminal case, say, against Transneft, and after six months of work by the siloviki (security and law enforcement agencies), it turns out the company not only failed to respond to the investigator’s request—they did not even let him through the door when he came to their office. Police officers tell me directly: “If I send them a request for documents, I won’t be working here tomorrow.” When I tell these stories to my Western colleagues, they can hardly imagine such a thing. Of course, the overall number of retail investors in the country also matters a great deal. We have very few of them—less than one percent. Even fewer are people who bought shares consciously, rather than receiving them through vouchers or as members of a company workforce during privatization. But the prospects definitely exist. The process of investor activism, as you call it, was greatly accelerated by the “people’s IPOs.” Hundreds of thousands of people took part in them. Almost every month, new grassroots initiative groups of minority investors in one company or another spring up spontaneously. New activists are emerging—I can see it simply from the fact that the number of people contacting me to ask for advice has multiplied several times over in the past six months. Accordingly, companies are becoming concerned that they are no longer facing isolated individuals, but organized groups. The pressure is building, and I am sure there will be results. 6. In your view, is there any physical or legal danger to you—or to future activists inspired by you—from these companies? Have you ever received threats, “friendly warnings,” hints, and so on? You have to understand that every complaint involves very real millions of dollars, and no one gives that up without a fight. So I won’t pretend otherwise: I understand that there is a certain danger. Physical danger, yes, and the possibility of some kind of provocation—you can think of all sorts of things; the arsenal is broad. Anything from drugs slipped into your pocket to the fabrication of a serious criminal case. You know, people now bring me some kind of compromising material on companies almost every day, and sometimes it is quite hard to tell right away whether it is a real problem or an attempt to draw me into some dubious game. The main means of protection here is maximum publicity. I try to act openly, minimize any informal contacts with company representatives, cross-check information through different sources, and so on. So far I have not received direct threats. There have been attempts, through mutual acquaintances, to express “bewilderment and misunderstanding” to me, but it has gone no further than that. 7–8. Alexei, people discussing your activism usually ask two not entirely fair questions, but the answers are still important and interesting. So I’ll ask them too: Why do you need all this in the first place? And who pays you for this work—who do you work for, are there any grants, and so on? If investor activism is not a way of making money for you, but something more like a very important hobby, then what do you do during your “working hours”? There are no secrets here. I act quite rationally. I am a lawyer, and I have my own legal business. It is small, but it allows me to wage my corporate battles with minimal overhead. Yes, they do not bring me direct profit, but—to be frank—they expand my client base. Let’s put it this way: I know corporate law quite well, and I receive many paid requests to protect shareholder rights. That brings in enough income for me to support myself and my family and to spend everything left over on what I believe is right and socially useful. As for “who do you work for?” At Gazprom they think I work for Sechin. At Rosneft, they think I work for Sechin’s enemies. At VTB, they think I was sent by Kostin’s enemies in the Finance Ministry. At Transneft, they think foreigners are behind me. At Sberbank, they think it is all the machinations of an alien intelligence. People with a conspiratorial mindset will always come up with a good theory. But no one wants to understand the obvious: I act in my own interests and in the interests of an undefined circle of minority shareholders in the country’s largest companies. That is genuinely the case. All of this work is financed by me personally. 9. Do you follow the stock market? If so, how do you think it will perform in the coming months? Do you expect a “second wave” of the crisis, and if so, what form will it take? It seems to me that the “second wave” may be linked to a crisis of budget obligations. I am watching how the program of state guarantees and direct cash injections is being implemented. I see that the money is simply being consumed by businesses that were bad before and remain bad now. The funds are not going to those who can repay them, but to those who cannot pay wages. Well, in three months they still won’t be able to pay wages. On top of that, there are serious cuts to budget programs, and for a significant number of regions, budget money is the only investment and the only source of orders. For eight years, enterprises and entire industries were built on nothing but that little stream. By mid-autumn it will not have dried up completely, of course, but it will become much shallower. Not everyone will be ready for that. 10. Do you intend to continue your political career? Is suing the largest corporation in the Russian Federation over theft within it politics? More than a third of everything produced in Russia_Risen_From_Its_Knees (an ironic reference to a patriotic slogan about Russia’s revival) is sold through the dubious offshore outfit Gunvor. I disagree with that, and I am fighting against it. Is that politics? Hell if I know—I no longer understand myself where investor activism ends, where civic activity begins, and where politics starts. I’ll just keep doing what I’m doing. You can decide for yourselves what to call it.