Russia’s oligarchs must soon decide how to pass on their empires
Ask any Russian oligarch how he made his fortune, and you will almost certainly get a well-rehearsed, rags-to-riches story of a plucky self-made entrepreneur who took advantage of a lucky opportunity that came his way.
But ask him how he plans to give it away, and you are likely to get a blank stare.
Tycoons whose wealth depends on how successfully they snapped up plum industrial assets in the 1990s through controversial rigged auctions, murky bank loans or straightforward theft, and then how deftly they protected their gains through political manoeuvring and relations with the Kremlin, must soon contemplate how to pass on their empires.
The looming transition will be critical. A single generation of oligarchs in their late sixties or early seventies control vast swaths of Russia’s $1.7tn economy. All grew up in a country that saw private property banned for 70 years under Soviet rule and where regulations safeguarding corporate ownership since 1991 have flexed to suit those in power.
Just as many are keenly watching the Kremlin for clues as to what President Vladimir Putin may do as the end of his fourth term approaches in 2024, the future of many of Russia’s largest business groups — and thus control of the country’s most important economic assets — is also up for question.
“Life is not forever. Life is a gift. You must squeeze sweetness from this gift from God. Some businessmen, like Warren Buffett, find sweetness in working every day. I think we have a much more interesting time in our life doing things other than making money,” Alisher Usmanov, who controls the USM industrial group, told the Financial Times last week.
He said he had already drawn up plans as to how his $16.5bn empire would be divided, including lists of names as to who would be offered shares.
“Many people have helped me. So I want to help my management and my relatives by giving them my shares,” he said. “Fifty per cent to family, 50 per cent to management, who deserve this, in my view.” The shares would be sold “at a friends and family price”, he added.
Mr Usmanov’s public admittance of a plan to step down from his businesses is rare among Russian tycoons who have sought to make themselves indispensable to their companies, or have built a reporting system where even the smallest decisions must be signed off by them. In one case, this included signing off on cleaners’ overtime in the company headquarters.
Aside from some form of advisory board or nominal group of directors, typically created on the advice of a London-based public relations company and stuffed with friends or retired western politicians, many lack any form of solid corporate governance structure that could take over in the event of an unforeseen change of ownership.
But they will soon need to explain to others just how to run conglomerates that have been, by and large, built and controlled by one man for more than two decades, sprawling across industries and sectors as a testament to their fluctuating whims.
Some have made tentative steps. Vladimir Yevtushenkov, 71, in 2018 gave 5 per cent of his Sistema holding company to his son.
Others have little idea who will run their empires when they are gone. Vagit Alekperov, the 69-year-old who controls Lukoil, Russia’s second-largest oil producer, has admitted he expects to run the company into his seventies and cannot imagine his son taking over in the future.
Russia has much to gain from a situation where control of many of the country’s largest business groups is passed from one man to a group of shareholders.
Diversified shareholdings should mean more transparent operations and stronger corporate governance. Passing on shares to trusted lieutenants would also signal confidence in safeguards protecting private property, the lack of which has damaged Russia’s standing among foreign investors over the past two decades.
Russia’s crony capitalism, where political influence reigns and the Kremlin-controlled security services and bureaucrats wield more power than the market economy, relies heavily on a tiny group of men controlling the country’s biggest businesses.
The starkest illustration of this can be seen every December when Mr Putin summons about 50 businessmen to the Kremlin for an annual get-together. The men who control all the biggest businesses in Russia fit around one meeting table.
Many of them have been reluctant to share their wealth, but soon will be forced to.
If every oligarch left their shares to a few dozen people, Mr Putin would be likely to find he does not have a room big enough to host them all. When it comes to reforming Russia’s economy, that would be a welcome sign.