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View from Europe: From Russia, No Love

The Cold War might be over, but a chill wind threatens to blow through business between Russia and the West.
Janet Kersnar, CFO Magazine
December 1, 2007

There were several ways to interpret recent remarks by Russian President Vladimir Putin, who used a speech to his country's parliament to take a swipe at the growing number of domestic companies hiring foreign executives to fill their management ranks. It could have simply been an effort to stir up nationalism before Presidential elections in March, or a sign that the increasingly frosty political climate between Russia and the West is beginning to spill over into business. Or perhaps it was both.

Whatever the interpretation, European executives are growing increasingly wary of Putin's influence on corporate affairs. The blurring of lines between politics and business was made clear earlier this year when two major Europe-based oil groups — Royal Dutch Shell and BP — ceded control of assets in Russia under state pressure, which consigned those companies to a much smaller supporting role in the country's natural-resources industries.

Yet widespread divestment isn't in the cards, because the EU and Russia need each other. The EU is Russia's main trading partner (as the largest consumer of its energy products), while Russia is the EU's third most important partner, after the United States and China.

Putin's saber rattling, meanwhile, comes at a time when many Russian companies are edging closer to the West. Of the 21 initial public offerings of Russian companies last year, only 7 were launched in Moscow, compared with 5 that were dual Moscow-London listings, 3 solely in London, and 1 in New York. For Russia's more ambitious companies, a listing abroad on the world's biggest exchanges conveys at least the appearance of modern, Western governance.

One Russian company that has worked harder than most at Westernizing itself is aluminum maker United Co. Rusal. With great fanfare, it has been implementing a new governance structure — partly to meet loan requirements set by the European Investment Bank and partly to make itself more appealing to Western investors before an eventual IPO in London. A key element of the program includes the appointment of former Standard Chartered Bank CFO Nigel Kenny and former U.S. Ambassador to the UK Philip Lader as nonexecutive directors.

At this point, Western expatriates aren't packing their bags and leaving Russia en masse. But as one expat executive told The Moscow Times, a local newspaper published in English, on the day of Putin's speech: "[His remarks were] a suggestion to industry, but a suggestion by Putin carries enough weight on its own."

Janet Kersnar is editor-in-chief of CFO Europe.




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