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Case of Banned Investor Is Seen As a Test of Russia's Progress
By the end of 1993, he had convinced Salomon Brothers to invest $25 million of its own capital in Russia. By the middle of 1994, the investment was worth $125 million.
In 1996, Browder founded Hermitage Capital Management in partnership with Edmond Safra, a wealthy banker. Money invested then with Hermitage would have risen more than 24-fold by the end of last year, twice the rate of Russia's sizzling stock market.
  William F. Browder has not been allowed in Russia since November. Three U.S. senators have urged President Bush to take up the issue at the G-8 summit. (By Virginia Mayo -- Associated Press) |
Along the way, Browder has drawn attention to the lack of transparency and accountability in Russian companies. About five years ago, after buying a stake in OAO Gazprom, he publicized what he called "massive fraud" at the natural gas company. "People were stealing a company the size of BP out of Gazprom," he said. About eight months later, Gazprom's chief executive was fired. The new chief executive stopped the fraud and recovered most of what had been stolen, Browder says.
After investing in the state electricity firm, Browder shed light on a plan by company managers to sell much of the assets at non-transparent auctions to their friends at very low prices. He organized a shareholder meeting to change the company charter and stop the sale, but he could garner support from only 15 percent of the shareholders. But, he recounts, he got a call from the Kremlin because the Russian government held 51 percent of the shares. For eight weeks, Putin's chief of staff met every Wednesday night with one of Browder's partners and rewrote the company's charter.
"We've been very grateful for that kind of involvement from the government," Browder said. "It's not like they were looking after our interests, but our interests coincided with theirs."
It's not the kind of language his grandfather would have used. "Today it is the duty of all of us to help labor haul down the black flag of Wall Street piracy, which flies over our basic industries," his grandfather said while campaigning for president in 1936. Earl Browder died when William was only 9, and the younger Browder says his orientation is clearly different. "I'm a capitalist; he was a communist. But both of us were fighting against the injustices in our face. In his case, it was about injustice to workers, and in my case, it's about injustice to shareholders."
Although his case has become another question mark about rights and the rule of law in Russia, Browder hasn't endeared himself to the people who lament the decline in freedoms under Putin. Browder shows little sympathy for the jailed Mikhail Khodorkovsky, the former chairman of oil giant OAO Yukos and an outspoken critic of Putin. Browder says that since Khodorkovsky's arrest on tax-evasion charges, tax compliance among companies has increased sharply.
On Gazprom's controversial decision to cut gas supplies to Ukraine on Jan. 1, Browder explains it as a matter of a price dispute. "Should I, as a shareholder of Gazprom, be subsidizing Ukraine?" he said. Although the cutoff prompted European anxiety about Russia using gas supplies for political ends, Browder said that "it wasn't political because it turns out they were also squeezing the Belarusans, who are their friends."
"The problem with oil and gas is that it's all located in bad places," he continues. "In a world of bad places, Russia falls in a better place than a lot of the Middle Eastern or African countries."
Many people wonder whether Browder's huge stake in Russian companies explains his continued reluctance to criticize Putin and the state of Russia today.
"I don't think he's an angel. He looks after his own interests," Zingales said. "But Adam Smith was right: It's not because of the benevolence of the baker that you get fresh bread in the morning. In other words, it's the market that makes incentives work for the social welfare. In promoting his own interests, Browder promotes better corporate governance in Russia and better governance in general."
