Vladimir Yakunin - The Treacherous Path - An Insider's Account of Modern Russia

Our group operated on communal principles, and we essentially lived and worked in each other’s pockets – it was more like an Israeli kibbutz than anything. I even included my pension from the secret service as part of the collective’s income, something that did not endear me to my wife. But it was important to me, and important for the ethos of our group; we did not feel it was right for one person to be richer than anyone else, so we all received exactly the same proportion of the profits. (In a sense, it could be seen as a continuation of the ways of structuring activity that had emerged in the first enterprises that had been allowed to function in the Soviet Union in the ’80s. They were all cooperatives, often with strong ties to organisations like the Komsomol.)

We had lived for years under a planned economy; now we were having to learn how to survive in an improvised one. Nothing about the Marxist economics we had studied so closely equipped us to navigate the challenges that came with running a capitalist enterprise, especially in a country that was falling apart around us. But one of the virtues of operating in such an unstructured, fluid business environment was that you did not feel as if you were in a straitjacket. There were more opportunities, more openings, and if something felt interesting, you could throw yourself into it.

For instance, as well as the more technical projects we pursued under the Temp banner, I was invited, independently, by a foreign investor to help structure the privatisations of two hotels in St Petersburg: Hotel Europa, where I was made a member of the board, and the Hotel Astoria. My colleagues at Temp were initially highly sceptical about this – they saw it as a waste of my time – until they realised how much money it meant I could bring back to invest into our group’s activities.

These hotels, which had previously been owned by local government, were among the very first privatisations, so we quickly discovered where the holes in both the nascent legislation and also our own knowledge were. I was there to straighten out their reporting processes, the way in which their budget was created and then approved, and to ensure accountability – though a number of foreign investors had been encouraged to put money in, initially they found themselves completely frozen out of all of the decision-making processes by the director. Effectively, I had been charged with trying to find a way of protecting the interests of both the city and the foreign investors at a time when everyone was trying to accustom themselves to this very new environment. It was very difficult to articulate relations between, say, the municipal authorities, who wanted to keep a portion of shares, and private investors, who did not want any state entities as a shareholder; and also between Russians, who had little experience of investment, and foreigners such as Sir Rocco Forte, who had wanted to put money into the Hotel Astoria. You could see it as a microcosm of debates that were being pursued right across Russia, by people who barely had any experience of capitalism.

Should we allow people from abroad to own parts of Russian businesses? What proportion of a company’s shares was enough? What percentage was too much? What ideas and practices from our lives under communism still had some kind of value in this new world? What ideas and practices would we have to jettison? Do we look to import models of privatisation from abroad wholesale? Or do we try and develop a mode of operating more directly tailored to our own specific circumstances? What was an appropriate vocabulary to use when negotiating with other parties?

Success, or otherwise, we soon found, depended on your access to information and, just as importantly, your ability to exploit it. Many people thrived by a strange kind of alchemy: they were able to turn other people’s ignorance into gold. For instance, before 1991 there were so few people engaged in entrepreneurial activity that it was easy for local authorities to cope with the administration they generated, but with the fall of communism, a special municipal department had to be created so that they could achieve some measure of control over the registration of the many new businesses that were being established. Despite their best efforts, the whole process could be chaotic and confusing. There was no comprehensive register of firms, and to begin with there were not even any computers; all the paperwork was generated on typewriters. While the documentation was, on the face of it, fairly primitive, you needed to know how to navigate your way around the forms’ slightly antiquated structures if you wanted to secure the necessary authorisation. This is where a host of clever companies stepped in: they realised that there were so many people still unfamiliar with even these basic administrative procedures that there was money to be made for those able to prepare the documents in the correct way on your behalf.

If in those days we did not know what a business plan was, at the same time we had a certain amount of common sense, and we discovered that some of the skills we had acquired in the Soviet Union still had a value in the new world. For instance, both Fursenko and Kovalchuk were veterans of the Buran shuttle programme, probably the last significant hi-tech project realised in the USSR before its demise. This experience of structuring and managing complex multi-disciplinary ventures would prove invaluable. And I still remember the first money I earned for our group: US$250,000. Payment for a consultancy report a client had asked me to prepare. I had never written one of these before, but my time in the security services had given me an impeccable grounding in how to write reports. While what I sent to the client may not have looked like the kind of document he was used to receiving from consultants, he was surprised by how rigorous, well sourced and clear the information I provided him was.

We did not conduct market research, and there was not the same army of consultants and business experts out there on hand to give business advice (and, of course, charge you for the privilege). But, again, we applied the principles and knowledge we’d acquired as part of our life experience. This is one of the reasons why so many former KGB officers would go on to thrive in these unfamiliar conditions. We were accustomed, for instance, to evaluating evidence, to problem-solving, to matching answers to questions. Just as significantly, as field officers we had all had a long association with risk, long enough that it had become something akin to a natural condition for many of us. We knew what it felt like to exist in a climate of instability; we had all spent months working on an operation only to see it disrupted at the last minute by a completely unexpected turn of events. We knew what it meant to be at the mercy of chance, so we were prepared to respond to it in a positive, pragmatic fashion. When you added this to the wide range of connections, both among former colleagues and the scientific community, that we had formed during our careers, then you can see how well set we were.

Our success with water filters in St Petersburg was a case in point. We had been alerted to the fact that water in the city was barely potable (the water-cleaning stations had been closed; another unfortunate result of the collapse of the country’s infrastructure), and we were aware of a particular mineral that could purify the water very effectively. While you could already buy water filters in any of the small department stores across the city, our connection to the research institutes gave us a technological advantage – nobody else had any knowledge about this mineral, whereas we knew where to obtain it and how to use it. Most importantly, we were confident that it could be done cheaply and that it would bring us a healthy profit. We had strong connections with the scientists working in research institutes, as well as an intellectual background that meant we were able to recognise the value and significance of their discoveries. We were accustomed to thinking nimbly, to responding to local conditions, to identifying opportunities and then making the most of them. It was not market research in the sense that an MBA student might understand it, but intuitively we reached the same conclusions as might a company who had commissioned acres of research.