Being Roman Abramovich

Few business environments occupy a more negative place in the popular imagination than Russia.

by Dominic Midgley

Mention Moscow and people immediately conjure up a world of kickbacks, mafia hits and armed raids by masked police. It comes as a surprise, then, to discover that the management style of the most prominent oligarch to emerge from the notoriously lucrative Russian privatisations of the '90s is in contrast to some of the brutal ways of his compatriots. Leaving aside the shadowy origins of his fortune and a ruthless approach to cost-cutting and share dilution, Roman Abramovich runs his empire with a level of emotional intelligence to impress even Daniel Goldman.

His former partner, the now exiled Boris Berezovsky, told me that of all the businessmen he had met, Abramovich was the best at
'person-to-person relations'. And Chrystia Freeland, deputy editor of the Financial Times, who served as head of the FT's Moscow bureau from 1995 to 1998, says: 'What people say about Abramovich is that one of his real qualities is that he is a nice guy.'

He has won loyalty, too. Marina Goncharova, the office manager at Sibneft, the Moscow-based oil company that forms the cornerstone of his £7.5 billion fortune, is a woman who once shivered with him on the Moscow market stall from which he sold plastic dolls as a young entrepreneur in the '80s. After buying Chelsea Football Club in July 2003, among the four guests he took to watch his team play Newcastle United away last season was the daughter of former President Boris Yeltsin and his cook.

This behaviour marks him out from many of his less sensitive peers. Russia's richest man, Mikhail Khodorkovsky, is known for reducing grown men to tears, and when he took over one company his chosen solution to maximise productivity was to instal video cameras in the offices of executives. This combative, micro-managing approach later proved his undoing, however. When he clashed with President Vladimir Putin, he was arrested on tax fraud charges in October 2003 and remains in jail to this day. It is inconceivable that Abramovich would betray such hubris.

To explain where Abramovich's management sense came from, it is instructive to look at his upbringing and his formative experiences as a young man. Born into a Jewish family in the bleak north Russian town of Syktyvkar, he had lost both parents by the time he was two and a half. On the face of it, this was a setback of monumental proportions. Not only was Abramovich an orphan, but he was Jewish in a country where anti-Semitism was virtually written into the constitution.

Instead of being left to languish in a grim state orphanage, however, he was taken in by his father's brother Leib and his family. First, Leib, and then his brother Abram, lavished care and affection on the young Roman and can probably be credited with giving him the emotional security to prosper. There are signs too that he experienced less of the Jew-baiting so common in Russian schools as he was brought up in Ukhta, a town built by dissidents who had been banished to the interior and so were, to some degree, unified in their victimhood.

Interviews with his schoolteachers reveal Abramovich as a diligent and lovable child rather than the school dux. And although he was later to drop out of college, he spent two years with an institution that will have developed his people skills in a more urgent way than any other: the Red Army.

National service is a harsh rite of passage for Russian youth, as harassment of conscripts by more experienced men is so rife that there is even a specific word for it, dedovschina. The villains of the piece are the dedy – literally, 'grandads' – and their victims the salagy – best translated as 'small fry'. The dedy make sure that the daily grind of guard duties and latrine-cleaning is supplemented by a regime of beatings and extortion.

Quite how traumatic national service can be is illustrated by Dmitri Sakovich, a childhood neighbour. 'After being demobilised, I had nightmares for three or four years about being called up again,' he says. 'The recurring dream was set in the call-up centre. I have been told to report for duty and I'm trying to explain that this is the second time I've been conscripted, but they say I must do it again because they are short of men. In an even worse nightmare, I have been called up for the third time... Then I wake up with relief.'
It seems reasonable to view Abramovich's stint in the army as a key phase in the formation of his character. Apart from strengthening him by forcing him to confront and survive so many hardships, the experience will have refined him socially and made him more self-reliant and independent. Not a bad schooling for a nascent entrepreneur, many of whom are outsiders.

But unlike the abused child who goes on to abuse others in later life, Abramovich went the other way. Indeed, his hand on the management tiller can appear so light as to be almost imperceptible, yet those who have seen him in action all agree his approach is highly effective.

Nowhere is this spectral influence more apparent than at Chelsea. Young men who would once have thought nothing of going out to a nightclub for a bit of a session are now more cautious. As one player puts it: 'I don't want to get the sack. We're all well aware that Roman doesn't drink or mess about, and he wouldn't be happy if he knew we were. And he'd know. He's got a super intelligence system for back-up.'

Abramovich is no more direct – but equally effective – when meeting his players face-to-face. Soon after taking over the club, he'd go into the dressing room after each match to greet his players. 'He doesn't say much,' Eidur Gudjohnsen has said. 'He just walks round and shakes hands with people. He has never tried to interfere with team talks or tried to tell Claudio Ranieri [Jose Mourinho's predecessor as manager] what to do. That's not his job or why he's in there. He just wants to show us that he's interested in the team, wants us to succeed.'

Another insider observes: 'He appears to let the manager run the club; but without actually saying much, at the end of the game he is able to let people know what his feelings are.'
This management style could hardly be in starker contrast to that of his pugnacious predecessor, Ken Bates. Bates did not hesitate to speak his mind and was happy to accept the consequences. As former Chelsea player David Speedie once put it: 'He always has to be one up on you. If I told him I'd been to Tenerife, he'd say he'd been to Elevenerife.'

Abramovich's choice as chairman of Chelsea was Bruce Buck, an urbane, London-based American lawyer who has been a Chelsea
season-ticket holder for more than 20 years. But the executive whose style is the foil to Abramovich's softly-softly approach is the club's ruthless CEO Peter Kenyon. He is the man who announced his arrival at Stamford Bridge by saying Abramovich was entitled to expect a trophy or two in return for his multi-million investment in players, at a time when Ranieri was stressing the difficulties of knitting together a new-look squad. Shortly after that, Kenyon proceeded to go on a very public shopping trip in search of a new manager.

If national service honed Abramovich's people skills, a background in trading helped him develop as a strategist. Demobbed in 1986, he entered a society very different to the one he'd left two years earlier. The radical reformer Mikhail Gorbachev had taken over at the Kremlin and his two boldest initiatives –
glasnost ('openness') and perestroika ('restructuring') – were in the process of transforming society and the economy. With private enterprise declared legal after nearly 70 years of communism, small businesses were sprouting up everywhere. After trading in a range of products from plastic dolls to retread tyres, Abramovich hit on the commodity that was to set him on the road to wealth: oil.

With the pace of economic reform under first Gorbachev and then Yeltsin, the legislators failed to keep pace with the changing times, and opportunities for the switched-on entrepreneur were many and varied. Under the Soviet system, locally drilled oil had been sold at a multiple discount to the world price, and it was through the sale of home-produced oil on the global market that the Soviet regime had made its petrodollars. With the fall of communism, windfall profits of this type became available to private operators, and Abramovich was quick to grasp that an export licence was effectively a licence to print money.

He was soon a wealthy man by Russian standards, but a chance meeting in the summer of 1995 on the yacht of his friend Pyotr Aven – who had helped engineer Russia's transition from communism to capitalism and then gone on to make it rich in the private sector – proved pivotal in his rise from millionaire to billionaire. He bumped into Boris Berezovsky.

One of Russia's most successful tycoons, Berezovsky had made most of his money from selling cars, but – importantly for Abramovich – he had the ear of President Yeltsin. The encounter was the start of one of the most successful partnerships in Russian business.

Today, Berezovsky is loath to dwell on the talents of a man who he considers later cajoled him into selling his stake in their joint venture at a bargain price. But the influential Russian broadcaster Alexei Venediktov, who knows both men well, is more open. 'I once asked Berezovsky what talents Abramovich had and he said he was a good psychologist,' he recalls, 'and I agree with that, judging by how hard he has tried to recruit me to his cause. He is very good at understanding his interlocutor. I have watched him communicate with a range of different journalists and he has his own approach to each person. He approaches politicians and businessmen in the same manner. He acts as an honest bloke, talks about his weaknesses. He begins by saying: "Of course, you won't believe me", which is very winning.'

Nor did Abramovich let his ego get in the way of nurturing the rich and powerful. One Kremlin insider, who got to know Abramovich when Berezovsky had secured a position in government, recalls his patience. 'Berezovsky was very rude,' she says. 'He would keep people waiting outside his office for hours, sometimes forgetting their appointments altogether. But Roman would sit outside in the corridor and never utter a word of complaint.'

So Abramovich had the humility to cope with being a junior partner and the emotional intelligence to make him a good manager of people, and his expertise in the oil sector persuaded Berezovsky to cut him in on one of the most attractive lots offered under Yeltsin's fire sale of Russia's greatest national assets.
In 1995, with a presidential election looming, the country was in crisis. Share prices had plunged, inflation was running out of control and central government was short of cash to pay pensions and teachers. Yeltsin needed to restore confidence in his administration and build up a war chest with which to fight for re-election, or he was doomed.

His solution was to privatise the country's mineral and industrial crown jewels in a process that has gone down in history as the loans-for-shares scheme. A charmed circle of wealthy individuals lent the government cash in return for the right to manage various state enterprises. As the government could never  hope to repay the loans, this pawning of state assets amounted to cut-price privatisation.

Abramovich and Berezovsky's target was Siberian Oil, or Sibneft, a company formed by the merger of Russia's most modern refinery in Omsk and a production operation in western Siberia. In a two-stage process, they duly acquired an enterprise now valued at more than $15 billion for just $200 million.

Sibneft was then a massive industrial combine employing 50,000 workers. In addition to its oil-drilling company and refinery, it had a sprawling array of subsidiary activities that
revolved around its extraction arm, Noyabrskneftegaz. Abramovich and his partner inherited, among other things, five collective farms employing 1,500 people, a brick factory, a clothing manufacturer and a publishing house. There were also 200,000 square metres of apartment space, 100km of roads, sports facilities, childcare facilities and a hotel.

Over time, the supplementary activities were sold off, and the partners moved to strengthen their grip on Sibneft's subsidiaries and improve the company's profitability. Here, Abramovich displayed all the attributes of a rapacious oligarch. On the basis that oil workers had been cosseted under communism, their wages were cut and energetic efforts were made to persuade workers to sell shares they had been granted under an earlier state-administered share-voucher scheme. Minority investors in Noyabrskneftegaz also suffered when its shares were diluted after a controversial shareholder meeting in the summer of 1997.

But at Sibneft's Moscow HQ – a 19th-century merchant's house with a view of the Kremlin across the Moscow river – Abramovich adopted a more enlightened approach. He runs the firm from a large corner office on the top floor. Put together by a British firm of interior designers in a mock-Jacobean style, it has wood-panelled walls and a fireplace.

Abramovich rarely sits behind his desk, preferring to conduct meetings lounging on a sofa, and his ready smile, designer stubble and fondness for jeans and an open-necked shirt make him look anything but the ruthless plutocrat of folklore. Gregory Barker, the Englishman who handled Abramovich's investor relations in the late '90s and who is now a Conservative MP, has vivid memories of his first encounter with him. 'I remember saying to a secretary: "Who's that scruffy bloke on the photocopier?" and she said: "That's Roman, it's his company".'

Even his CEO, Eugene Shvidler, the bad cop in their managerial double act, knows how to put his staff at their ease. People congregate in his office not just to discuss business strategy, but their new cars and where to go on holiday. Indeed, Abramovich and his most senior lieutenants not only work together but play together, and when they return from a joint holiday in, say, the south of France, the people back in the office discover that the corporate game plan has moved on that much further.

The only evidence of social stratification at Sibneft – apart from the size of the pay packets – comes at lunchtime when different ranks eat in either the canteen or the management dining room. Abramovich has a private dining room, but if he has no guests lined up he'll invite colleagues to join him. In the same way, he is quite happy for staff to make use of his gym.

All this touchy-feelyness should not be mistaken for a lack of steel, however, for Abramo- vich is a player in the arena where nature is at its most red in tooth and claw: the Kremlin. As Khodorkovsky found to his cost, no amount of business acumen will enable you to build a fortune in modern Russia unless you have a flair for squaring the president. One Western businessman goes so far as to say: 'To understand Abramovich, you have to realise that he is not a businessman but a politician but with a small p.'

It is true that Abramovich's links to Putin run longer and deeper than anyone had suspected. In the course of researching our biography of him, Chris Hutchins and I discovered that he had interviewed all the candidates for Putin's first cabinet as prime minister in August 1999. Abramovich also emerged as the paymaster and organisational genius behind the creation of the Unity Party, the organisation set up to act as cheerleader for Putin during the presidential election campaign of 2000.

Not that Abramovich has much time for the common touch. His right-hand man once told me: 'He doesn't shake hands, he doesn't kiss
babies and he doesn't look people in the eye.'

This rather awkward demeanour led one Westerner who met Abramovich to compare him with Richard Branson. Unlike Branson, however, Abramovich appears to have zero desire to promote himself as the manager as hero. Indeed, before he bought Chelsea, he had built up such a reputation as a man who liked to keep in the background that when the deal was announced, one former associate pronounced himself 'gobsmacked'. But underestimate him at your peril.

SPECIAL OFFER MT readers can order a copy of Abramovich: The Billionaire from Nowhere by Dominic Midgley and Chris Hutchins at the special price of £15.99, a saving of £3 off the RRP. Simply call the HarperCollins Credit Card Hotline on 0870 787 1724 and quote Dept. 841Z. P&p is free on all UK orders. Please allow 21 days for delivery. Offer expires 31 December 2004.

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