The Two-Headed Eagle - Mikhail Khodorkovsky and Yukos

In October 2003 Mikhail Khodorkovsky, Russia’s richest man and the CEO of Russia's second-largest oil producer Yukos was arrested and thrown into jail on charges of fraud and tax evasion. Several days later he resigned as CEO. This case study tells the story of the rise and (erstwhile) fall of a young man whom some would call a brilliant entrepreneur and others a scoundrel. Yet another of Kets de Vries' award-winning cases, it includes an interview with Khodorkovsky when he was still CEO, offering a rare opportunity to examine his leadership philosophy.

by Manfred Kets de Vries, Elizabeth Florent-Treacy, Joao Pinto, Konstantin Korotov and Stanislav Shekshnia
Last Updated: 23 Jul 2013

In July 2003, Mikhail Khodorkovsky, multi-billionaire controlling owner and CEO of Yukos, was invited to the Mount Olympus of global business — he was the first Russian to participate in the annual Sun Valley summit with Bill Gates, Warren Buffet, Jeff Bezos and their peers. Khodorkovsky had already been immortalized in Fortune magazine, which ranked Yukos, Russia’s second largest oil producer, as number one among the 500 largest corporations in the world in the “return on investment” category and number two in “return on sales”.

Three months later, the jealous Fates awoke, and Khodorkovsky was arrested at gunpoint in Siberia as he stepped out of his private jet onto the tarmac. He was immediately imprisoned on charges of fraud and tax-evasion. He had fallen from the very top, as a Russian poster boy for Western investors, to the very bottom, becoming what some commentators consider to be a pawn in Russia’s political gamesmanship. Khodorkovsky’s Western friends rallied to his defense—even President Bush contacted President Putin to express grave concern—but Khodorkovsky remained in jail, and within days announced his resignation from Yukos.

The drama surrounding Khodorkovsky’s arrest shows that the power of Russia’s entrepreneurial business leaders can hardly be overestimated—just as their personal and business vulnerability should not be underestimated. In that sense, as case co-author Konstantin Korotov, INSEAD PhD candidate, pointed out, “Russia’s richest man epitomizes the iconic symbol of Russia, an eagle with two heads. Reflecting the current state of affairs in Russia, the eagle’s one head looks forward to the market economy and a liberal society, while the other head keeps gazing at totalitarian past, when the state controlled every aspect of life from cradle to grave.”

Elizabeth Florent-Treacy, Research Project Manager at INSEAD, said, “This case project came out of a private discussion with Mikhail Khodorkovsky. We had the rare privilege of exploring the leadership philosophies of a top Russian business leader with the man himself. We wrote the case to put the discussion in context, and to show the paradox of his rise from a ‘model Soviet youth,’ as his friends called him.”

Even Khodorkovsky seems amazed by the trajectory of his life, once saying that if the old Mikhail had met the new one, he would have shot him. Khodorkovsky is one of the new breed of Russian entrepreneurs, who built businesses of all sizes and profiles on the ruins of the Soviet centrally-planned economy.

After an early period in which many oligarchs participated in dubious, though often legal, asset-grabbing (tax-evasion charges against Khodorkovsky, for which he was jailed and awaiting trial in late 2003, relate to this period), Khodorkovsky decided to transform Yukos into a world-class company with a market capitalization that would rival that of British Petroleum (BP) or Shell.

It would be financially transparent—unprecedented for a Russian business and requiring a dramatic shift in strategic thinking and operational philosophy. His vision included audacious future mergers with other oil producers. Of course, market reforms in Russia and the growing interest of Western investors played an important role in shaping the evolution of Khodorkovsky’s business models, but he also was a successful agent of these changes, as his invitation to the Sun Valley conference attests.

After Khodorkovsky’s arrest, the case authors saw an opportunity to explore leadership succession under catastrophic conditions. They found that although Khodorkovsky was an authoritarian leader while at Yukos, he had not neglected to prepare top executives for leadership—perhaps motivated by awareness of his own vulnerability. In the end, resignation was probably his only option, but given the care he had taken to put a stable management structure in place, his decision can also be seen as an example of the last, good thing a CEO can do to save his organization.

This is the sixth award winning case study from Professor Manfred Kets de Vries. Recognition for this Russian leadership view was won from the European Foundation of Management Development in the Entrepreneurship category of their 2004 Case Competition. Continue browsing through INSEAD Knowledge to access more of Kets de Vries' studies and publications.


Manfred Kets de Vries, Elizabeth Florent-Treacy, Joao Pinto, Konstantin Korotov and Stanislav Shekshnia recommends

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