Using the press to lead reform

In 2000, Bill Browder, manager of the Hermitage Fund, a hedge fund focused on Russian investments, put together a PowerPoint presentation outlining how managers of Russian oil company Gazprom were shifting corporate assets to entities controlled by friends and relatives.

by Knowledge@Wharton
Last Updated: 23 Jul 2013

He shared his findings with journalists from leading business titles, who began to write stories about corporate governance problems at Gazprom, which eventually led to the company's CEO being fired. At the same time, Browder increased Hermitage's investments in Gazprom by five times, from $150 million to $1.5 billion.

At a recent Wharton conference on international corporate governance, Alexander Dyck, professor of finance and business economics at the University of Toronto, analysed Browder's publicly announced strategy to use the media in a bid to lead Gazprom out of the mess it found itself in. To influence coverage, Browder took steps to build his credibility with journalists, including working with the International Monetary Fund. Dyke explained: "[Journalists] saw Browder as someone with money in the game - as a person who had an agenda - and they tried to manage him as such. He had potentially useful information, but they...knew what it was being used for, so they had a balancing act."

Dyck explained that Hermitage improved its odds of coverage by giving journalists only a day or two to review the information. If the story didn't appear by then, Browder told them he would give the information to a competing news organisation. "That created pressure on journalists who would want to do more complete fact-checking. He was quite sophisticated in using the press to get the story out."

In an interview with Knowledge@Wharton, Browder explained that it took time to earn the trust of Western journalists working in Russia. "They were extremely rigorous, and it was a big challenge to get stories published. We were very upfront that our interest was in exposing wrong-doing but that we would also benefit. Most journalists don't have the time or resources to do what we did."

But Browder admitted that he did exert pressure at times. "There's competition among journalists, and they're all trying to get the scoop...we had something interesting from a factual perspective, and the facts speak for themselves."

Dyck said that Browder's intervention had a decisive impact on corporate governance at Gazprom because he was more media-savvy than the company he was trying to reform.

However, despite Browder's influence on turning around the Russian giant, he has not received any thanks in Russia itself: the authorities there have deemed him a security risk and denied him access to the country, forcing him to manage his firm's stake in Russian equity from London.

Source: Knowledge@Wharton
Review by: Nick Loney

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