Sarah Morgano
CC_405
OCA 3: Yukos
4/6/08
Yukos, a publicly-traded energy company founded in 1993 and based in Moscow, was responsible for making great strides for the Russian free market; producing 2% of global oil production and boosting foreign investments. This boom was short lived when the Russian government began an attack on the company in 2003 for oligarchy charges, which ended with the imprisonment of Yuko’s Chief Executive Officer and a state-influenced takeover. The rise and fall of this company are said to be attributed to the crushing external forces of a corrupt Russian government and court system. Rosneft, the semi-state owned and controlled oil company, seized control of over 80% of Yukos at a significantly deflated cost, marking a significant shift in economic and political policy in Russia. Private capital and a sense of independent business in Russia shifted to a sense of increasing authoritarianism for an increased gross-domestic-product.
The story of Yukos’ success begins with the Chairman and Chief Executive Officer Mikhail Khodorkovsky, who took over shortly after the state-run firm became privatized in 1996. Mikahil thought in global terms and restructured Yukos “expanding its drilling, construction, and oil field development capacity” to enter the global marketplace (galenet.galegroup.com.remote.baruch.cuny.edu...+Oil+Co.&mst=yukos&n=25&docNum=I2501151981&bConts=9023). Although he was criticized by minority shareholders in the 1990s for hiring foreign executives, Khodorkovsky boosted output and improved the company's corporate governance; “Yukos's share price rose almost seven-fold in the first 2 1/2 years after Khodorkovsky hired Misamore from PennzEnergy Co. in February, 2001” (http://www.bloomberg.com/apps/news?pid=20601085&sid=a.CwLx2HL1ps&refer=europe).
Yukos successfully adjusted to globalization and the new requirements of
international businesses for greater transparency in order to receive such benefits as loans and bonds from the Western market by creating a Corporate Governance Charter in 2000. A couple of years later, the company publically revealed the ownership of the private company. This disclosure of ownership was significant because Yukos became, “the only large Russian companies run with transparent ownership structure that provided accountability” (http://www.defenddemocracy.org/usr_doc/The_Yukos_Affair_-_Leon_Aron.pdf).
This market freedom from government intervention was short lived when the Russian government began an attack on the company in 2003 for oligarchy charges, persisting with accusations until the final sale of the main production unit of Yukos in 2004 to Rosneft, “a quasi-state oil company chaired by Mr. Putin's deputy chief of staff” (http://galenet.galegroup.com.remote.baruch.cuny.edu/servlet/BCRC?vrsn=162&locID=cuny_baruch&srchtp=glbc&c=18&ste=58&tbst=tsCS&tab=2&mst=yukos&n=25&docNum=A175684697&bConts=3). The relationship between President Putin and the Chairman of Rosneft illustrates a severe conflict of interest, marking a climax in the dispute between private companies in Russia and its government. When the company was essentially destroyed and redistributed Yukos assets for a severely deflated price it shook investor confidence in Russia and called into question the rule of law and the security of private property. Christopher Weafer, chief analyst at Alfa Bank, said the outcome of the sale of the main production unit was virtually predetermined. He said the only way to prove that the true price of the Yukos assets had not been deflated to benefit Rosneft would be to hold “an open, fully transparent auction.” (http://www.nytimes.com/2007/03/27/world/europe/27russia.html?pagewanted=1&n=Top/Reference/Times%20Topics/Organizations/Y/Yukos). This shows that the company has shifted away from the transparency that held management accountable to the shareholders.
Unfortunately, this company’s transformation not only damaged the freedoms in the Russian open market, it hasn’t helped the company’s growth in oil output. “Before the Yukos affair (growth) had been running at about 9% a year, slowed to just 1% by the end of 2007” (http://galenet.galegroup.com.remote.baruch.cuny.edu/servlet/BCRC?vrsn=162&locID=cuny_baruch&srchtp=glbc&c=18&ste=58&tbst=tsCS&tab=2&mst=yukos&n=25&docNum=A175684697&bConts=3). This study indicates that slowed growth can be attributed to fear of innovation due to government intervention. The state takeover of Yukos has fully closed the veil of transparency that once defined the company. This lack of transparency has not only slowed innovation within Yukos, it has damaged their reputation in the global marketplace.
(Feb 29, 2008) Russia economy: Smoke and mirrors. Economist Intelligence Unit: Country ViewsWire. Retrieved March 29, 2008, from Business and Company Resource Center database.
Aron, L. (Fall 2003). The Yukos Affair. American Enterprise Institute for Public Policy Research. Retrieved March 29, 2008, from
http://www.defenddemocracy.org/usr_doc/The_Yukos_Affair_-_Leon_Aron.pdf.
Cook, B. and Kim, L. (2006, July 25). Yukos Creditors Told Russian Oil Company Is Doomed (Update1). Retrieved March 29, 2008, from
http://www.bloomberg.com/apps/news?pid=20601085&sid=a.CwLx2HL1ps&refer=europe.
Meyers, S.L. and Kramer, A. E. (2007, March 27) From Ashes of Yukos, New Russian Oil Giant Emerges [Electronic Version]. New York Times. Retrieved March 31, 2008, from http://www.nytimes.com/2007/03/27/world/europe/27russia.html?pagewanted=1&n=Top/Reference/Times%20Topics/Organizations/Y/Yukos.
Business & Company Research Center. Yukos Oil Co: Histories. Retrieved March 29, 2008, fromgalenet.galegroup.com.remote.baruch.cuny.edu+Oil+Co.&mst=yukos&n=25&docNum=I2501151981&bConts=9023.