Tea with a Billionaire

Today, my Fellowship group met with Mikhail Fridman. He is the chairman of Alfa Group, a massive financial-industrial group that includes Alfa Bank, TNK-BP, VimpelCom, Perekriostok, and a host of other companies. Business activities span commercial and retail banking, oil and gas, telecommunications, and consumer retail, respectively. As such, he is the grand patron of the Alfa Fellowship Program.

Our meeting took place at his executive offices in central Moscow. We were served tea by an impeccably dressed butler while we waited briefly for his appearance in a very nice conference room.

We had a wide-ranging hour-long conversation that began with his vision of why and how the Fellowship was started. In his experiences with Americans at very high levels, he found that there was no Russian language capability at all. More egregiously, he found his contacts in the US to be woefully misinformed about life in contemporary Russia (as opposed to the Soviet Union). And that was exactly his point – life had changed dramatically in Russia, but the comprehension of it by its most important counterpart had not changed a single bit.

It’s an absolutely dead-on-the-money characterization, yet he’s one of the very few people who are actually doing something about it. I can’t possibly give him enough praise in this respect.

Mikhail Maratovich was very down to earth and open with us. At one point, he popped up out of his chair to turn on an additional set of conference room lights. After all, this is the first generation of Russian billionaires – Mr. Fridman started out washing windows in Ukraine when Gorbachev first legalized individual business activity in the mid 1980’s.

Some 20 years later, he’s one of Russia’s richest men and telling a room full of Americans about his vision for the future. Nice career path.

He wanted our input on what we would change about the Fellowship Program. Again, we were presented with the idea that more time in the provinces would instill a deeper understanding of the “real” Russia. After all, he said, Moscow is a fully cosmopolitan city that may be largely indistinguishable from – say – Buenos Aires.

There’s certainly a degree of truth to that line of thinking. But with all due respect to Mikhail Maratovich, that is overstating the case.

On the way to the metro this morning, I passed a small outdoor market place. A vendor had a drunk firmly by the collar and was calling for the police. The drunk, and several of his friends, had just stolen something from the vendor’s table. This particular merchant sells army surplus tools and other implements. I looked in the drunk’s open coat and saw what he had stolen – a hatchet.

Normally, I might hang around a few feet away to see what might transpire. But the raised voices and presence of a hatchet in the hands of a marginal member of society made me practically run for the metro entrance.

This was one block from the Kremlin.

Not far from Mr. Fridman’s office, I saw some workers attending to a downspout. They were banging it with a hammer and loosening up the ice inside. As chunks of ice cascaded out, they freed a thick black electrical wire. Then, they banged on that with hammers, too. Perhaps the electrical cord is there to prevent ice build up, I don’t know. But I do know that several chain smoking men in an icy puddle were on the verge of possibly electrocuting themselves. One fellow, the guy with a large toolbox, stood on the other side of the sidewalk and refused to go anywhere near the menacing black cord.

So as much as I understand the argument that Moscow is not exactly representative of the whole of the country, I must aver that it is awfully damn representative of something. And that something is a unique, crazy, exhilarating, frustrating, exciting reality that’s much closer to Russia than anywhere else in the world.

Live it Up!

When the money keeps rolling in you don’t ask how
Think of all the people who are guaranteed a good time now.
~And the Money Kept Rolling In (And Out) from Evita

The Russian equity market continues on its long tear. Just as folks are beginning to wonder when it will end, it seems to be accelerating.

The RTS index is up 95% since I arrived on the Russian market last August. More amazingly, it’s up 35% in the first 35 trading days of 2006. Its bonus season, there’s a palpable euphoria in the air. All is right with the world.

Why? Well, oil is a dominant factor in both the economy and the highly concentrated Russian capital markets. And oil - given demand issues in China and India balanced by supply “issues” in Iran and the middle east - is a legal license to print money.

But statistical studies, run shoddily by myself and more professionally by others in the investment community, show that the correlation between changes in oil prices and market returns are weak at best. The consensus has been that the oil effect has trickled through to the rest of the macro-economy. And to a degree, that certainly is true. Data about currency reserves (the government’s cash hoard is the 5th largest in the world) and Paris Club early debt repayments have lead to upgrades of the country’s sovereign debt, the lowering of the risk premium and sustainable higher valuations.

This makes the direct oil effect much trickier to peg. Current spot oil prices are substantially the same since last August, and have done a good deal of traveling both higher and lower since then. So why the massive advances in an equity index supposedly driven by oil?

I believe that it has more to do with the level of prices rather than the actual price movements. Macroeconomic sensitivity analysis to oil prices shows projected GDP, and personal income, levels in the coming couple of years. All these models assume long-term market oil prices much lower than current prices. Everyday that oil moves in the opposite direction, or even just stays put, is another day where the expectations for the future have to be set just a little bit higher.

So, it seems that as long as the prices stay in a range well above the rosiest long-term price objective (somewhere around $45 per barrel), then the rationale for much higher valuations is supported. By the way, our main oil benchmark hasn’t closed below its 50 day moving average in almost a year.

Of course, it’s a two-way strategy. But, in the meantime, enjoy it while it lasts.

To the Front!

This week marks the celebration of Defenders of the Fatherland Day on the 23rd. Since the elimination of Red Army day from the calendar, this has become one of the premier military holidays. But it’s not just for the armed forces, anymore.

Every able-bodied Russian male is considered a potential defender of the homeland, so the day is actually marked by a celebration for all men. Women extend their congratulations and shower them with fawning attention on what has become, for all purposes, a Men’s Day.

We had a party in the conference room after work to mark the day. All the women made flowery speeches about the “handsome and intelligent” men who they have the pleasure to have as colleagues. Then, each woman presented to each man a gift. We all got a silver, mint proof 3 ruble coin – the kind you get from the bank in a little jewelry box.

It was a very nice gesture, and especially nice to include me in their celebrations. The awkwardness of the situation wasn’t lost on anyone, and we all made jokes about my participation. Receipt of the coin may oblige me to perform military service in Russia, now, one fellow said. Never mind that, another said; but it won’t look good when you run for senator and they find out you’re a paid agent of a foreign government.

Anyway, I even got a card as a Defender of the Fatherland. It begins “Even though you don’t have this holiday in America…” Well, I may be an American but my Russian colleagues are quite intent on making sure that I have an authentic experience.


Gifts for an Honorary Defender of the Fatherland.

So in honor of the holiday, last Thursday and Friday were days off. Lest we get too carried away with prolonged revelry, the government has adjusted the holiday schedule to make it just slightly less thrashing to worker productivity. While Thursday and Friday are days off, Sunday has been converted back into an official work day.

But before you feel too bad for the women of Russia, March 8th marks International Women’s Day – a massive celebration of all that femininity entails – in a combination of Valentine’s Day and Mother’s Day. You can be sure that I’ll write about that one, too, when the time comes.

Making History

In Russia, people suffer from the stillness of time.
~Tatyana Tolstaya

Tsaritsyno is an estate on the outskirts of Moscow, and my destination for last Sunday’s outing. It’s a former royal preserve, but it has the weird status of becoming a genuine historical recreation of something that never really existed in the first place.

The park is a truly beautiful place on the southwestern edge of the city, with lakes, bridges, woods, paths and charming buildings. The great vistas were made all the more striking by the thick layer of snow on it all.

And like any Moscow park on the weekends, it was absolutely teeming with people. It was a winter sport paradise; every incline was dedicated to sledding, every pond crowded with ice fishermen, and the woods were full of cross country skiers. The one activity that takes place year round, however, is volleyball. There were a dozen courts in a clearing surrounded by snow-covered evergreens.

The estate was constructed in a gothic style for Catherine the Great. She came and inspected progress, but hated the designs and killed the project. So the buildings sat as picturesque shells for a couple of centuries until someone decided that they should finish the job. The government has been completing the construction for the past few years.

While the buildings will be dedicated to cultural pursuits, no doubt improving the value of the park, it still seems a bit strange to me. In a way, historic preservation seems to have run past the goal line and kept going. Preservation, or even its activist cousin Restoration, are charged with maintaining that which we’ve inherited from history. Instead, they’re on a tear to create what historians call a counter-factual, or “what if”, version of reality.

This is by no means a solely Russian phenomenon – witness Boldt Castle in the Thousand Islands. Unfinished by its robber baron owner upon the death of his wife, it long stood as a romantic monument to wealth, privilege, and love. But now, it’s being completed after sitting idle for nearly a century. All the tourists will be able to walk through rooms where the owners never sat, and never talked, and never slept. In fact, through rooms that never were.

Tastes change over time, it seems. In the 19th century, it was fashionable to build monuments that looked much older than they were; parks and estates were filled with newly constructed "ruins" evoking classical civilization. I'm waiting for the day when the ruins undergo work to reverse too much decay and return them to an appropriately ruined state. Or better yet; restore them to 'un-ruined' status by completely renovating them to an intact condition of what the original ruins represent.

But then, I suppose that’s just the reaction of someone who’s seen more than his fare share of authentic cathedrals and palaces so far during his time in Russia. Sometimes, the past is just fine the way it is – thank you very much.

Of course, Russia has a wonderful and ancient cultural legacy that’s vibrantly expressed through architecture and art. In places, it can be really hard to avoid it even if you’re trying. I appreciate it all - really I do.

I especially appreciate it when everything fits my pre-conceived notions of Russia.

Ahh, that's more like it!

Fun and Games in the Raspberry Patch

On Friday, the company had a group outing for all the staff at a local “attraction hall”. Moscow entertainment space sometimes suffers the same gigantism that afflicts many other aspects of life here. These halls are usually in some converted factory building, and contain several floors of bowling alleys, video game arcades, restaurants, bars, laser tag rooms, karaoke lounges, and billiards halls. Some even have casinos.

Our destination was just outside the center of town, in a ramshackle building and up a decrepit staircase to the entrance. After walking through a metal detector, one of the guards pointed at my bag and asked if I had a knife. He seemed satisfied with my denial and didn’t bother to look in it when I opened the bag. Perhaps I didn’t fit the profile of a knife-carrier – or maybe it was just gun night.

As is often the case in Moscow, the interior was far nicer than the exterior of the building. The massive entertainment complex buzzed, thumped and pulsed with people, music, and activity. We had the private lanes on the lower floor, where I found the rest of my colleagues tucking into a huge buffet. Then, the bowling started.

Bowling in Moscow is a rather pricey affair and is considered new entertainment for gangsters, the emerging middle class, and the elite. All the equipment is the top-of-the-line including fully automated scoring. Still, I began to wonder what sort of neighborhood we were in; our table had a laminated sheet on it listing all the possible fines for noncompliant behavior. For example, $10 for wearing street shoes, $20 for flash photography, and $2460 for breaking the computer monitors.

Bowling, as usual, was a lot of fun. My colleagues were all very enthusiastic and all very bad. But then, that contributes greatly to the enjoyment. Most of the company later went to play laser tag, but I had eaten far too much shashlyk (shish-kebab) to run around playing cops and robbers. I remained on the lanes with some of the girls from the office, and we started up another game.

Unexpectedly finding yourself in a pleasant situation is called “falling into a raspberry patch” in Russian. But that sensation began to dissipate as the game got started. It soon became clear that these beautiful women, despite their very tight jeans, were much better bowlers than I was. Although they rolled the ball slowly, it stayed solidly in the middle of the lane every time.

I’m not a particularly competitive guy. Still, I redoubled my efforts and learned that my competitive spirit is much more related to not feeling like an idiot.

But feeling like an idiot is exactly what I did on Saturday when I went back to the banya for a good heat soak. We played billiards between stints in the sauna, and I re-discovered all the joys and frustrations of playing Russian-style billiards.

Russian billiards is played on a large table, with all white balls and one red cue ball. The red cue ball is used only on the break, and for any shot afterward the player may cue off any ball on the table, and sink any shot. The winner is determined by how many balls a player sinks.

Not having a set cue ball is a bit disorienting at first. It effectively de-anchors your thinking and vision from the traditional method of looking for a shot. But by far the most difficult aspect of this game is that the balls barely fit in the pockets on the table. It’s a tight squeeze, and really hard to sink even a perfectly lined-up shot.

At this level of difficulty, the casual game becomes an endurance test of patience and commitment. Its one of those games that makes you notice that everyone else seems to be having more fun than you.

It’s challenging to play and interesting to try and get the hang of it. I actually managed to win a game, too. I’d have tried my hand again, but my competitive spirit was satisfied with having saved just enough face.

Russian Soul

It can be discomfiting to hear a bond trader break into song. It’s downright jarring when you’re in Moscow and your Russian colleague suddenly starts belting out a Negro spiritual.

Louis Armstrong’s version of Go Down, Moses is the universal music for callers on hold at Alfa Bank. He was on the line working a trade and heard a few of the refrains just a couple times too many.

“When Israel was in Egypt’s Land”

The use of the song goes back to the early 1990’s when it started appearing in commercials for the then-new retail bank. The ad opens with a man standing in a what seems an interminable line. Then he’s confronted with a beautiful, but nasty, teller who refuses to process any of his transactions and brusquely rejects his paperwork. The teller’s colleagues take him aside and whisper in his ear. When he gets back in front of the teller with newly filled out forms, the teller looks down and discovers that they simply say “Happy Birthday.” The previously harsh demeanor melts away and is replaced with a laugh, a bashful smile, and speedy service.

“Let my people go”

The production quality of the ad was very high. Still, I always thought it was a bit strange to advertise your own bank that way. “Hey”, it shouts, “We’re the bank where you have to go the extra mile to get decent service!”

“Oppressed so hard they could not stand,”

Alfa’s advertising now is very sophisticated and well targeted and, for the most part, indistinguishable from typical western bank ads. But the song lives on. My colleagues speculate that’s because the owner of the bank likes the song.

“Let my people go.”

Still, I think they kept the song because it's very appropriate. Certainly, the whole thing about living in bondage is applicable to the Soviet period. But the fact remains that the Russian retail banking sector is still dominated by the government-owned Sberbank. It leads all banks in deposits and assets, as well as number of locations. And like any government sponsored enterprise, service is legendarily bad.

The rumor is that Sberbank will be floated to the public within the next couple of years. It should make for some interesting analysis in the prospectus; “Our competitive advantage is that most people don’t have any other choice.”

So perhaps the old spiritual song from the American south has a closer relationship to Russia than I originally thought. After all, Faulkner wrote a novel entitled Go Down, Moses. One chapter, about a hunting trip, is considered a masterful short story in its own right. Its title? The Bear. Symbol of Russia? The Bear.

Is that too much of a stretch? Aristophanes.

“Go down, Moses,
Way down in Egypt's Land.
Tell ol' Pharaoh,
Let my people go.”

Of course, imagine all this with a Russian accent. I, for one, will probably be unable to remember it any other way.

On Second Thought ...

They say the next big thing is here
That the revolution's near
But to me it seems quite clear
That it's all just a little bit of history repeating
~Shirley Bassey

Yesterday, I posted two pictures on the blog. At lunch time today on the street near my office, I saw something that made me think of them all over again. It seemed to be the perfect amalgamation of the two types of symbolism, and reopened the topic for me.

Russia will probably continue to struggle with the appropriate balance between materialism and spirituality like, well, any human society that’s ever existed. But that, it seems to me, isn’t the real point of those two pictures. The real point is that those are examples of images, juxtaposed or not, that didn’t exist in Russia for most of the 20th century.

There is no conceivable theoretical need for “Sale” signs in a shop window in a centrally planned economy. After all, demand for products should always match supply. In practice, of course, there certainly wasn’t any need for such signs since the all the stores were empty.

In an officially atheist society that’s murderously hostile to religion, there’s not such a profusion of churches, either. For each charming, architecturally important church that wasn’t torn down, there are dozens more that were. Here in ‘Holy Moscow’, that means small monuments and plaques that inconspicuously mark where whole cathedrals and monasteries once stood.

It’s interesting to walk around on an early Sunday morning and see this legacy in human terms. In a park near the Garden Ring, a group gathers on the previous site of a church to conduct a small service. A half dozen folks gather around and sing hymns, with icons on artists easels and ornate Gospels on a tell lectern covered with brocaded altar cloth.

Just up the street from my apartment, a group gathers at the outside, eastern wall of a former nobleman’s mansion and conducts a similar service. That part of the wall is where the sanctuary of the family chapel was once located; once holy ground, in their opinion, always holy ground.

And that’s the real story behind the churches in both of those pictures. The one near the Mercedes symbol is the Cathedral of Christ the Savior – destroyed by Stalin in the 30’s and rebuilt again in all its mammoth opulence sixty years later. The church reflected in the shop window is a small chapel that marks the site of a destroyed church complex, now occupied by a massive soviet-era ministry.

So, in all, the fact that Russia can now struggle with the juxtaposition of conflicting symbols of materialism and spirituality is shocking, new, and the result of many generations of violent upheaval and struggle.

It’s really easy to forget about this recent history in Moscow. I routinely do just that as I flip through real estate listings of $1 million apartments and watch Bentleys zip down the boulevards.

That’s the Moscow that got me thinking about the photos once more. I snapped this picture a block or two from my office. I think it’s a suitable replacement for those photos. It’s the LUKoil headquarters, and probably as close to a “cathedral of commerce” that you can get in today’s Russia. No gold dome on top, but it has a $65 billion market cap.

Smells like oil - or money. Whatever. It's all the same these days. 

It represents power, the promise of a better life, some measures of aspiration and some of inspiration. In short, it’s everything a good symbol of modern Russia should be.

Sacred + Secular = Profane?

Reflections on culture and commerce.


The power of symbols.

Culture - No Parental Controls

History repeats itself, first as tragedy, second as farce.
~Karl Marx

Sometimes, I’m just not sure how much to read into certain things. Taking things too literally is a pitfall of trying to understand another culture, and attempting to exam things more deeply can lead to even more distorted views. I had a cultural experience the other night that, given the strange historical circumstances, might just be a very realistic look at two ugly periods in history.

On Monday, I attended the Bolshoi Theater’s production of Lady Macbeth of Mtsensk. It’s quite a powerful opera by Shostakovich, with moving imagery made all the more potent by a rather spare set. But if there was every any doubt about the dark nature of Russian story-telling, it should be put to rest after an airing of this opera. It includes a poisoning among its several murders. In addition, there are 2 gang rape sequences, one regular rape, adultery, a vicious flogging, 2 drownings, several brutal beatings, beatings with rifle butts, imprisonment and exile, and bribery, drunkenness and lechery among the clergy. And those are just the parts that I understood.

In comparison, Lady Macbeth makes Italian opera - with its star-crossed couples, unrequited love, and occasional suicides - seem positively cheery.

Life in the Russian village is well documented, and indeed the genesis of this opera is a much earlier story from the 19th century. But the part that makes this all so haunting is the nearly as sensational story of how the opera was received when it debuted.

The Leningrad premiere in 1934 was a critical and popular success. Indeed, it was hailed as a masterpiece of Marxist theater. After all, it laid bare the corruption and rot of provincial life under the l’ancien regime.

The Moscow premiere in 1936, however, was a different story entirely. Stalin stormed out of the production halfway through, roundly denouncing the work. In fact, he used the opera as a pre-text for a general attack on the arts and demanded total control of all creative endeavors in the Soviet Union. Shostakovich, not without just worry, was quite convinced that he had bought himself a one-way ticket to a Siberian gulag. He managed to remain “free”, but was routinely subjected to reprisals and condemnation in the press.

Though he outlived Stalin by some 22 years, Shostakovich never wrote another opera. All he could manage to do was edit Lady Macbeth over and over again. Now, there are several versions of the opera, each favored by certain companies in certain countries.

But just imagine the purgatory that Shostakovich endured. He spent nearly 40 years atoning for his sins against Stalin by continuously tinkering with the opera that nearly did him in.

It wasn’t exactly a Valentine’s Day heart warmer. More like something that chills your soul. Still, it was great theater nonetheless.

Bread and Circuses

Empty vodka bottle on the snow and ice.

Now is the winter of our discontent.
~Richard III (Shakespeare)

There’s a bottle of vodka in the kitchen at the office. Although it’s open, I haven’t seen anyone actually drink it. Still, it sits right there on the table where folks gather with their tea and brown-bag lunches. If the news stories are to be believed, though, that bottle might just disappear soon.

Russia is apparently on the verge of a vodka shortage thanks to inefficient distribution of tax stamps. That’s no small beer, if you’ll pardon the pun. Vodichka (to use the most intimate, familiar term for it) is still an important component of the cultural scene here.

I haven’t noticed any sort of shortage at my local supermarket. There, the vodka section is about 7 feet high, 30 feet long and still, mercifully, several bottles deep. I have a sneaking suspicion, however, that there won’t be any shortages in Moscow itself. The government is well aware of what happens in urban areas when there are shortages. In fact, change the details to “bread” and St. Petersburg” and that’s how the Russian Revolution started in the first place.

It brings to mind the old Russian (Soviet) joke about the breaking point. A man hears on the radio that prices are rising.
“Oh, well,” he says, “We’ll keep buying what we have to buy.”
Then the radio announces that wages are down.
“What can be done?” he says, “I still have to work all the same, no matter what they give me.” Then, there’s a statement about shortages.
Again the same resigned attitude – “We’ll make do.”

Finally, the radio mentions the weather forecast; rain all weekend. The man jumps from his chair. “Those bastards,” he shouts. “Now they’ve gone too far!”

Analysts – granted, the more hyper among them - are actually predicting riots over the vodka situation.

But think of the twisted logic in all this. Instead of problems with mass public drunkenness, people are actually fearful of a sober population. It probably would be a stretch to say that folks would sober up, recognize what’s going on, and demand changes. In fact, it may be more accurate to say that they would demand vodichka in order to return to their normal state of not caring about anything.

That’s not such a wild statement, really. The history of mass involvement in politics in Russia is pegged lockstep to the history of rebellion and revolution. People here are generally even-tempered until they are pushed so far that they just can’t take any more.

So, I disagree that a temporary lack of vodka is just such a potential trigger for regime change. Wide scale disturbance is unlikely given the broad macroeconomic improvements, the rising middle class, and general popularity of the president. Oh, and also the excellent quality and untroubled supply of Russian beer.

Then again, by the end of the day Friday, the vodka bottle was already gone.

Not One of Us, Not One of Them

You know, we always called each other goodfellas. Like, you'd say to somebody: "You're gonna like this guy; he's all right. He's a goodfella. He's one of us." You understand?
~Henry Hill (Ray Liotta)  in Goodfellas

I stepped out of the office at lunch time today. It was, as usual, minus-something Fahrenheit. A beautiful, brilliant sun lured me onto the street, where a stinging wind reminded me that winter is still in full force.

At a stop light, I noticed a man looking at me. He brought his hands halfway toward his face, raised his eyebrows, and quickly nodded his head – international sign language for “May I take your picture?” I shrugged my acceptance, and he took the shot.

It should be a good photo. A highly bundled, fur-hatted Muscovite standing in front of a McDonald’s in the freezing cold. Perfect. Except I’m not Russian.

Of course, neither was he. The embroidered badge on his jacket was the Boston University crest. The rest of him, frankly, was a giveaway, too: No hat, the Harry Potter-ish glasses, the shoes. Everything just screamed foreigner. I stepped toward him, pulled my scarf down, and said, “Great shot. Too bad I’m not Russian.”

The light changed and I left him standing in the crosswalk, speechless and befuddled. I know exactly what was going through his head – it’s happened to me countless times. “How did I get ID’d like that?” “Do I stand out that much?” and all the other questions. It’s not so much the questions, really, but the little conclusions that squeak through the spaces between the questions that cause the angst. “My God, I’m a walking target,” is the most pernicious of all.

But it gets better over time. Last weekend I visited a friend’s place. His (Russian) wife squealed with delight when she opened the door. “Oh,” she shouted, “You look so Russian.”

A big coat and a fur hat sure help when it comes to fooling people. But language is an important, and lagging, component. The old lady at the kiosk where I buy my lunch everyday has stopped screaming “WhatWhatWhat?” after everything I say. The woman at the blini stand I go to every weekend has stopped speaking to me in English as I try to order.

But there is a natural limit to fitting in. At an outdoor sculpture park last week, I walked up and asked the ticket lady for a foreigner’s ticket (they’re extra).
“You’re foreign?” she asked.
“Yes,” I said, “And an honest foreigner.”
“I thought you were one of ours.”

That’s the phrase here - “Nahsh” - the word for “ours”. But it’s so much more loaded with meaning. It means to be one of us, an insider, one who knows what we’re all about. It can be used globally referring to nationality or citizenship. It can also be applied locally to your own office or group of friends. “Nahshi” is even the name of a particularly ominous political party.

But no matter how big a fur hat I might wear, no matter how well I can order delicious treats from street vendors, I can never become one of “ours” in the truest sense of the word.

I’m ok with that. I’ll take whatever proximity to assimilation that I can get. Then, retreat to my own exclusionary definitions of who’s “inside” and “outside”.

Me and My Big Mouth

Everyone gets everything he wants. I wanted a mission, and for my sins, they gave me one.
~Captain Benjamin Willard (Martin Sheen) in Apocalypse Now

Now I’ve gotten myself into it.

Last week, I sat down with the boss and talked about the company’s compensation policy. The year-end review season is upon us, and he admitted to not really knowing how some of the many bonus decisions may interact and what their eventual financial impact may be. He asked me to put together a model that incorporates all the various compensation schemes by division, function, and pay scale. Ideally, such a tool would be explanatory, predictive, and flexible enough to play with under “Monte Carlo” multivariable scenarios.

“You’re perfect for this”, he said, “because you’re an investment professional who has worked in firms with sophisticated compensation policies.”

“And”, I replied, “I’m not a part of this one.”

Agreed. So he asked, point blank, if this was something that I could do.

That’s always the death knell of critical thought for me. Asked a direct question that may reflect on my intellect, skills, or character, I will always automatically respond that whatever challenge is at hand is completely surmountable. By me. Personally. Alone.

Actually, the way it really came about this time was during the split second in which I mulled over the question. “I’ve never tried to analyze a compensation policy and failed at it”, I thought, “So I see no reason to believe that I would fail now.”

Taken to slightly more distant lengths, the logic gets a bit shaky. “I know where the English Channel is, I know what’s on both sides of it. Hell, I even speak English. I see no reason to believe that I can’t swim the English Channel.”

So I answered that I would absolutely be able to do it. Quickly, I was buried under an avalanche of financial reports, fund mandates, employment agreements, department data, and other inputs. (The information was stripped, by the way, of any identifying marks that would compromise employee privacy.)

Over the course of the next few days, I came up with a complex spreadsheet that incorporated all the data, assumptions, and possible scenarios that would affect company performance. These all fed into the different compensation schemes with their own assumptions. Eventually, all these numbers filtered down into a financial report that showed the net effect of compensating employees certain ways under given scenarios.

It is - I think I’m not being immodest in saying - an elegant solution to the problem.

I presented it to the boss this morning, and he absolutely loved it. Finally, he has a tool that will spit out a number after considering a mind-boggling number of variables. The problem with the compensation scheme, however, is that department bonus pool numbers are easily quantifiable, but most individual employee bonuses remain subjective.

So we talked about the effect that a lack of transparency has on employees, and what sort of incentive an incentive compensation plan provides if a participant can’t judge his or her own contribution to, and share in, overall success.

It was an interesting conversation about the role of individuals in organizations, organizational behavior, responses to stimuli, and psychology. The problem is that by the end of it, I had somehow agreed to design alternative policies for more objective quantification of the incentive compensation program. Of course, I’ve never done anything like that before.

“Well”, I said to myself, “I have no reason to believe that I couldn’t….”

Happy Birthday, Boris Nikolaevitch!

"No matter how you describe that period, or how you assess the actions of the Russian Federation's first president, one point is undeniable: Boris Nikolaevich Yeltsin's time as the leader of Russia was when the people of our country, the citizens of Russia, gained the most important thing, the reason for all those transformations: freedom."
~Vladimir Putin

Boris Yeltsin celebrated his 75th birthday this week with a big party at the Kremlin and extensive media coverage of his presidency.

Much of my personal involvement with Russia spans the Yeltsin era, and I must admit that I got a little nostalgic when thinking about his presidency. I recall sitting on the couch watching CNN in the middle of the night as Boris Nikolaevitch stared down Soviet tanks during the August 1991 coup. I remember going back to college after one winter break and filing the paperwork to change my major from “Soviet Studies” to “Russian Studies”. I was living here when the first Chechen war broke out; seeing the horrified reactions of my neighbors with relatives in Chechnya, and then seeing the influx of refugees.

Yeltsin is a controversial figure here, blamed by all sorts of people for all sorts of evils that befell Russia during his presidency. A lot of the problems were probably no-win situations, anyway. For example, some believe that economic reform was too hasty while others believed he dragged his feet.

Certainly, though, there were many problems that arose during his presidency that were more or less unmitigated disasters. Yeltsin prevented the disintegration of Russia in to random republics, but only through the brutally prosecuted war in Chechnya. In addition, the rise of the “Oligarchs” was a direct result of the loans-for-shares program that his government initiated in what turned out to be a major blow to the states’ long-term economic viability. Simply put, Russia’s problems in the 1990’s are probably too numerous to mention.

Yeltsin’s birthday was a big media event, but it didn’t extend any further than that. And that, I suppose, is the real point of Putin’s Russia. Much of the chaos of the 1990’s has been left behind, and the Russians seem to prefer it that way. Of course, there are still problems in society, but on the whole, the country is far more orderly than it has been in a long time.

And that, it seems to me, is what is exactly at the heart of the current problems between East and West. When Freedom House changed its opinion on Russia from “Mostly Free” to “Not Free”, they benchmarked “Freedom” as what it was like here in the 1990’s. And while I certainly don’t want to be an apologist for Kremlin backsliding on basic rights, I know the typical Russian’s response to all those criticisms:

“If the 1990s represented ‘freedom’”, they say, “then we don’t want it.”

But if Yeltsin’s legacy is still uncertain, if his chapter has yet to be written, there may be one paragraph near the end that ensures him his place in the long, varied history of this country.

When he resigned in 1999, Boris Yeltsin became the first Russian leader ever to voluntarily leave power.