November 3, 2000   

This Date's Issues:   4617 • 4618 • 4619

Johnson's Russia List
#4618
3 November 2000
davidjohnson@erols.com

[Note from David Johnson:
1. AFP: Chinese PM hails "best-ever" Sino-Russian relations.
2. The Guardian (UK): Ian Traynor, Worst ever' radioactive leaks found in Siberia. Condemned weapons plants still spewing out poisons, say experts.
3. Financial Times (UK): Andrew Jack, Oligarch to stand for regional governor. (Alexander Khloponin)
4. Itar-Tass: Information area to be regulated by law.
5. UPI: Ariel Cohen, Russia's minister of truth. (Lesin)
6. BBC Monitoring: Azeri experts decry Russian software at newly-opened election data centre.
7. Stratfor.com: Russia: Curtailing President’s Influence in Criminal Cases.
8. Greg Smith: Re: 4613 Kobaladze.
9. Vlad Ivanenko: Who benefits from "Forget Russia" policy.
10. Sergei Vorobiev: RUSSIAN CHESS. CHAPTER 1. DEFENSE FROM THE STATE. (re Russian business managers)]

******

#1
Chinese PM hails "best-ever" Sino-Russian relations

BEIJING, Nov 3 (AFP) -
Chinese Premier Zhu Rongji said Friday relations with Russia had never been
better as the two states rounded on the United States over Taiwan and plans
for a missile defence shield.

Zhu and visiting Russian Prime Minister Mikhail Kasyanov also promised to
boost economic and military cooperation as they signed eight agreements after
talks in Beijing.

"Following the visit by President (Vladimir) Putin in July, our ties have
entered a new level and presently I believe Sino-Russian relations are
enjoying their best period ever," Zhu said before the discussions.

The meeting, the fifth prime-ministerial meeting between the sides since a
"strategic partnership" was established in 1995, was the first attended by
Kasyanov who was appointed premier this year.

Without naming the United States, a joint statement issued after the talks
stressed that Moscow and Beijing would "take all necessary measures" to
implement agreements opposing anti-missile weapons systems.

The statement also blasted perceived US interference in China's effort to
reunify with the Taiwan, which it considers a rebel province.

China has long opposed US weapons sales to Taiwan and bristled at a US policy
which calls for American support for any defense of the island.

"Both sides maintain the Taiwan issue is purely an internal affair of China,
that any foreign force interfering in the resolution of the Taiwan issue will
not be allowed and that it should be strongly emphasized that such attempts
can only intensify the situation in the Asia-Pacific region," the statement
said.

US plans for National Missile Defence (NMD) have been fiercely opposed by
both Russia and China, which fears the technology will be used for a Theatre
Missile Defence (TMD) in East Asia which could protect Taiwan.

No official announcements were made on new military cooperation, but Russian
officials confirmed talks for the supply of Russia's A-50 Beriev advance
radar system were held between Russian Deputy Premier Ilya Klebanov and
Chinese General Zhang Wannian on Wednesday.

The Russian Advance Warning and Control System (AWACS) was seen as replacing
a deal between Israel and China for a similar radar that was scrapped after
intense pressure from the United States.

Klebanov, who is in charge of Russian weapons sales, has been in Beijing
since Tuesday.

During Kasyanov's talks the two sides further agreed to regularize a joint
commission on the development of space, which could include the sales to
China of advanced Russian satellites and satellite ground stations.

Yuri Koptev, head of the Russian Aerospace Agency, was part of Kasyanov's
delegation and is expected to hold meeting with officials from China's
Commission on Science and Technology, officials said.

The two sides also agreed to set up a hotline between the two premiers,
following a hotline between the two presidents established late last year.

Besides agreements on government to government cooperation, which included
banking, tax and scientific exchanges, other commercial agreements included a
payment schedule for Russian nuclear equipment at China's Lianyungang nuclear
power plant and a preliminary agreement on South Korea's participation in a
1.8 billion dollar natural gas pipeline.

Bilateral trade between China and Russia is expected to grow some 40 percent
this year, with Zhu predicting trade volume would surpass seven billion
dollars for the year.

Russia is expected to have a nearly 2.7 billion dollar surplus.

******

#2
The Guardian (UK)
3 November 2000
Worst ever' radioactive leaks found in Siberia
Condemned weapons plants still spewing out poisons, say experts
Ian Traynor in Moscow

Radioactive contamination of rivers around a top-secret Russian nuclear
weapons complex in Siberia has reached "staggering" levels, the worst ever
monitored, and is out of "rational control", a joint team of Russian and
American radiation monitors said yesterday.

Following a monitoring expedition in July and August to the closed
plutonium complex at Seversk, near Tomsk in western Siberia, the Russian
and American nuclear watchdogs said they had registered alarming levels of
radioactivity in tributaries of the River Ob, a key Siberian waterway.

"We've never encountered such radiation. It's the worst contamination we've
found," said Sergei Pashchenko, a Novosibirsk professor and atmospheric
pollution expert who headed the Russian side of the survey carried out by
Siberian Scientists for Global Responsibility and Government Accountability
Project.

The director of the American watchdog, Tom Carpenter, said: "We were
shocked at the levels of contamination."

The environmentalists said they found levels of caesium and strontium-90
vastly exceeding safety levels in the rivers Tom and Romashka close to the
"Siberian Chemical Complex", a sprawling facility established by the former
Soviet Union in the 1950s to make weapons-grade plutonium for warheads.

But even more disturbingly, said Mr Pashchenko, plant life in the rivers
contained high levels of phosphorus-32 which decays within a couple of
weeks, meaning that the radioactive effluent was of very recent origin
whereas the strontium and the caesium could date back to the 1960s.

"The phosphorus-32 is a very short-lived isotope and this means they are
very fresh," said Mr Pashchenko.

The closed nuclear town of Seversk is effectively a suburb of Tomsk, a city
with a population of half-a-million in western Siberia. Seversk was born in
1949, at the very onset of the superpowers' nuclear arms race.

It ranked among the top three sites for the manufacturing of weapons-grade
plutonium and uranium enrichment for the Soviet Union's nuclear arsenal
throughout the cold war.

The plutonium was manufactured from five nuclear reactors commissioned
between 1955 and 1967. "They are very old reactors and very unsafe," said
Igor Forofontov, radiation specialist with Greenpeace in Moscow.

The three oldest reactors were closed between 1990 and 1992, and, under a
1992 agreement between Moscow and Washington aimed at halting plutonium
production, all five reactors should have been closed down by this year.

But two reactors are still operating, providing heating and electricity to
Tomsk. "The authorities have no intention of closing them," Mr Forofontov
said.

An explosion ripped through the plant in 1993 which resulted in large
amounts of radioactivity being emitted. Mr Forofontov also said lethal
amounts of radioactivity were leaking into the soil and the water in the
region because of the practice of storing waste from the reactors in liquid
form which is then pumped deep below ground.

Last summer, the Russian monitors spent two months touring the most
sensitive nuclear materials production installations - one of the most
dangerous legacies of the Soviet era - at Chelyabinsk, Krasnoyarsk,
Novosibirsk, and Tomsk.

But the environmentalists' findings in Tomsk were the most alarming. "The
nuclear waste is being piped straight into the environment," said Norm
Buske, one of the American researchers and an oceanographer and physicist.
"This has not been done anywhere in the world since the cold war."

The monitors were unable to pinpoint the source of the pollution because
they were not granted access to the secret plant. Mr Pashchenko and 10 of
his colleagues were detained for six hours questioning by the FSB, the
successor to the KGB, while carrying out research around Novosibirsk last
summer.

At Seversk they were told the town was closed but that they could carry out
research in the rivers a few miles away. The environmentalists found
contaminated fish with radioactivity more than 20 times the safety level,
they said.

******

#3
Financial Times (UK)
3 November 2000
Oligarch to stand for regional governor
By ANDREW JACK

The head of Norilsk Nickel, Russia's metals and mining group, plans to stand
for election as governor of the Taimyr autonomous region, in a fresh sign of
the tight links between business and politics in the country.

Norilsk Nickel confirmed yesterday that Alexander Khloponin, its chairman,
would run for control of the Siberian region north of the Arctic Circle in
which its principal assets are based.

The move comes at a time of substantial turnover in the political leadership
of Russia's 89 regions, with more than 30 elections planned before the end of
this year, and signs that the Kremlin is taking an increasingly close
interest in the outcome of the races.

Mr Khloponin's candidature follows the decision of Roman Abramovich, oil and
aluminium magnate reportedly close to the Kremlin, to stand as governor for
Chukotka region in Russia's far east. His position has been strengthened by a
tax inquiry against the incumbent, Alexander Nazarov.

Mr Abramovich, as well as the high-profile tycoon Boris Berezovsky, were both
elected to the Duma, Russia's parliament, last December, although Mr
Berezovsky resigned in the summer while strongly criticising President
Vladimir Putin's administration.

The shift into politics by business leaders comes despite claims by Mr Putin
during his election campaign that he would keep oligarchs at an "equal
distance", and warnings after his appointment that they should focus on their
businesses and steer clear of politics. Politicians in the Duma have immunity
from prosecution, although it can be lifted by a vote within the parliament.

Governors have also traditionally benefited from some protection, although
new legislation approved by Mr Putin this summer gives him the right from
next year to remove governors who have broken the law.

While Chukotka has some mineral and fishing resources, Mr Khloponin's bid for
Taimyr appears far more directly linked to his business interests: the city
of Norilsk and the group's principal mines and factories are located in the
gubernatorial district.

******

#4
Information area to be regulated by law
ITAR-TASS

Moscow, 3rd November: Efforts aimed at legal regulation in the information
sphere on national and international levels, also as regards ensuring
information security, must assume an important place among Russia's political
priorities, Aleksandr Yakovenko, director of the Information and Press
Department of the Russian Foreign Ministry, said at a conference on
international law at ITAR-TASS on Friday [3rd November].

Yakovenko said new information technologies have become an important
instrument in world politics as they seriously influence the shaping of
public awareness everywhere in the world.

Yakovenko said the topic of international information security is
particularly important. Russia suggested discussing it within the United
Nations framework. Yakovenko expressed the hope that the issue will hold an
important place at world forums, also during the preparations for the G-8
summit, to be held in Genoa in July 2000.

Yakovenko also said that Russia is working intensively in international and
regional organizations over documents in such areas as cross-border
television, digital television and radio broadcasting, the impact of new
information technologies on human rights and liberties.

He said Russia is going to continue these efforts to ensure that the norms
worked out at an international level and meeting Russian's interests be
included in national laws more often.

******

#5
UPI
Analysis: Russia's minister of truth
BY ARIEL COHEN

WASHINGTON, Nov. 3 (UPI) -- An ominous development is occurring as the
Putin administration consolidates control over Russia's mass media:
monopolization of the advertising market at the hands of Kremlin cronies.

Kremlin-dominated advertising monopoly will decide who receives
advertising revenue and who will not, who will economically live and who
will economically die. The ad czar will control the media in a way different
from, but comparable to, the Soviet censorship apparatus.

Thus, in a unique Russian way, the free market mechanism of ad revenue
supporting the free press has been subverted to make it a Kremlin tool.

The key figure in this is Mikhail Lesin, Russia's minister of the press.
His department is known as "The Ministry of Truth," straight from George
Orwell's "1984." The minister has great power to license TV and radio
stations, runs state-owned broadcasting facilities, manipulates legislation
and tries to prevent Western investment in the Russian media and ad market.

Lesin threatened to close a mud-racking Russian newspaper in which Mort
Zuckerman, publisher of U.S. News and World Report, is a partner, because it
exposed too many of Boris Yeltsin's family's and cronies' financial
shenanigans. Artem Borovik, the paper's Russian publisher, died in a
mysterious plane crash.

Lesin, a flamboyant tycoon in the Putin Cabinet primarily populated by
bureaucrats, ex-KGB agents and economists, projects the image of a rich ad
man, complete with gold chains, Armani suits, and a chauffeur-driven
Mercedes-Benz 600.

However, the bon vivant image is misleading. According to Russian media
experts, Lesin abuses his high-level position, utilizing his Kremlin
connections to take unfair advantage in business, forcing Russian media to
become increasingly dependent upon the Kremlin in the process.

The vehicle to his "success" is Lesin's group of companies, Video
International, which controls up to 70 percent of the Russian $200 million
plus TV advertising sales market. While Lesin officially resigned from Video
International in 1994, he remains in full control of the company. His
personal wealth was estimated by ex-Prime Minister Yevgeny Primakov at in
excess of $180 million.

Lesin started his business career in the late 1980s as a porn film
distributor peddling bootleg Western fare. He then became commercial
director and later CEO of RTR, Russia's state-owned, but respected TV
Channel Two. But numerous audits by the Duma's auditing arm, the Russian
Accounting Chamber revealed massive mismanagement at the state-owned channel
during his tenure. Under Lesin, Video International received exclusive
rights to sell advertising on the channel he managed.

Lesin was a key player in Yeltsin's 1996 re-election campaign, writing and
producing some of its best ads. He was also the trusted TV interviewer to
whom Yeltsin revealed his decision to undergo a quintuple bypass in a
nationally televised broadcast.

Right after the 1996 elections, Lesin was rewarded with the post of head
of the public affairs division in the Kremlin, but he left after only months
in office. In 1997 he became the First Deputy Chairman of the State
Committee on TV and Radio -- the predecessor of the Ministry of Truth.

Reportedly, he personally edited the TV tape showing then-Prosecutor
General Yurii Skuratov, a Yeltsin foe, cavorting with prostitutes and
authorized nation-wide broadcast of the damning footage on the national
news. The tape was procured under the supervision of then-Federal Security
Service (FSB) director Vladimir Putin and resulted in the firing of
Skuratov, who came uncomfortably close to investigating Yeltsin's business
associates and family.

Video International controls ad sales for Russia's Channel One (ORT),
Channel Two and TV-6, and is expanding the media it controls.

A recent Moscow scandal made Lesin a particularly notorious figure in the
Russian media world. The minister of truth personally signed an addendum to
a "sales agreement" extorted from opposition media mogul Vladimir Gusinsky.
In June Gusinsky was jailed in the ill-famed Butyrki prison in order to
secure the sale of his Media Most holding company to the state-controlled
natural gas monopoly Gazprom. The addendum promised Gusinsky freedom in
exchange for shares of his company. He was since left Russia.

MOST-Media Deputy Chairman Igor Malashenko accused Lesin of demanding a
$15 million kickback -- 5 percent of the $300 million sale price of the
company.

When the scandal broke, Prime Minister Mikhail Kasyanov publicly rebuked
Lesin at a Cabinet meeting, but without serious consequences. After all, the
hiring and firing of important ministers is Putin's prerogative. And the
president seems to be comfortable with Lesin's efforts to consolidate the
media under Kremlin control -- conflict of interests and ad monopoly
notwithstanding.

Ariel Cohen, Ph.D., is a Research Fellow at the Heritage Foundation.

*******

#6
BBC Monitoring
Azeri experts decry Russian software at newly-opened election data centre
Text of report by Azerbaijani TV station ANS on 2nd November

[Presenter] The election information centre was opened today [2nd November].
International observers and media representatives will be able for the first
time in Azerbaijan to monitor the election process at the centre which is
equipped with modern technical equipment. Data from precinct electoral
commissions will arrive at the centre every hour and then be reported to the
population.

The centre's director, Igbal Babayev, has said that the system was set up by
experts from the state students' admission commission and the Central
Electoral Commission [CEC]. The election process will be transparent in order
to remove all doubts. In addition, information about voters' sex, age and
other data is collected by computer. This will allow information to be
gathered on what group of voters had the biggest turnout.

Some experts believe that although Azerbaijani President Heydar Aliyev's
decree on the creation of an election state automatic system of 3rd September
stipulated the creation of a national software, this has not been done and
experts from Russia are installing the software from Russia's Vybory
[elections] state automated system in the CEC's information centre. Experts
have a negative opinion of the system. They think that the system does not
meet international standards. The director of the CEC's information system,
Igbal Babayev, has said that only sections of the system are used and for
completely different reasons:

[Igbal Babayev] Azerbaijani and Russian legislations are in conformity with
each other. It would have taken a long time if European systems were
installed. But this does not mean that the entire software being installed
here is Russian. It is not like that. We have our own software and we will
work with it.

[Correspondent] They say that this system is being installed because it is
easier to commit fraud with it. What is your opinion?

[Babayev] First, under Azerbaijani law the data we issue is not legally
binding. You know this, don't you? Therefore, as for falsifying data, if you
want to monitor it, you can have observers in precincts and here to monitor
how this data is being transmitted. I think that it is just idle talk to
speak about examining this system. There is a simple way to verify data -
data from regions must come here. Bring your representative here to monitor
it.

******

#7
Stratfor.com
Russia: Curtailing President’s Influence in Criminal Cases
November 4, 2000

Summary
A group of Duma deputies are trying to push through a draft law to transfer
powers from the Prosecutor General's office to the Justice Ministry.
President Vladimir Putin often uses the Prosecutor General’s Office to
pursue personal political goals. This law, if passed, would balance legal
and investigative power between Putin and the Duma, limiting the
president's ability to manipulate law enforcement for political gain.

Analysis
A group of deputies in Russia’s lower parliamentary body, the Duma, have
prepared a draft law that would transfer the task of monitoring federal and
regional law implementation from the Prosecutor General's Office to the
Justice Ministry. The parliament would also appoint special prosecutors to
an investigation if legislators believe the Prosecutor General's Office
would not conduct one objectively.

The Kremlin often uses the Prosecutor General's Office as an agent to
pursue political goals, especially in the war against the oligarchs. The
proposed law would represent a new balance of power between Putin and the
Duma that could limit the president's ability to manipulate law enforcement
for political gain.

Putin has repeatedly claimed the Prosecutor General’s Office is an
independent law enforcement agency free from Kremlin control, according to
United Press International. In practice, however, the prosecutor general
often acts under pressure from Putin when launching, delaying, or
withdrawing an investigation serves a particular political purpose. Nikolai
Volkov, formerly with the Prosecutor General’s Office, said in an August
interview with Kommersant Daily that he resigned from investigating a case
because of political pressure from the government.

Lately, the Prosecutor General’s office has played a key role in Putin’s
media war against oligarchs Vladimir Gusinsky and Boris Berezovsky. Both
men are powerful business tycoons who control media groups and television
stations that have criticized Putin.

In June, the Prosecutor General’s Office brought corruption charges against
Gusinsky, who authorities briefly jailed in June. Then the government
abruptly dropped the charges and released Gusinsky after he signed a deal
with the government handing over shares of his company, Media-Most, to a
government-controlled company, Gazprom-Media. In September Gusinsky reneged
on the deal, claiming he signed it under duress. On Nov. 1, the Prosecutor
General’s Office announced it would bring criminal charges against Gusinsky.

That same day, the office also announced it would bring charges against
Berezovsky as well. The Prosecutor General’s Office has been in an
on-again, off-again embezzlement investigation involving Berezovsky and
Russia’s Aeroflot Airline. Volkov resigned around the same time Berezovsky
agreed to hand over some of his shares in national station ORT to the
government. Now Berezovsky refuses to hand over the shares, and the
Aeroflot case is gaining steam again.

In September, Berezovsky appealed to Duma member Sergei Ivanenko to launch
a parliamentary inquiry to the head of government on the use of law
enforcement agencies for exerting pressure on the mass media, according to
ITAR-Tass. Ivanenko is one of the three Duma members who prepared the draft
law that would transfer Prosecutor General’s Office powers to the Justice
Ministry.

The Justice Ministry is not accountable to the Kremlin, but answers to
Deputy Prime Minister Kasyanov and the Duma. If the Duma passes the law,
Putin could lose some of his power to influence criminal investigations.

*****

#8
Date: Thu, 02 Nov 2000
From: SFPalladin@aol.com (Greg Smith)
Subject: Re: 4613 Kobaladze

Kobaladze argues that the FSB should stay out of politics and "do what it is
designed to do, catch spies, combat terrorism, the drug business and so on."
However, the interview raises a larger question of whether Russia needs two
federal police agencies. In the US, most criminal enforcement is strictly a
local function, with the FBI enforcing federal laws. Russia on the other
hand has a national police force under the Ministry of Interior or MVD.

The FSB is a continuation of the old Second Chief Directorate of the KGB.
It's senior career leadership was recruited, trained and socialized into
Chekist traditions
which they maintain even as we approach the ten year mark of the post-Soviet
era. This baggage inhibits it from gaining the confidence of the citizenry
and cooperation from western law enforcement agencies. Numerous meetings
with senior and line MVD officers over the past several months have led me to
believe that there are, "pockets of progressivism" within their structure.
That is, that there are leaders who, in spite of great obstacles such as poor
funding and corruption, would move the MVD in the direction democratic
professionalism.

The dissolution of the FSB, merging its assets into the MVD would be a step
forward to building civil society in Russia. Moreover, investing the savings
achieved by eliminating duplication into developing the Militia as a
professional police corps could be a significant step forward towards
building a democratic, prosperous and peaceful society.

*******

#9
Date: Thu, 02 Nov 2000
From: Vlad Ivanenko <vivanenk@julian.uwo.ca>
Subject: Who benefits from "Forget Russia" policy

The policy to "Forget Russia" would be consistent with the previous
Washington approach to that country. Initially, it was shock therapy that
was assumed to give a "swim or sink" lesson to Russian economic agents. Now
some think that time is ripe to teach the Russian political elite the same
lesson inviting them for a
bumpy ride.

On the Russian side such a shift casts death spell on the bureaucrats who
have survived since the end of communism. If a new international race (e.g.
in arms or trade or policing the world) is unleashed in real, Russia will
need a quick overhaul of its system of governing to meet the challenge.
"Quick" does not always
mean "good". Certainly, Putin and his ilk are the best suited to this
scenario: they are "leaner" (and, probably, "meaner").

As to America, its claim as a superpower would be put on trial. My
impression is that Washington is not prepared to the race and might fail
losing its present world status

Since the U.S. government controls the first move, the game "Forget Russia"
will not be started at all.

******

#10
Date: Thu, 02 Nov 2000
From: ykotler@whru.com (Yuri Kotler)
Subject: Sergei Vorobiev: RUSSIAN CHESS. CHAPTER 1.
DEFENSE FROM THE STATE

RUSSIAN CHESS. CHAPTER 1.
DEFENSE FROM THE STATE
By Sergei VOROBIEV
Managing Partner, Ward Howell International *
Chairman, Club 2015

The 13th Function

In any type of business, The MANAGER is the most important actor. Looking
to find the most successful corporate executives around the world is our
business. It is rooted in ever-greater demand for new managers. On the
basis of THOUSANDS of case studies we make annually to analyze director
conduct on the market (including both Russian and world markets), we are
able to identify key factors for success and can compare countries,
markets, industries and enterprises through the scrutiny of their managers'
performance. The resulting picture is the portrait of a hero winning on the
market. During the past year, we have had a unique opportunity to see, in
vivid terms, the key characteristics of such a "hero figure."

The value of managers who have mastered certain functions can be deemed an
indicator of where the particular business is heading. Most CEOs in market
conditions are able to perform, to varying extents, 12 functions. A
market-style manager is obliged to:

1. Be a strategist,
2. Know marketing inside out,
3. Account for, control and manage finances,
4. Know the various aspects of production operations,
5. Be able to organize sales of his company's products,
6. Develop new products,
7. Implement information technologies at his enterprise,
8. Perform administrative duties,
9. Know law in all its entirety,
10. Manage human resources,
11. Ensure security,
12. Be concerned with public relations and advertising.

The principal distinction of today is that we no longer have an integral
market. A structural description of the existing operational environment
requires that at least once additional criterion be introduced. We call it
the 13th function. It is the latter's command that makes managers in Russia
way more valuable than their less proficient colleagues.

Defense from the State has become the most precious executive quality for
both hired managers and owners. The ability to put up such defense is the
manager's 13th function, which today is the driving force behind the
success of most major market players. The more severely the market
agonizes, the more important this faculty becomes compared with the others.

In other words, in Russia, we don't really have a market in the
generally-accepted sense, because the State is our main partner, client,
and enemy. Given this environment, we seek in this article to examine, not
the State itself, but rather how managers deal with the State in this
unusual environment..

Chess, Russian-Style

Professional chess players know that Bobby Fisher had a formula for
complicating the rules of the game and making it more difficult to win. In
chess "Bobby Fisher-style," lots are cast to determine the location of the
chessmen behind the pawns.

We would describe the game played by the more successful Russian managers
these days as Russian-style chess. Its difference is that the chessmen are
arranged by whoever plays white and at his own whim. It is the stronger
players that also determine the chessmen's number. Russian chess is played
both at the chessboard and in the auditorium where the spectators sit.
Playing black when at Russian chess is a really tough proposition, as one
does not know in this case how the pieces are deployed and how numerous
they are. One should not play at the chessboard, as the player then himself
becomes a bargaining chip, which may be traded away. One cannot but play in
the auditorium, as it is there that it is decided who has won. One also
needs to learn to play under the table, since it is there that the players
can quietly come to terms, leaving the onlookers unawares of the deal thus
struck. Russian chess is a game well known in politics and one which is
zealously played today by business. Played with the latter's main opponent
- the State.

Let us give their due to Russian chess players: theirs is a hard game.
Those played all around them are shell games and like other extremely
primitive diversions. Russian chess players are much more sophisticated,
their game is subtle and sustained. It is they themselves that set the
rules of the game.

The Chess Players: Management Skills in the Transition Period

The rules are now in place. The main opponent, client and breadwinner is
likewise known. This determines the whole set-up on the top managers
market. The leading roles belong there to executives of yet another
transitional period - one of transition not from the plan-based economy to
a market, but from one market of privileges to another - and these managers
play both at and under the chessboard. They resemble "real managers" and
originate from the same environment, including training environment, as the
latter - but there is a world of difference between them.

When speaking of top managers, we mean managers capable of working in
market conditions. The market presupposes a great multitude of clients and
as many competitors. A manager in a market environment should harness the
12 functions listed above, which are not the same as what a director in
Soviet times was supposed to be able to do. The expertise and experience of
those directors working under a plan-based economy come to only one-fourth
of the knowledge and skills that new-style managers are required to possess
amid free competition and clients' freedom of choice. What did a director
at the time of the State Planning Committee have to learn? To manage his
enterprise competently (administrative duties), to know the various aspects
of production operations, to be able to wheedle out funds (an aptitude
which can, with reservations, be recognized as acquaintance with certain
aspects of monetary issues), and to know what's what in law (but not be too
dexterous in these matters; otherwise, this will be a short cut to prison).
Towering above him, in the Center, was the big planning brain, which
thought and took care of everything else. The player was alone and played
against himself, being both the versatile consumer and the sole competitor.
This does not mean that the director then was more primitive than the
manager now. In some ways, he was even more mature. He had to shoulder the
upkeep of all social service facilities, was responsible for personnel's
ideological loyalty, grappled with eternal shortages of everything, had to
entertain the local communist party nabob during trips to the bath-house,
etc. The manager in market conditions no longer has to master any of these
functions, because the need for them goes with the advent of the market.

But the present-day market is hypertrophied and ugly and it is only their
knack for working with the State (i.e. lobbying, securing preferences by
hook or by crook, arranging offsets, devising crafty schemes, obtaining and
re-allocating subsidies, doing some more scheming, etc.) that enables the
fittest to survive and develop. One idiosyncratic feature of those directly
working with the State, the administrators/executives with the requisite
proficiency, is their much higher worth compared with professional market
managers.

Senior executives such as directors of major companies or their deputies
may make USD 80,000-250,000 a year. This is their limit. They may still
earn more if they become partners in their firm or through returns on their
equities in its share capital. But their salaries cannot go any further up.
A vice-president for public relations at a large industrial or financial
business cannot claim more than a monthly USD 10,000 in compensation, no
matter how efficient he is. But if he knows enough to cope with the 13th
function and protect the corporation (by lobbying for its interests), his
take-home pay may grow several times over.

A vice-president for finances, who knows how to pull off netting-out
schemes with the State or to coax it into granting his company funding that
needs not be repaid, may well know nothing else. A general director adept
at the 13th function spells survival and prosperity for his company. It is
quite possible that Russian chess primers will be written at some time to
explain how, say, the Abramovich gambit differs from the Bykov defense and
when is the right time to resort to Vinogradov's endgame tactics.

A Russian chess player is Janus-faced. A market-grounded manager is, by
definition, professional, loyal, independent, unprejudiced, unbiased,
honest, outspoken and highly visible. A Russian chess player is
professional, loyal, dependent, prejudiced, routinely biased, occasionally
honest, always tight-lipped and reclusive.

Russian chess players include both queens - resourceful and powerful pieces
- and bishops - which only just manage the 13th function, but are still
quite handy in modern conditions. (The reader is invited to himself
determine the functional designations of the figures represented by former
premiers and to try and solve a chess problem concerning the role of
Russian security services in latter-day business or checkmate a coal
marketing specialist in two moves).

A Game Played by the Rules

Professional managers whose managerial arsenal is limited to only 12
functions, who nonetheless can govern most diverse corporations and for
whom it is practically all the same in which country to work because they
are versatile and prepared for globalization, have found themselves crowded
out of the more lucrative sectors. Their abilities, including executive
talents, are not really useful when it comes to plotting intricate schemes
and organizing close-in defenses. They are often allowed to take up the
reigns inside a project, but are no longer permitted anywhere near the
chessboard.

They have committed a mistake that is, beyond doubt, a professional lapse.
They entertained a tactically wrong idea of how the Russian economy would
develop, and failed to realize that it was confidently en route not towards
market arrangements and the world economic system, but to another period of
transition with its peculiar laws. The error consisted in their
underestimating the most crucial function of this transitional period and
failing to become skilled at it in time.

They would not believe that the country would trip over again so soon after
crashing down in the same place. They did not even suspect how many people
there were willing to slurp from the ubiquitous hog-wallow.

This mistake costs dearly in a short game, but does not make any lasting
impact on a long game. This is because, firstly, real managers are smart
enough to be able to learn the all-important function of the present-day
market and, having done that, to outplay many a strong Russian chess player
by taking advantage either of the newly-acquired higher skills or even
simply the benefit of numeric superiority. This is also because, secondly,
market-trained managers know where they are heading. When we claim that the
future belongs to them, we look at the rest of the civilized world that,
one would like to believe, all of us would like to emulate. In a global
market, the winners are those who can compete globally. The Russian market
is as yet really at home only as far as price competition is concerned. One
can certainly thank devaluation, but one should also be aware that it is
impossible to beat others all the time solely owing to lower prices. It is
imperative to start thinking not of oneself, but of one's clients, product
quality, and the clients of one's clients. This is exactly what top-notch
executives can do when playing on civilized turf. There, of course, the
13th function is also invoked by the bigger players, but they control much
less than one-half of the field (unlike the situation in Russia), which is
why the playground remains civilized and the other 12 functions prevail.

The Playing Field

Several years ago, we concluded that our hero was one - the market-trained
manager, the creator of a civilized operating environment. Nowadays, there
are several types of heroes. They are different and live in different
worlds that often do not even overlap. This is why it is incorrect to try
and compare them one to another: they can only be compared within their own
"habitats," but the latter - their operating domains - can be compared, too.

Today, we identify three principal sectors of the playing pitch, which
rather resembles a sticky and heavy-going swamp with occasional market
atolls and other islets.

The first sector - the "parastate" as Irina Khakamada aptly called it - is
not just an island, it is a whole archipelago whose share in the Russian
economy today amounts to a hefty 60-70 percent. This category comprises
both the State proper and all those enterprises which surround and sponge
on the State as the re-allocation of the latter's resources is their prime
dependence and source of extensive growth. Importantly, their overriding
goal is growth rather than the generation of profits, as growth even
without profits appears all-sufficient. The same category includes all
natural and unnatural monopolies and most of the larger enterprises and
financial ventures. The central landmass of the archipelago is certainly
occupied by the fuel and power complex. The nearby isles are rich in
natural resources. The voids are filled by duly authorized go-betweens.
Together, they make a kind of modern State Business Planning, Procurement
and Marketing Committee in which the State and business are so closely
intertwined that outsiders cease discerning any difference between them.
This is a remake of the Soviet market of privileges, only this time not in
kind (the market makes itself felt here as well!), but in monetary form.

>From the standpoint of the contemporary art of management, the first sector
is a paradise for Russian chess players. It is their happy hunting grounds
and it is there that they engineer the greatest returns for their
employers. The 13th function there is dominant and makes for survival,
growth and affluence.

The second sector - the "paramarket" - accommodates what are, from the
point of view of market conduct, "spontaneously organized" or "stray"
enterprises, most notably those elbowed out of the first sector after
failing to get their finger in the pie of the State's resources. This
sector is the home of most industrial enterprises inherited from the past.
Previously, they controlled the lion's share of the Soviet economy working
to meet the needs of the military-industrial complex. In terms of
territory, the "have-beens" still occupy most of the marshy playground,
while being responsible for merely 20-30% of the economic product. After
being verbally dispatched to the market, they have been simply forgotten
(because they have never reached it), and their places near the State have
since been taken up by others. The slower the wandering enterprises were
weaned away from public resources, the lesser chance they stand to make it
in market conditions, and vice versa. Protracted stay in the second sector
signifies inexorable extinction.

Managers there are also few and far between. Russian chess players quit
this ground for the first sector and market-minded managers are practically
never encountered in these places, too, with those happening to land there
by chance immediately fleeing elsewhere. Too bad, considering that the
rescue of enterprises in the second sector lies precisely in proper
management (as will be discussed a little further on).

The third sector is the Market itself - the "promised land" where all have
allegedly been sent to, the companies operating according to market laws
amid more or less free competition. These include those industries which
produce goods and services for the populace which behaves in a
market-spirited fashion by demanding a freedom of choice and quality
products, as well as new industries which did not exist during the times of
pervasive planning and so are not sagging under the heavy legacy of the
past. The latter comprise information technologies, the stock market,
professional services and consulting, and partially telecommunications and
transport. It is there that most Western corporations cleared for inning
operate. After a decade of work and "thanks" to developments taking place
over the past year, they maintain a small foothold accounting for 10-15
percent of all economic space.

It is these companies that are presently out to preserve the civilized
operating environment and are manned by multifunctional professional
managers. It is the third sector that today personifies the Russian market
or, more precisely, whatever has remained of it. Nevertheless, they
constitute the type of company holding the key to the future if we are
still against backpedaling to behind the "Iron Curtain" and are preparing
for globalization.

(Lovers of theory are invited to guess, on second thoughts, whether the
arrangement of sectors and pieces, as described above, is a result of a
7-to-10-year combination, a kind of queen's side castling with the swapping
of the military-industrial complex for the energy complex under the cover
of the market sacrifice and to appreciate the legerdemain of the
masterminds of all this. Or has all this been a result of a happenstance?)

The Dynamics of the Game

The sectors described above are not static. There are changes and
enterprise and manager movements taking place all the time both within them
and along their borders.

In the first sector, two vectors of movement are in evidence. Since the
resources available there are limited and finite, while survival there is
assured only if one keeps continuously drawing on these reserves which are
still controlled by the State, the first vector points precisely in this
direction. The closer enterprises in this category are to the State, the
greater the guarantees for their continued existence and growth. But the
same kind of game once - ten years ago - already ended in defeat, so
playing it means falling into the same trap. In a market economy, this
behavioral pattern leads to stagnation and is a precursor of yet another
period of transition, but it is the most successful short-term strategy
there, guaranteeing success right until the final depletion of all reserves
and the utter internal demoralization and disqualification.

Let us repeat yet again that players in the first sector include many
shrewd and all-around chess players. Their talents are not limited to their
deftness at the 13th function and some of them are perfectly aware that
unlimited resources can only be found in the market sector that creates
added value. So it is there that the second vector is directed from the
first sector. Players are siphoning a portion of their assets off to the
market and make inroads there to launch business ventures called upon to
act amid competition. What does this tactic signify? Does it mean
preparations for globalization or just the distribution of the eggs between
two baskets as a precaution? The questions need to be put to these Russian
chess players themselves, but whatever the answer, the trend itself is a
positive development. While in the third sector, incidentally, players from
the first sector cannot do in practice without the assistance of
professional market-trained managers who are just stronger on their own
ground. A sensible division of labor thus occurs. When commissioning
market-style enterprises, the first sector acts as a kind of "roof" by
protecting them from itself and warranting their competitive edge compared
with independent players. One example is the conduct of the Alfa financial
group, which has blessed the market-style behavior of Tyumen Oil Company
and even retained foreign managers to govern the latter and Alfa Bank.

The second sector is less dynamic, but is also keynoted by two overriding
tendencies. Attempting to return to the first, "feeding" sector is the
initial semi-conscious striving of managers in this sector, who have spent
their lives serving the State. Nearly all such attempts are doomed, because
standing guard over the fist sector's frontiers are specially trained young
Russian chess players who will not let any aliens (however like their own
ilk such outsiders may seem) through to nibble on the limited reserves
still on offer behind such defenses. The chance to break through does
exist, but the odds are real long, as the time has changed. The chances of
survival, though, are very good for those eager to enter the market sector.
They will find the going much rougher than those already operating in
market conditions, as the newcomers often have cumbersome and inefficient
enterprises hanging like albatrosses around their necks, while they
themselves are skillful neither at most of the 12 conventional functions or
at the aggressive 13th function, since they have got accustomed to living
amicably with the State. Their salvage lies in market survival strategies,
harsh restructuring with the abandonment of everything that is not
efficient, a search for civilized strategic investors, the re-gearing of
production to meet the needs of market consumers, the rejuvenation of the
management, the retention of both professional market-style managers and
Russian chess players to fill key positions, the delegation of powers, and
a desire to learn things new and do so quickly. The commencement of
affirmative action in the second sector can be exemplified by the
Cherepovets iron-and-steel works, the Uralmash heavy-duty machinery plant,
and the Sukhoi air fighter factory.

The third sector is made up of market-oriented companies. It is there that
the manager corps is the strongest and most efficient and it is there that
added value is generated and resources are produced, not just shared out.
The businesses concerned are more transparent and vigorous companies better
adapted to operating in a competitive environment. They are also more
vulnerable as far as protection against the State is concerned. The
function of defense against the State in their case is underdeveloped
compared with the other 12, because their managers were first trained that
way at Harvard and then taught the same way in Russia as well, although for
only a brief time before they awakened to the new realities. The third
sector is today of little interest to the chief player (the State Business
Planning, Procurement and Marketing Committee), because companies in this
segment are not itching to reach the State's resources it allocates and do
not produce enough to make it want to take it all away at once. But this is
a temporary equilibrium, as the nearing of the State and the market isle
(which has only been allowed to develop, because it has been completely
forgotten by everybody) is inevitable.

Market companies will want to regain a portion of the civilized operating
environment and will very soon find their living space - the small pieces
of land left to them - too cramped. When recapturing their Lebensraum, they
will actively master (and are already mastering) the 13th function, will
begin organizing their own lines of defenses, and will quit the chessboard
to bank in where necessary. Then, Russian chess players will finally have
worthy rivals, as some market-trained managers definitely get a kick out of
playing Russian chess. They have found this game to be not too complicated,
but very profitable. These managers will find their way into the first
sector. After that, they will be lost for the market for ever, as they will
no longer be their own old selves, but a different mold of executives like
all Russian chess players, but their advent to and resulting competition in
the first sector will hardly be welcomed: there, they are not used to such
rivalry.

The State will turn its attentions to the market as a source of income as
soon as it has the time and as soon as its own limited reserves are all
distributed. Then, the third sector will have to brace itself not only for
work, but also for defense. Should the game be played to whatever rules,
such defense can be organized efficiently just owing to the habit of
beating off competitors, however large.

(Budding chess players are invited to find the figures of "market
reformers" on the board and determine the vector of their movement over the
past few years… Well done. But these pieces are large, so they could have
hardly been missed anyway.)

The roads we choose

The short game of Russian chess players appears to be all-set and
understandable. What the generation of new market-trained managers will do
in this situation is also an open secret. They will start as taught - with
the development of a new strategy. The first choice, therefore, is
extremely simple: leave to settle down where everything they have been
taught holds good and works. The second option is more challenging: remain
in the hostile environment without a future. The conclusion is obvious: if
you decide to stay put, you will have to recoup the future.

Market corporations need a market as big as the whole country or the entire
world. Collective civil defense is an efficient and the most cost-effective
way of recuperating the market. The business strategies of any corporation
are secondary to national development strategy. Therefore, the market's
common task is to predict the behavior of the main player. Let us get back
to the strategy.

One example of the beginning of collective action in the new conditions is
the Russian Development Scenario for the Years Until 2015 project - an
attempt by a group of professional managers to determine a mid-term script
for the country's development for their own use. The project was undertaken
as any corporate project at the time of crisis - on an arms-length basis
and in a thorough and professional manner, with the enlistment of as many
experts and participants as possible. The producer team that started it all
has founded its 2015 Club and is going to acquaint all those willing with
the results of its research.

The scenarios it produced differ, but according to even the sole upbeat
one, the professional market-trained managers will have to continue
building their businesses on islets for another 4-6 years, expanding their
civilized operating space inch by inch. If they win the first sector's
understanding and support, the market expansion will accelerate and the
task will be achieved sooner. Judging by the periodic launch of efficient
enterprises from beyond the chessboard, such cooperation is possible.

The other scenarios depict a relapse into a quickly fading past or sluggish
plodding through the present without any future ahead.

If the new generation of competitive managers, while resigning to different
sectors and different functions, is still able to exchange knowledge and
come to terms on a reasonable division of labor, then "The Tale of Wasted
Time" or, still worse, "The Tale of a Wasted Future," will not become our
children's Bible.

· Ward Howell International has been in executive search business in Russia
since 1993

· The author thanks the partners of Ward Howell International Mike Tappan,
George Abdushelishvili, Yuri Barzov and Yuri Kotler for their help in the
preparation of this article.

*******

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