Wealth

Russian Tycoons Weigh Their Succession Plans


For Alexander Lebedev, hardly a week goes by without a call from a government security agent or cop angling for a chunk of his $3.4 billion fortune. It's not a lifestyle he wishes for his elder son, Evgeny, 30. (His other son is 1 year old.) "Business in our country is like wrestling with bears," says Alexander in his office in an elegant Moscow mansion. "I'm not sure you'd want to pass that on to your son—would you?"

Although just 50, Lebedev is already pondering a dilemma that will confront the entrepreneurs and industrialists who became superwealthy in the chaotic early years of post-communist Russia: What will become of their billions—sometimes acquired through unsavory deals—and how should they plan their successions? By 2020 the average age of Russia's richest 50 businessmen will exceed 60. That's young in most developed countries, but in Russia the average lifespan for men is 62. (For women, it's 74, though Yelena Baturina, a construction magnate and wife of Moscow Mayor Yuri Luzhkov, is the only woman among Russia's top businesspeople.)

Succession planning is fraught with tension in family-controlled companies everywhere, and perhaps nowhere more than in Russia. In this transition economy, corruption is rife. According to Transparency International, Russia ranks with Venezuela, Cambodia, and Sierra Leone on its scale of perceived corruption. Business owners say they can never be sure that the police, courts, and government will protect their rights. Political connections typically are more important than legal documents or equity stakes for survival. The risk is that as property shifts to the next generation, the Kremlin or corporate predators could seize assets held by heirs lacking their fathers' connections. "There is almost no such thing as private property in Russia," warns Stanislav Belkovsky, a former Kremlin adviser who now heads Moscow's National Strategy Institute, a think tank. "It's no harder for the authorities to fire an owner than it is an employee." Example: After a 2007 coal mining accident in Siberia that killed more than 100 people, Georgy Lavrik, the pit's general director, who had inherited the asset from his father a year earlier, sold his 40 percent stake when the regional governor insisted on an ownership change.

Russia's billionaires are exploring a variety of options for transferring their wealth. Telecom magnate Vladimir Yevtushenkov has put his son and daughter in executive roles and hopes they will eventually take over his empire. Vladimir Potanin pledges to give his fortune to charity, including a stake in Russia's biggest mining company, by 2020. (He plans to leave his three children comfortable but wants them to carve out their own futures.) Boris Zingarevich, 50, and his partners sold 50 percent of Ilim Pulp, Russia's biggest paper producer, to International Paper in 2006. At the time, his son, Anton, was more interested in investing in soccer. Anton, 28, has since joined his father's Ener1, a New York-based maker of lithium-ion batteries for electric cars, calling the company "revolutionary and interesting."

Although he won't discuss details of his plans, Lebedev is investing in property. "The easiest asset to transfer to children will be cash in accounts outside of Russia, such as in Swiss banks, and property," he says. An ex-KGB agent who worked in London as the Soviet Embassy's economic attaché, Lebedev owns a house near Hampton Court Palace outside London, a 13th century castle in Italy, a château near Paris, and the Swiss Château Guetsch, a castle with its own funicular and a luxury restaurant.

Lebedev still holds assets in Russia, including about 19 percent of airline Aeroflot and 26 percent of aircraft leasing company Ilyushin Finance. Yet rather than involve Evgeny in his Moscow businesses, Alexander is sponsoring his son's asset purchases and philanthropy in Europe. A graduate of the London School of Economics who also studied art history at the Royal Academy of Arts, Evgeny is chairman of the Raisa Gorbachev Foundation, which helps children suffering from cancer. He has invested in London's upscale Sake No Hana restaurant and Wintle fashion house and runs the Evening Standard and Independent. His father bought the financially troubled papers for one pound each.

So far the younger Lebedev has shown no interest in returning to Russia to run his father's businesses. "The heirs may not want to be the hamster in the wheel," says his father. (Evgeny declined to comment.) Only 36 percent of Russian business owners surveyed by UBS (UBS) and Campden Research say their children are involved in their companies. If the next generation isn't interested, the companies will simply hire professional managers, says Ruben Vardanian, chairman of investment bank Troika Dialog. Meanwhile, most wealthy business owners are investing in international education for their children.

Vardanian thinks this experience could bode well for Russia Inc. If they can avoid family strife and meddling from the Kremlin or corporate rivals, the oligarchs' children may be better prepared to run businesses than their fathers were when they acquired them. Predicts Vardanian: "Russian companies will become more global, and the children will be CEOs of global companies."

The bottom line: The transfer of wealth from one generation to the next is fraught with risk but may wind up being good for Russian corporations.

Kolesnikova is a reporter for Bloomberg News in London.
Humber is a reporter for Bloomberg News in Tokyo.

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