Analyzing Hermitage Fund's Approach to Corporate Governance in Russia

This case study examines the Hermitage Fund's investment strategies and its approach to corporate governance in Russia. The fund, managed by William Browder, focused on Russian equity securities and achieved significant returns through shareholder activism and by addressing corporate governance issues. The analysis explores various aspects, including the challenges faced by managers in Russia, the role of institutions and mechanisms in corporate decision-making, Browder's strategies and their impact, and the obstacles to shareholder activism. The case study highlights the importance of media and public opinion in influencing corporate behavior and the effectiveness of activism in a corrupt environment. It also provides insights into the advice given to Browder, the factors hindering shareholder activism, and the broader implications of corporate governance for investors and the economy. The case study is supported by references to relevant literature.

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1.Different ways in which manager in Russia to extract the value out of the company
and methods that are common for Russian environment?
There is little opportunity in Russia for managers to treat themselves properly. Managers
engaged in lending programs for stocks. "They steal and steal and steal,” Russian politician
Anatoly Chubais stated. It was about executives of Russian businesses. The consequence will
be the theft of managers and Russia's worst corporate governance time. The violence was
documented and identified by Good and Low as rife. Most major owners missed rules for
board meetings. They entered into group deals, which without their understanding, eroded
minority shareholders 'shares. There are two instances of this, Sidanco and Gazprom. Sidanco
revealed how the securities had been reduced by seeking to raise the number of outstanding
shares but to make them open to a monitoring community (David, 2016). Gazprom was a
paradigm of transactions between interest parties. Russian loans for shares are the most
possibly specific process, that is impossible in the US because of current banking
administrative and environmental regulations. The majority of management firms with
"money" often own a portion of the business. This ensures that their land and savings would
be lost.
2. Institution and mechanism are normally important in the decision by an insider that
would repose, that is effective in parts of the world but not in Russia
Some organizations operate in the other parts of the world, like in the US, such as corporate
legislation, accounting standards, and codes, protection regulators, and financial
intermediaries that prohibit insiders from misappropriation. Auditing services and stock
research are several market intermediaries. The Securities and Exchange Commission (SEC)
is one of the highest in the United States. The primary duty of this government agency is to
administer government securities regulations. One of the key strategies that the United States
has is to keep management accountable for their behavior in each organization. Many

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investors invest in the business such that the corporation becomes financially effective, as
well as federal regulations that prohibit the selling of insiders. The FSRC was founded in
1996 to help investors fight corruption. The idea that businesses opt out of compulsory action
defense was not effective, and that and other civil codes. The accounting principles in Russia
either did not work properly, or they concentrated more on government tax returns than on
financial investors. The shifting corporate framework of the corporations weakened the
company's charters and committees. The major owners of the corporations voted against the
boards and altered the charters of the corporation. That will contribute to department
concerns at each company's highest stage. Many businesses have a changing corporate
system, which has weakened several boards and systems of internal governance (El Ghoul et
al., 2019). The largest owners agreed to circumvent charters and pressure boards and push on
issues they and the owners benefitted. We think that because of two key problems, such
governance frameworks have not operated correctly. Firstly, the administration of Russia is
one of the most tainted economies. Most bribes were obtained without penalties by the
political and judicial authorities. Industries were empowered to influence or ignore courts.
Agency concerns in businesses were the other element. Managers in the financial sector have
faced several problems since the privatization was generated by voucher privatization.
3. Browder contention and its difference from traditional methods. Reaction to the
Browder point of view
His effort was to assist in creating a more realistic path for the Russian sector to help Russia's
economy by spending on individuals and taking chances in businesses. The Browder plan
will fund the Hermitage Fund. This concentrates on Russian equities using a conventional
system of market selection. It focused on the oil and gas fields, which accounted for 70% of
stock expenditure. The contributions per company will be limited to 10% of the stock or 20%
of the gross net worth. Browder introduced a different financial policy after the Russian crisis

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arose. Once Browder had gone to the Financial Times and the Wall Street Journal, BP had
affected his position with Sidanco inactively. The FSRC gets the focus as Sidanco responds
to Browder. This added to the legal affair of Browder and the FSRC with Browder and
canceled the issue. The stock price was reinstated, and the President of Sidanco resigned with
some administration (David, 2016). By throwing light on abuses, poor governance, and
holding the bulk of owners responsible for their behavior, the media control corporate
governance. They are forced to correct the deficiency. In some instances, the management
can shift.
4. Advice to Browder in summer 2002
Once Browder had gone to the Financial Times and the Wall Street Journal, BP had affected
his position with Sidanco inactively. The FSRC gets the focus as Sidanco responds to
Browder. This added to the legal affair of Browder and the FSRC with Browder and canceled
the issue. The stock price was reinstated, and the President of Sidanco resigned with some
administration (Kim, 2017). By throwing light on abuses, poor governance, and holding the
bulk of owners responsible for their behavior, the media control corporate governance. They
are forced to correct the deficiency. In some instances, the management can shift. These
businesses would prefer to partner with Browder to show that a company is trustworthy and
deserving of the investment. Instead of spending all his energy and resources to
demonstrating to everyone that is not trustworthy, he should spend considerably less on
helping individual firms who are truthful with their customers. He would need to adjust his
approach. If he decides to live comfortably in Russia, he would be better to invest. If he
moved to the United States, prosecuting a corporation is costlier because the newspapers
become familiar with that surprise. He's dependent on that very much. Now that he
understands Russian firms 'job ethics, he needs to live.

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5. what stands in the way of shareholder’s activism or style which are more generally
for investment funds?
Browder has spent both time and money as an activist. The most time-intensive endeavor was
to mobilize minority buyers, execute advertising ads, and compete for seats on the boards.
The outcomes will only be accurately compared to its risks, regardless of how risky it is,
while many people can join in this advocacy (Balabin, 2019). A significant issue to remember
is the uncertainty of whether or not a fund will be an investor in the long term. Funds bid for
same investors and activism costs are embedded in the fee structure of a fund. These
initiatives may be beneficial for fund investors, given time and expense. The involvement of
the shareholder will protect the capital of the lender. Corrupt services companies and high
rates of internal fraud can be seen openly. Browder was willing to maintain the worth of the
capital spent by hermitage in the energy firm Sidanco as he used the publicity approach.
Because of these endeavors, the company's chief and assistant managers quit Sidanco's office
as part of a significant management restructuring, "the stock price has reclaimed too many of
what they lost." Since investors realize that attempts to encourage advocacy are designed to
support their portfolios, they are more relaxed and secure. Company advocacy is beneficial
not only for consumers but for the economy as well. There may be a significant degree of
inequality in countries that lack corporate governance structures. Activism by shareholders
opposes illegal corporate activities, a move in a dishonest country's right path. "Bill shone a
light on Russia's darkest corners, and I see that as a great benefit to both creditors and the
nation as a whole," said Dominic Gualtieri, head of stock at Alfa-Bank (Dragneva, 2016).
Several of us praised the behavior taken by Browder. Countries such as Russia, which in
many ways are considered to be oppressive, not just industry, profit from advocacy. By
establishing a fairer working climate, consumers will profit from terrorist actions by selling to
residents.

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References
Balabin, A.A., 2019, January. The Implementation of Corporate Governance Standards in
Large Russian Companies. In International Scientific Conference" Far East Con"(ISCFEC
2018). Atlantis Press.
David, M., 2016. US–Russia relations in Obama’s second term: A damage limitation
exercise. The Obama Doctrine (pp. 164-179). Routledge.
David, M., 2016. 11 US–Russia relations in Obama’s second term. The Obama Doctrine: A
Legacy of Continuity in US Foreign Policy? p.164.
Dragneva, R., 2016. Corporate governance in Russia: law, instrumentality, and political
order. Corporate Governance in Developing and Emerging Markets (pp. 94-109). Routledge.
El Ghoul, S., Guedhami, O., Nash, R. and Patel, A., 2019. New evidence on the role of the
media in corporate social responsibility. Journal of Business Ethics, 154(4), pp.1051-1079.
Kim, J., 2017. Cross-Country Variation in the Effectiveness of the Media's Corporate
Governance Role. Working Paper, Purdue University.