Russian Oligarchs Weigh Succession

Russian Oligarchs Weigh Succession as ‘Bears’ Prowl for Fortune

By Yuriy Humber and Maria Kolesnikova

July 9 (Bloomberg) -- For Alexander Lebedev, hardly a week goes by without a call from a crooked security-services agent or cop angling for a chunk of his $3.4 billion fortune. It’s not a lifestyle he wishes for his son, Evgeny.

“Business in our country is like wrestling with bears,” Lebedev said in an interview with Bloomberg Businessweek for its July 12 issue. “I’m not sure you’d want to pass that on to your son -- would you?”

At 50, Lebedev is already pondering a dilemma that will confront the entrepreneurs and industrialists who amassed riches in the early years of post-communist Russia: What will become of their billions -- sometimes acquired through unorthodox means -- and how should they plan their successions?

By 2020, the average age of the nation’s top 50 businessmen will exceed 60. While the wealthy may outlive the average male lifespan of 62, the transfer of assets to the next generation is a pressing issue in a country where property rights can’t be guaranteed and corruption ranks on par with Cambodia, Venezuela and Sierra Leone, according to Berlin-based watchdog Transparency International.

“There is almost no such thing as private property in Russia,” said Stanislav Belkovsky, a former Kremlin adviser who now heads the National Strategy Institute, a Moscow-based think tank. “It’s no harder for the authorities to fire an owner than it is an employee.”

Lavrik Sells Out

That was apparent in the fallout from a 2007 coal-mining accident in Siberia that killed more than 100 people, prompting the regional governor to insist on an ownership change. Georgy Lavrik, the pit’s general director, who had inherited the asset from his father a year earlier, sold his 40 percent stake.

Russia ranks 143rd out of 179 countries in the 2010 Index of Economic Freedom, with protection of private property “weak” and the judicial system “corrupt,” according to the Washington- based Heritage Foundation.

“The easiest asset to transfer to children will be cash in accounts outside of Russia, such as in Swiss banks, and property,” Lebedev said in his Moscow office. An ex-KGB agent who worked in London as the Soviet Embassy’s economic attache, Lebedev owns a house near Hampton Court Palace outside the city, a 13th-century castle in Italy, a French chateau and the Swiss Chateau Guetsch, with its own funicular and luxury restaurant.

Yevtushenkov, Potanin

Other billionaires are exploring a variety of options for transferring their wealth. Telecom magnate Vladimir Yevtushenkov has primed his son and daughter by giving them executive roles, while Vladimir Potanin has pledged his fortune to charity, including a stake in Russia’s biggest mining company.

With the potential fragmentation of some of the country’s biggest companies as owners account for numerous heirs, corporate stability may increase as business units become better focused, according to a report by UBS AG.

Even so, not all the oligarchs’ children, often sent abroad for their education, will be equipped with the political clout of their parents and some, such as the younger Lebedev, show little interest in returning to Russia to take the helm.

“The heirs may not want to be the hamster in the wheel,” said his father, whose Russian assets include about 19 percent of airline OAO Aeroflot and 26 percent of aircraft leasing company Ilyushin Finance Co.

Alexander sponsors his 30-year-old son’s investments in Europe, which include London’s Sake No Hana restaurant and Wintle fashion house. A graduate of the London School of Economics, Evgeny also runs London’s Evening Standard and Independent newspapers, which his father bought for 1 pound each. Evgeny’s representative said he had no time to comment for this article.

Freedom, Opportunities

“The new generation has more freedom,” said Anton Zingarevich, the 28-year-old son of entrepreneur Boris Zingarevich, who with partners sold 50 percent of Russia’s biggest paper producer Ilim Pulp Enterprise Ltd. to International Paper in 2006. “We also have more opportunities; the trick is using them.”

Shunning the paper industry, Anton chose to join his father’s Ener1 Inc., a New York-based maker of lithium-ion batteries for electric cars, calling the company more “revolutionary and interesting.”

Most of Russia’s top businessmen prioritize international experience and overseas education for their kids, with 80 percent of children getting schooled both in Russia and abroad, according to UBS, which polled 25 businesspeople.

That experience may bode well for Russia Inc., according to Ruben Vardanian, chairman of investment bank Troika Dialog. If the oligarchs’ children can avoid family strife and meddling from the Kremlin or corporate competitors, they may be better prepared to run businesses than their fathers were when they acquired them, he said.

“Russian companies will become more global and the children will be CEOs of global companies,” Vardanian said. “They will be more ready for M&A, for control of a global company.”