Why Russians are keen to get a lord on board (The Times, London)

15.08.2006

WHEN Gagik Zakaryan, the Russian entrepreneur, met Lord Lamont of Lerwick at a party in Cliveden last year, the two hit it off immediately. Mr Zakaryan was looking to steer his bank, Unistream, to a London listing, and wanted to hire a non-executive director who would give his young firm the necessary international legitimacy. Sources at the bank say: “Lord Lamont is obviously a very respected figure in the City . . . and he’s a lord, which helps, too.”

Unistream is one of a growing number of companies from the former Soviet Union who are hiring lords as non-executive directors to improve their corporate governance credentials prior to London listings.

Some lords have their hands full. Lord Daresbury, a former jockey and chairman of Aintree Racecourse, became chairman of the board of Highland Gold, a Russia-focused mining company, and steered it to an AIM listing in 2003. The company ran into trouble in 2004 — its profits slid 30 per cent and costs surged. Lord Daresbury abruptly retired.

In 2005 he became a non-executive director of Evraz Holding, the Russian steel company, shortly before it listed on the LSE, and chairman of the board of KazakhGold shortly before it listed on AIM. KazakhGold completed a secondary offering of $100 million (£53 million) at the end of July. Lord Daresbury was unavailable for comment yesterday.

Mark Martin, head of equity capital markets at ING, says: “He’s a lord, and he’s also a well-known figure. It gives investors some comfort, someone they can talk to.”

The latest lord on a board of Russian corporates is Lord Robertson of Port Ellen, the former head of Nato, who joined the board of the Russian oil joint venture TNK-BP last month.

Even the largest and most reputable foreign companies are eager to appoint British advisers. Lord Renwick of Clifton joined the board of the Kazakh copper company Kazakhmys before its £661 million listing on the London Stock Exchange in December 2005. Lord Renwick was suggested by JPMorgan Cazenove, the lead-manager of the IPO, where he is a vice-chairman.

Lord Renwick said: “I am not on the board (of Kazakhmys) because I am a member of the House of Lords but because I have many years’ experience in the mining industry.”

Many other lords have joined the boards of post- Soviet natural resources companies preparing London IPOs, but not all have extensive, or any, experience in post-Soviet markets. Lord Mackenzie of Framwellgate, a director at Oriel Resources, who was a chief superintendent in Durham Police, says: “As a non-executive I see myself as a corporate policeman. My background is not in mining but in policing and security and they see that as valuable as I can police the ethical side of the business.”

For the Russian firms, a lord on the board adds credibility. Bill Browder, chief executive of Hermitage Capital, says: “Russian shareholders are cash-rich and credibility-poor, so if they can get an important person on their board to give them credibility, it’s a good thing.”

Non-executive directors gain access to key Russian businesspeople and annual salaries of up to £200,000, but even well-intentioned non-executive directors may find themselves powerless in the rough and tumble of Russian business.

Mr Browder says: “If important people ask me if they should accept posts on Russian boards, I always say ‘no’ because most of the time they will have no ability to change what the Russian shareholders will do, but will still take some liability for what happens.”

One example is Yukos, which appointed Lord Owen as its international chairman in 2002. The company was attacked by the Kremlin as part of a political dispute and forced into bankruptcy, despite the intervention of Lord Owen, who retired from his post last year. Even in its death throes, Yukos looked to an English lord to give it legitimacy. It hired Lord Gillford, head of Policy Partnership, the PR firm, to represent its side of the dispute to the Western press.

Lord Lamont could not be reached for comment.



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