William Browder, the leading manager of the Hermitage Fund, the highest-performing global equity fund since half a decade, credited a lot of his funds solid profits to its attention on shareholder activism and corporate administration. In 2001, he was putting this methodology under a magnifying glass by blaming the Russian oil and gas titan Gazprom and the worldwide accounting firm Price Waterhouse Coopers of not resolving administration issues. In spite of the fact that the press gave broad scope of Gazprom's issues and the share price increased, Browder was unsuccessful in his different endeavors to get a board seat, and his claims were disdained. Is it safe to say that it was time to refine or change this activist design? These were the concerns Browder (and his financial specialists) considered as he cleared out on a long late get-away.
1. What are the various ways in which managers in Russia extract value out of their companies disproportionate to their equity stakes? Which of these methods seem to be peculiar to the Russian environment?
2. What institutions and mechanisms are normally important in decisions by insiders to divert resources and which of these are ineffective in Russia?
3. What is Browder’s strategy? How does this differ from traditional investing? Do you agree with Browder’s contention that media attention limit corporate governance abuses (in Russia, elsewhere)? How does the medium affect governance decisions?
4. As an investor in the Hermitage Fund, what would you advise Bill Browder do in Summer 2002?
5. What stands in the way of shareholder activism of this type more generally for investment funds? Is such activism good for fund investors? Is it good for the country?