The People's Capitalist

Probably few Times readers caught the update on the Khodorkovsky trial on the inside pages of last week’s paper. The former Russian oil magnate was first arrested in late 2003 – for tax evasion on YUKOS Oil sales – and has been in a Siberian jail for the past five years. He was scheduled to be released in 2011, but the Russian government brought new charges of embezzlement against him last year. In a development worthy of Orwell or Kafka, the Times reported that Khodorkovsky is now charged with stealing the same oil he was formerly charged with selling.

When I met Mikhail Khodorkovsky in 2002, he was the president of YUKOS and one of the richest men in the world. The circumstances of our meeting were interesting. Jacob Rothschild, of the famous European banking family, had invited Khodorkovsky to Waddesdon Manor, the palatial Rothschild estate in Buckinghamshire, England for a high-level, three-day conference designed to drum up business for a private jet company called NetJets.

The Waddesdon Conference was presented as an elite international business gathering where global leaders would discuss world affairs – a sort of a mini-Davos – but its real purpose was to interest wealthy European business leaders in buying shares of NetJets planes. The idea was to put happy NetJets owners (Lord Rothschild owned a share of a NetJets plane) together with prime NetJets prospects and hope that the former would persuade the latter to become NetJets customers. The guest list included Warren Buffett, whose Berkshire Hathaway company owns NetJets, as well as Paul Volcker, Barbara Walters, Jim Wolfensohn, Arnold Schwarzenegger, Bono, David Frum, and some wealthy European business leaders whose names are less familiar (except to other wealthy European business leaders). I served as the Director of Communications for NetJets Europe in those days, and I was privileged to serve as the Master of Ceremonies for the conference.

Khodorkovsky arrived on the first day, and he was friendly but very shy. He spoke little English and his translator was constantly by his side. He was invited to address the conference and I remember that he talked briefly about the history of YUKOS Oil and the current business environment in Russia. Knowing what happened later, I wish I’d taken notes, but I was busy preparing an introduction for the next speaker and I didn’t pay careful attention.

The next time I met Khodorkovsky was in October of the following year. I was attending a World Economic Forum meeting in Moscow and was asked to chair a session on the outlook for global business in the “new Russia.” Khodorkovsky and two other prominent Russian businessmen were on the panel.

Relations between Khodorkovsky and Russian president Vladimir Putin had soured since I’d seen the Russian billionaire at Waddesdon Manor. The Russian president was angry about the fact that Khodorkovsky had donated money to several opposition parties in the run-up to the State Duma elections in 2003. Even worse, Khodorkovsky had publicly criticized Putin’s “managed democracy” economic model in the international media.

“It means that theoretically you have a free press,” he told the New York Times, “but in practice there is self-censorship. Theoretically you have courts; in practice, the courts adopt decisions dictated from above. Theoretically there are civil rights enshrined in the constitution; in practice, you are not able to exercise some of these rights.”

During our panel discussion in Moscow, Khodorkovsky complained that the Russian economy was not structured in a way that allowed the poor to move up to the middle class, a problem that he identified as critical to Russia’s future. After the session ended, I asked him what he’d meant by that.

“I recently returned from a vacation with my family to South Africa,” he said, “and I was struck by the fact that the wealthy people there all live behind high walls, with armed security guards. The rich people are constantly afraid that the poor people will climb over the walls and take what they have. It’s not healthy, and it’s not good for democracy. I don’t want my own children to grow up in a country like that.”

The next morning, Russian president Vladimir Putin was scheduled to deliver remarks at the Forum’s final plenary session, and Mikhail Khodorkovsky was seated in the audience. Putin was uncharacteristically late and I could see the Forum organizers fidgeting and making calls on their cell phones. A rumor spread that Putin had decided that he would not address the gathering if Khodorkovsky were in attendance.

As the minutes dragged on, Khodorkovsky’s cell phone rang and he hurriedly left the hall to take the call. His offices, he was told, were being ransacked by the secret police. The billionaire jumped into a waiting car and sped to the YUKOS headquarters. Several minutes later, Vladimir Putin entered the hall and delivered his prepared remarks.

Three weeks after the Forum’s Moscow meeting, Mikhail Khodorkovsky was arrested at Novosibirsk airport and charged with fraud. Anticipating the worst, he had arranged to have his YUKOS shares transferred to Jacob Rothschild in the event he was arrested, but in a matter of days, the government froze YUKOS’s assets and the value of the shares plummeted.

I really don’t know whether Mikhail Khodorkovsky was a legitimate businessman or a thief. There was a Wild West quality about Russia in the early, post-Soviet days and a lot of people got very rich, very fast – Khodorkovsky among them – so it’s certainly conceivable that the oilman cut corners and took advantage of a lax regulatory system to build his empire. But it’s equally possible that Russia’s rulers felt threatened by the country’s newly wealthy oligarchs and just decided to take Khodorkovsky out, Soviet-style, to send a message. Given the Russian government’s aversion to transparency, I suppose we’ll never know the truth.

But whatever the source of Khodorkovsky’s billions, he seemed to understand a basic truth that often eludes less thoughtful business leaders. Any system that allows the rich to get richer while the poor get poorer is ultimately bad for the rich and the poor. Khodorkovsky learned that in South Africa, and it helped make him a “people’s capitalist.” Other wealthy businessmen I’ve met, like Warren Buffett and Bill Gates, seem to have learned the same lesson as they’ve made their own fortunes.

Over the years I’ve followed Khodorkovsky’s trials and tribulations with interest, but with little hope for his eventual freedom. He’s already spent almost seven years in prison and the new charges he’s facing carry a 27-year sentence. He was eligible for parole in August of 2008 but the presiding judge dismissed his application. Khodorkovsky, the judge said, had “refused to attend jail sewing classes.”