Ruben Vardanyan: How does the Michael Calvey case create a sense of vulnerability?
Unclear rules and uncertainty about the future hinder the attraction of investmentsRuben Vardanyan
The arrest of Michael Calvey, the founder of Baring Vostok Capital Partners, a large investment fund, on the opening day of the Russian Investment Forum in Sochi is as absurd as it is unsurprising if considered through the lens of tunnel vision. Be it government officials, businessmen or lawyers, they all feel safest in their own “tunnel”. Indeed, this notion refers not so much to specific countries or societies, but as to the development perspectives and open-mindedness of representatives of these countries and societies regardless of their position in the global economic hierarchy.
This news can be considered from three different perspectives highlighting different issues.
The first perspective (and this topic never seems to really go away) is that business disputes should be arbitrated and not serve as a reason for criminal prosecution. Every time a business conflict turns into a criminal case, it is always inextricable from the specific personalities involved. In other words, it’s personal, not business-related. When the name of a successful western businessman at the head of truly respected funds makes the criminal headlines, it’s hard to underestimate the resonance. The investment market is very conservative, and all its players know everything about each another. They know the acceptable ways to act, business schemes and reputation of the market participants, including who’s aggressive, who’s litigious, and who’s always open to reaching an agreement. That’s why arresting people like Michael Calvey causes some emotional strain. The economic community regards people like Michael as decent businessmen forming the reputation of the Russian market as perceived by investors around the world. Mr. Calvey genuinely believed in Russia and did a lot for the country. It is clear he was making money here, but the success of Baring Vostok Capital Partners helped promote the Russian market, especially in difficult periods of recession. From 1998 and 2008, his success played a major role in attracting others to invest in Russia and helped the country stay relevant on the global financial market.
The second perspective—which is indeed critical to understand—is that any actions are based on a multitude of factors and consequences that impact not only specific personalities, but all participants of the investment process. These separate yet interrelated cases are what form the investment climate, and taken as a whole serve as an interpretation of the country's economic health. Any similar case, even if based on compelling evidence, is sending an unambiguous signal to the market. I believe that when one of the biggest investors in Russia is arrested on the opening day of the investment forum, the market cannot possibly misinterpret what that means. When the creator of a fund with an investment value approaching $4 bln is accused of stealing RUB 2.5 bln (absolutely incomparable figures!) the reaction to follow is clear.
Is it possible the investor is in fact personally guilty? His weight on the market shouldn’t be an excuse to issue him an indulgence in the Catholic sense. However, I would like to emphasize that guilt must be proven in an objective and unbiased way.
Lastly, the third perspective: a key element of the process at hand is respect for institutions playing a system-building role in economic development and policy. There are demarcation lines that cannot be crossed. Many western colleagues of mine shared with me that it is less complicated and more interesting to work in Russia. But they always tell me the same story: they can run a red light several times and not get in trouble, but then on a green light get pulled over, yanked out of the car, beaten, and their car will be towed. For that reason they prefer to ignore their right to run red lights.
This increases uncertainty and, consequently, the country’s economic expenditures. I do feel uneasy to express a common thought like this, but the unclarity of rules and uncertainty about the future are a key hindrance to the attraction of investments. Whatever we declare, nothing will change unless formal and informal channels are clearly defined. Things will continue as-is.
I often give speeches to a variety of audiences, and I always ask the same question: how many state institutions do you trust? Ten? Five? Just a couple? As you may guess, the majority choose the last option. Why should it come as a surprise to learn that in a country with such a low level of trust, security guard is the most popular job among men? Everyone, even a first-grader, knows the meaning of trust on the capital market.
Here’s another thought. The integration of diversity requires a high degree of tolerance. Russians strive to build a new social system based on private property and integrate themselves with the global political, financial and technological world where everything must be interrelated, although this does not undermine existing differences in views and traditions (what is right for a European might be unclear for a Russian or Chinese person, etc.). There will always be different points of view, and there exist different types of motivation (what is right for a manager is not right for the owner, etc.). In other words, everyone has their own objectives and perspectives that will impact their attitude to different situations. However, it is important to understand that making a distinction between “friends” and “foes” on the capital market when competition is hijacked by politics will lead to the unprecedentedly low efficiency of the process as a whole. The diversity of the world and approaches applied drive market development and help form healthy competition. All of us need to learn to live in a complex world where things aren't just black or white. We need to search for common ground and the right solutions to move forward instead of backward.
Now I would like to come back to our main, but not yet most important question in our society today. The rules of the game. In today's context, the Michael Calvey creates a sense of growing vulnerability. Regardless of who's right or wrong.
Author: a social entrepreneur, philanthropist and founding partner of Phoenix Advisors
Ruben Vardanyan/ Vedomosti