The view from both sides of the fence

Date: 14 February 2007

Source: MMC Momentum Magazine

A discussion with MMC cross-company client and IAB member Ruben Vardanyan

Ruben Vardanyan, the newest member of MMC’s International Advisory Board (IAB), is chairman and CEO of Troika Dialog Group – the oldest and largest private investment bank in Russia and a market leader in securities sales and trading, investment banking, asset management, and private equity.

Mr. Vardanyan is a leading figure in Russia’s capital markets. He played a key role in the development of the country’s stock market, and has been named “Businessperson of the Year” by the American Chamber of Commerce in Russia. He was also cited in a Fortune magazine article on the next generation of global leaders as one of the 25 “Rising Stars” for 2001. In 2004 he won Ernst & Young’s Entrepreneur of the Year Award in Russia.

As chairman and CEO of Troika Dialog, Mr. Vardanyan is also an MMC cross-company client. He recently sat down with Momentum editor Vince Beatty to discuss the business climate in Russia and the vast opportunities it presents for MMC, as well as his experience as a cross-company client and MMC IAB member.

Since 2000, Russia has been a twin surplus economy – budget balance and balance of payments both positive. Economic growth continues on the ruble appreciation due to growing investment and productivity. We expect that 2007 is going to be another good year for the economy. The economic growth rate is expected to be around 7%, resulting in more than 70% cumulative GDP growth since 1999. In dollar terms, the Russian GDP is going to be around $1.2 trillion. In the mutual fund business, which was started in the beginning of the 21st century, in 2003 Troika Dialog had 3,000 clients with $85 million invested in mutual funds. Today we have about 65,000 clients and $1.5 billion under management. In total about half a million Russians are investing in mutual funds, which is very low. There are 144 million people in Russia, of which around 25 million are middle class, and 7 million people who understand financial markets and are ready to invest. So you can see the growth potential in just that one segment.

If you look at Russia from three to five years ago, there were maybe 30 companies with a valuation of $3 billion. Today we have 600 companies at that level. Not all are public, but most are becoming public very quickly. And that’s creating the need for numerous services.

For example, the insurance business has been growing by 35% a year, on average, over the last three years, and will continue at that rate for the next five years. With the increase in the number of companies going public, there’s an increased demand for companies to manage risk at a board level, operational level, and financial level – from the challenges of public market requirements to corporate structure, governance, and relations to the boards and shareholders. There’s also a growing need for management and strategic consulting services related to the dramatic growth of the number of publicly owned companies.

A few things are happening simultaneously. Before, the market was mainly export oriented. The oil and gas industries dominated the economy. Now the internal market is growing very quickly. Second, market penetration is growing. Third, Russian companies are becoming more and more international. They are investing in the U.S., Western Europe, Eastern Europe, and the CIS countries and this is creating new opportunities and new challenges for Russian companies. By internationalizing you need to operate by international rules and to understand how to operate in different countries.

The expanding internationalization of Russian companies presents a significant opportunity for MMC. There are issues that Russian companies need to face to operate internationally. Many of MMC’s clients are very well known international companies. These are companies that are growing fast and have many different assets in different countries. MMC manages their risk and knows what they are doing. Russian companies can benefit tremendously from that knowledge and experience.

I’ve been very pleased to work with MMC. Last year we worked with four of the companies: Kroll, Oliver Wyman, Mercer Delta (now part of the Oliver Wyman Group) and Mercer HR. I think that’s quite unusual because we are in a country that wasn’t among MMC’s highest priorities. Many of the questions we asked and the challenges we presented were quite difficult. I would say a very good job was done by many of the people I worked with. But one thing I was surprised to find was that the level of cooperation among those four operating companies was not at the right level for my particular situation. As the chairman/CEO of a major company, my time is precious and I need the top professional input, which I got from the MMC companies. But my expectation was that by bringing in the MMC companies – which I consider best in class in the areas where I needed advice and solutions – they would be more joined up than they were. I’m certain that there are other clients such as myself that are looking for a similar approach – not necessarily an integrated approach.

Yes. That’s because, first, I was involved with MMC through David Frediani (executive director, MMC International) who made sure I knew the full range of MMC companies and services. Second, I was working initially with Oliver Wyman. They did an excellent job, not only in the services they provided, but also in explaining where the other MMC companies could provide valuable assistance given our situation.

But I also did my own homework. Not too many companies can match MMC’s suite of services. I saw companies that could provide one service that I needed, but only MMC can do it all together. This is what I needed and wanted to get. So we organized a tender and got proposals from the competitors of MMC. In some cases, the competitors offered better pricing than MMC. But we selected MMC to get joined up services. Frankly, like I mentioned, we didn’t get it enough. But the good news is that, after discussing the situation with MMC senior management, MMC did a very good job bringing the MMC companies together and creating the type of cross-MMC relationship I was looking for at the onset. This kind of relationship is not necessarily what every client wants or needs, but it was right for me.

In our case – and in the case of many companies in Russia – we were growing very fast and we were very dynamic. We needed solutions from top to bottom. Different types of clients need different types of approaches. Companies that have a very well established structure, compared to a growing company moving very fast, may have no inclination to receive joined up services. But getting everything from a single resource is just much simpler for me. If mine were a huge organization with large functional departments, it very well could be another issue.

Becoming an IAB member has been a fantastic overall experience. It’s great for me, the company, and even Russia overall. After all, it’s not so often Russians are invited to be IAB members. To be integrated in a global network, and to recognize a new level of relationship with Russian business people in the international business community is a leap forward. What’s more, to engage in discussions about MMC with my fellow IAB members, who are among the top business leaders in the world, has been a privilege and a learning experience.

I sincerely hope my experience and input – unique as they are coming from the perspective of the CEO of a Russian company who works with several MMC operating companies – will be helpful as MMC continues to expand its presence as a premiere global company.