Hermitage Fund Media and Corporate Governance in Russia Case Solution

Case Solution

William Browder, the most effective executive in the Hermitage Fund, the most effective-undertaking international equity fund throughout the final five years, credited lots of his funds' strong returns towards the focus on investor activism and company governance. In 2001, he was putting this process for the test by accusing the Russian coal and oil giant Gazprom as well as the international accounting firm Cost Water house Coopers of not stemming governance problems. Despite the fact that the press provided extensive coverage of Gazprom's problems as well as the share cost rose, Browder not successful within the other efforts to acquire a board chair, and also the law suits were overlooked. Could it have been time to refine or change this activist strategy? These were the questions Browder (and also the traders) regarded as because he left around the extended overdue vacation.

Excel Calculations

Questions Covered

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?