How Alexei Kudrin dodged government work and helped Yandex to survive
January 10, 2023
  • Nikolai Petrov

    Independent scholar
Nikolai Petrov on how Yandex, Russia’s largest IT company, has managed to avoid being nationalized and who took part in splitting up its Russian and foreign businesses to save them. 
Arkady Volozh, Yandex cofounder and former CEO. In late December 2022, he announced that he was leaving Yandex. Source: Wiki Commons
Alexei Kudrin is perhaps the most high-profile official who got out of the Russian bureaucracy since the beginning of the war in Ukraine. Given the war and ratcheting up of tensions with the West, his departure from public office was only a matter of time. Back in 2018, when Putin's latest presidential term began, Kudrin was named chair of the Accounts Chamber, where he was kept in the wings as a backup prime minister. However, the strategy that he offered, along with his team, could have only been accepted if the confrontation with the West had cooled off.

Yandex, where Kudrin has landed, has managed – at least for the time being – to avoid nationalization, while its founder Arkady Volozh has saved the company’s foreign projects. The situation with Yandex, the most successful IT company in Russia, is especially interesting since, besides Kudrin, several high-ranking members of the Putin elite are now involved, including First Deputy Head of the Presidential Administration Sergei Kiriyenko, Sberbank Chair German Gref and Alexander Voloshin, who previously held various government posts and retains political influence.

Kudrin and Yandex

The December 5 announcement by Kudrin that he had accepted Yandex's offer to join the company as an advisor on corporate development ended a long-running intrigue about Kudrin's resignation from the Accounts Chamber.

The first reports that Volozh and other Yandex shareholders wanted to bring Kudrin into the leadership group appeared in Meduza shortly after an official meeting that Kudrin had with Putin on June 14.

The offer to Kudrin had been made by the Yandex board of directors in the summer. He was asked to work with the management to “create a corporate structure that will help preserve the values, culture and independence of the company.”

Since the beginning of the war, nearly half of the directors have left the Yandex board. In March, Tigran Khudaverdyan, who was sanctioned by the EU, quit the board and his position as deputy general director of Yandex NV (the parent company of Yandex), followed by Wellville founder Esther Dyson and Stanford Graduate School of Business finance professor Ilya Strebulaev. In early June, Arkady Volozh resigned from all leadership positions he held with the group.

The board currently consists of seven people: the already mentioned Voloshin, cofounder of Almaz Capital Charles Ryan, DE Master Blenders executive committee member Rogier Rijnja (these three were reelected for a new term at the annual shareholders meeting at the end of December), Russian Academy of Sciences member Alexander Moldovan, the head of investment company Firehouse Capital John Boynton (Chairman of the Board), VTB Capital CEO Alexei Yakovitsky, and Alexei Komissarov, the CEO of the autonomous nonprofit Russia – Land of Opportunities. Thus, five positions on the Yandex board remain vacant, including that of executive director.

The idea with Kudrin was that he would coordinate the splitting up of the company with Kiriyenko, who oversees Yandex in the Kremlin. A number of the company’s foreign businesses would be spun off – first and foremost those related to drones and clouds, with Volozh overseeing their further development.
"Kudrin essentially would replace Volozh at the Russian Yandex, receiving about a 5% stake in the company in shares and bonuses. Currently, the market price of that stake is more than $500 million."
As the plan to split up Yandex was being agreed with Kiriyenko, an asset swap was launched between Yandex, the social network VK (whose CEO is Kiriyenko’s son Vladimir) and Sberbank. It was announced on August 23, but the operation itself, which consists of multiple stages, should take several months.

Kudrin's move to Yandex, according to Meduza, was definitively approved by Putin at another meeting in September. At the end of September, Pavel Demidov, a trusted Kudrin associate who is known as “Kudrin's commissar,” became the head of government relations at Yandex, moving over from the Accounts Chamber. In 2012-16, Demidov was an adviser to Kudrin at the Foundation for the Support of Civil Initiatives. In June 2018, shortly after Kudrin became chair of the Accounts Chamber, Demidov was named his assistant. A month later, Demidov was named head of the external relations department at the Accounts Chamber.

Back on November 25, according to RBC and The Bell, Kudrin again went to Putin to finalize the scheme to split up Yandex’s Russian and foreign businesses, after which he met with the board of directors in Istanbul. Upon his return, on November 30, the Federation Council approved Kudrin’s immediate resignation as chair of the Accounts Chamber.

Kudrin's current position at Yandex is “adviser on corporate development.” Kudrin seems poised to eventually head up the board of directors of a new holding, which is planned to unite all the Russian assets of Yandex and preserve the brand.

As of September 30, the shareholder structure of Yandex NV was as follows: the Volozh family trust held 8.5% of the equity (but a 45.1% voting share), the management and employees 3.2% (6.6% voting share) and pre-IPO investors 0.7% (2.0% voting share), while the free float was 87.6% (46.3% voting share). According to The Bell, the biggest voting share of the Russian Yandex will be held by a fund that will include Kudrin and three top managers. As part of the reorganization, a new holding will be established with all the company’s main assets from the Netherlands-registered Yandex NV. Initially, the Dutch company will own 100% of the new holding, but soon after will sell a controlling stake to a pool of Russian investors, among which are said to be entities of Vladimir Potanin, Roman Abramovich and VTB Bank.

Kudrin and Yandex: The prequel

The story of Kudrin's move to Yandex has two backstories: one of Kudrin and one of Yandex.

In brief, the Kudrin backstory is that Kudrin, being a close and longtime associate of Putin, had been working on a program for the fourth Putin presidential term since 2016 as the head of the revived Center for Strategic Research. It was thought that after the 2018 presidential election, Kudrin would implement the program either as prime minister or a first deputy prime minister responsible for reforms.

That did not materialize, as Kudrin’s program failed to garner interest, and he was sent to the Accounts Chamber, where he was to be the “backup prime minister” and a kind of presidential commissar tasked with oversight of Dmitri Medvedev’s government. Initially, Kudrin had great ambitions for the position, hoping to transform the Accounts Chamber into a strategic guide for the government. However, the appointment of Mikhail Mishustin as prime minister in January 2020 essentially meant a final rejection of Kudrin’s strategic plan and reforms.
"Interestingly, at the height of the spring 2021 escalation over Ukraine, in April-early May, two articles appeared in the US press suggesting that Biden should bet on Kudrin as the preferred candidate to replace Putin as president."
Influential lobbyists have repeatedly protected Yandex from the pretensions of powerful political figures. They include Alexander Voloshin (top), former head of the Presidential Administration, and Charles Ryan (bottom photo), an American financier and cofounder of the investment company UFG who has a long history of working in Russia. Source: VK
One of them was written by Ivan Sascha Sheehan in The National Interest and the other by Ariel Cohen in The Hill. Medvedev was also named as a candidate to succeed Putin but rejected as unacceptable. It is not known whether these pieces were brought to Biden’s attention; however, they apparently made their way to Putin’s desk: after the Russian invasion of Ukraine, Medvedev went to great lengths to clear any suspicion of disloyalty to Putin, while Kudrin publicly tried his best to distance himself from the war.

Masters of political maneuvering

In addition to talented IT specialists and managers, the most important contributors to Yandex’s success and development have been super-skillful and influential lobbyists. In recent years, board members Voloshin and Ryan put on a clinic in the art of political maneuvering amid constant threats from powerful Putin oligarchs.

Voloshin headed up the Presidential Administration until 2003, while Ryan, who has been working in Russia since the early 1990s and has known Putin since 1992, is known in particular as a cofounder of the investment company United Financial Group (UFG). At one time, Mishustin was a partner at UFG, which paid him $33.5 million in 2010-15. Now, Voloshin and Ryan are credited with the plan to split up the assets of Yandex, in which Kudrin has a key role to play.
"Yandex and its lobbyists have considerable experience in resolving serious conflicts. In 2009, the company managed to bat away the pretensions of Alisher Usmanov, who intended to take over Yandex, by selling a 'golden share' to Sberbank."
In 2019, to facilitate the difficult divorce of Yandex and Sberbank itself – whose ambitions in the IT space had ballooned in the decade after receiving the golden share – the Public Interest Foundation (PFI) was invented, with the state basically getting veto rights on the most important issues at Yandex. The golden share, which passed from Sberbank to the PFI (essentially the state), provides its holder with wide-ranging possibilities. For instance, the consolidation of 10% or more of the company's economic or voting shares in one hand can be blocked, while a number of decisions must be coordinated with the golden share holder, including the transfer of key intellectual property, changes in company regulations protecting the non-anonymized big data of Russian users, and potential partnerships with foreign governments. In addition, the PFI has the right to fire the head of Yandex in Russia. Its potential to de facto nationalize Yandex led Volozh to call the PFI “golden share 2.0.”

The PFI board of directors, besides Yandex representatives, includes Gazprom Neft CEO Alexander Dyukov, President of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin, ECOPSY Consulting CEO Pavel Bezruchko, Skolkovo President Andrei Sharonov, Moscow State University Biology Faculty Dean Mikhail Kirpichnikov, Chair of the Russian Movement of Schoolchildren Sergei Ryazansky and Moscow School No 57 Director Mikhail Sluch.

Kudrin's replacement at the Accounts Chamber

Interestingly, at the time of Kudrin’s departure from the Accounts Chamber on November 30, the current federal law regulating the institution was not brought into line with the revised constitution. A “temporary” procedure was written into the Federation Council rules for approving the head of the Accounts Chamber after a candidate is proposed by the president, which follows from a literal reading of the constitution.

Only in mid-December did the Federation Council pass amendments proposed by the president, updating the procedure for appointing the chair of the Accounts Chamber. Now, the Federation Council will propose at least three candidates to the president, who will then choose one and put him or her to a vote by the senators.

The amendments furthered the provisions of the revised constitution, as starting in 2020 the Federation Council and Duma “exchanged” powers to appoint and dismiss the chair and deputy chair of the Accounts Chamber: previously, the Duma had approved the chair and the Federation Council the deputy chair; now, it is other way around. Meanwhile, the choice of three candidates will remain. If, however, no candidate suits the president, he has the right to propose his own. Previously, the same procedure was used to nominate the head of the Accounts Chamber – only it was the Duma factions that proposed candidates.

It was possible to appoint a replacement for Kudrin before the end of the year, at the final plenary session of the Federation Council in 2022 on December 23, yet the position remains vacant. Duma First Deputy Speaker Alexander Zhukov is considered the favorite to take over the Accounts Chamber – he is a big name, though his scope for decision-making is dubious. Other mentioned names include Tatyana Nesterenko, who left the Finance Ministry in 2021 as first deputy minister, as well as one of the 12 current auditors of the Accounts Chamber. Politically, they are all even less prominent than Zhukov. Thus, the Accounts Chamber looks set to become an inconspicuous institution fulfilling a technical role. Meanwhile, Yandex has received a reprieve from nationalization, though it is difficult to say for how long. In the past, Kudrin has managed to provide protection for his undertakings, such as the Foundation for the Support of Civil Initiatives, Center for Strategic Research and St Petersburg University Faculty of Liberal Arts and Sciences. That said, his patronage always ends sooner or later.
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