Founder-CEO Succession: The Russian Paradox

Abstract

Russian capitalism is 20 years old - it is two decades since the first private companies, disguised as cooperatives, were formed in the Soviet Union in 1987. Since then the Russian economy has gone through a major transformation, which has encompassed distinct periods of activity: the creation of private firms, price liberalization, mass privatization and the restructuring of former state-owned companies, the development and growth of the stock market, financial crisis, currency devaluation and economic rebound, and the introduction of corporate governance standards. The next big challenge for Russian business is founder-CEO succession. In recent years some prominent Russian business leaders, such as Vladimir Yevtushenkov, the founder of the multi-billion dollar Sistema conglomerate, and Dimitry Zimin, the founder of telecoms giant VimpleCom, have passed the CEO's baton to professional executives. Hundreds of other less well-known owners followed suit. Since most outgoing Russian founders are relatively young and enjoy a significant level of ownership control, their departure is intriguing and raises a number of questions. Why do they relinquish executive power? What triggers founder-CEO succession in Russia? Is it voluntary or forced? Who follows the founder? What becomes of the founder? What impact does the succession have on company performance? If this trend is sustained, it will be critically important for the Russian business community to understand what kind of succession process, leading to improved company performance and founder satisfaction, will be successful in Russian companies. This paper is a first step toward creating such understanding. After summarizing findings from succession research in the West, I describe the specific - and frequently unusual - conditions under which succession takes place in Russia. I examine six cases of founder-CEO succession in Russia, in an attempt to define good and bad practice, and identify an essential element of the process which I call the Russian succession paradox. From this, I develop a conceptual framework and suggest directions for future qualitative research. What is the Russian succession paradox? I use this term to explain the process whereby a company goes through all the motions of seeking and appointing a successor to the founder, only to award the chosen person with a merely nominal role as CEO, while the old regime continues de facto to run the company. The Russian succession paradox means that far from passing on the baton, the founder does not go away. He retains, or regains, power without assuming executive responsibility, while the new CEO shoulders all the accountability for the organization's results. As the cases in this paper show, the Russian succession paradox operates to a greater or lesser extent within many Russian companies.