Those who enjoyed The Fish That Ate the Whale by Rich Cohen, an international business adventure and true story about the banana tycoon throwing his weight around central America, will also love Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice by Bill Browder.
During my graduate studies in international business, I read The World is Flat by Thomas Friedman and got completely drunk on the globalization Kool-Aid. I decided to go for a career in emerging markets. I ended up looking for a job anywhere in Latin America.
Before deciding on the region, however, I was also considering Eastern Europe. Why? I was an ugly American whose only idea of Latin America came from what he knew about Mexico. So I thought I’d be too easy prey for kidnappings or whatever. In Eastern Europe, however, I would not immediately be recognized as a foreigner as long as I didn’t speak.
In other words, I was considering Eastern Europe because they’re white. However the fact that every country speaks a different language (which is spoken nowhere else) coupled with what I presumed to be higher first-world competition due to its proximity to Western Europe led me to Latin America and ultimately Peru.
I don’t remember where I first heard about the book – some review on NPR, The Economist, or WSJ after it published this year – but I was interested enough to put in on the reading list. I am glad I did because it reinforced my decision to come to Latin America over Eastern Europe and Russia, which makes Latin America look like a safe place to do business where the rule of law reigns supreme! For those who can’t believe what they just read, this best-book-of-the-year candidate was so compelling my work suffered.
Bill Browder is the grandson of Earl Browder, one of the top leaders of the United States Communist Party. Interestingly, Bill became an investment banker and hedge fund manager. The book begins with a couple chapters of his early life and he explains how becoming the ultimate capitalist was his way of rebelling against an historic family of socialists.
After studying economics at the University of Chicago and getting his MBA at Stanford, Browder starts his career at Boston Consulting Group’s London office in 1990. He spreads the word early that he’s interested in Eastern Europe, for many of the same reasons I was interested in emerging markets. The Berlin Wall had fallen just a year prior, and large, untapped markets were opening up.
With BCG Browder gets an assignment from formerly public, recently privatized bus company, Autosan, in Sanok, Poland. His arrival features images of horse-drawn carriages and stepping out of a time machine. But I’ll start this anecdote with the hotel.
The Turysta was a musty, four-story concrete building a couple of blocks from the San River. It had no elevator so I had to take the stairs. The passageway was narrow and dimly lit, and my room was tiny. More hall than room, it had two twin beds that were pushed against opposite walls, and the only floor space was the gap between them. Bolted to the wall over one of the beds was a thirteen-inch, black-and-white television. A plain, chintzy end table was pushed between the beds. On top of this was a single lamp. Above the lamp was a small window that overlooked a vacant lot…
I tried the white, plastic rotary phone to see if it worked, but the line only connected to the matronly woman at the front desk, who didn’t speak a word of English … The room was cold and the radiator wasn’t working …
I got into bed and tried to sleep, but it was simply too cold. I tapped the radiator and turned the valve near the floor, but no heat came … I got some more clothing out of my wardrobe and pulled the blankets off the other bed and buried myself under all of it. Even though I was still wearing my parka, this didn’t work either. I tossed and turned all night and barely slept. When the sun began to rise, I turned on the shower, hoping that at least would warm me. I waited and waited for the stream of hot water, but it never got better than lukewarm …
In the morning, Browder and his translator visit the bus company.
[The Autosan director] ushered [my translator] Leschek and me into his office and began speaking quickly in Polish. “Welcome to Sanok,” Leschek translated, talking over him. “He wants to know if you would like some brandy to toast your arrival.”
“No thank you,” I said awkwardly, wondering if I was making some cultural faux pas by rejecting his offer of hard alcohol at 10:00 a.m.
The general manager then launched into a speech that once again expressed his excitement that I was there. He explained that Autosan was Sanok’s only major employer. If the company failed, then the town would also fail. He and everyone else at Autosan thought that BCG – and by default me – was going to save the whole lot from financial ruin. I tried to look serious and nodded at all of this, attempting to convey some semblance of confidence, but inwardly I was completely mortified by the scope of my responsibility.
When he finished his little speech, he said, “Br. Browder, before you get to work, I must ask – is there anything I can do to make your stay in Sanok more pleasant?”
From the moment I’d walked into his office I had realized how warm it was, especially after my fitful night in my freezing room. I noticed a quietly buzzing space heater in the corner that emitted a comforting orange glow. Eyeing it, I nervously asked, “Do you think I could get a heater like that one for my room, sir?”
There was a moment of silence as Leschek translated. Then the general manager’s face lit up. With rosy cheeks, he winked and said, “Mr. Browder, we can do much better than that. We can get you a woman to keep you warm at night!”
I looked sheepishly at my shoes and stammered, “N-no thank you. A space heater will be just fine.”
The book features plenty of these little gems of culture shock. But for me, the book was interesting for all of its business stories. For example, the small Polish town charms Browder and, out of guilt, he includes slides in his report about how the company could theoretically survive with a little more government subsidy. However the account manager on the assignment kills that idea.
But when I showed this “softened” presentation to Wolfgang in London, he was furious.
“What is this shit?”
“These are their options.”
“What are you stupid? They don’t have any fucking options. They have to fire everybody, Browder.” He was being a complete bastard, but at least he got my name right.
Wolfgang forced me to delete all the other strategic options, then had me pass the presentation off to another consultant to fix the analysis. BCG wound up recommending that Autosan fire the vast majority of its employees.
In addition to the emerging markets, I also tried to find jobs at management consultant firms like the one Browder worked for. Actually, coming from my school I had no chance in hell getting into a top-tier consulting firm. I tried for the mid-tier and niche firms I might have had a chance at (food and beverage). So the book was also a fun ride for me because it features what happens on deals at companies like Bain, BCG, Salomon Brothers, and more.
While in Poland, Browder stumbled upon a news story announcing how the privatizations of state firms were being done. To keep it simple, shares of stock in the companies were being both issued as well as gifted to all citizens. According to socialist country theory, the people own everything. Hence when everything when private, everybody got a piece.
But Browder recognized that the companies were being auctioned off at clearance prices nowhere close to their true value. He dreamed of making a killing by acquiring shares in formerly public companies of the former Soviet Union.
Browder followed his dream and, via more compelling adventures there is no space for here, moved from consulting to investment banking. He wound up at the Salomon Brothers Eastern Europe desk in London.
He got a deal to advise a fishing company in Murmansk, Russia. After an even more colorful description of early-1990s Russia, Browder sees that the company is grossly undervalued.
I did the math. A hundred ships at $20 million each meant that they had $2 billion worth of ships. I figured that if the fleet was seven years old, then it was about half-depreciated, meaning that they had $1 billion of ships at the current market value.
I was amazed. These guys had hired me to advise them on whether they should exercise their right under the Russian privatization program to purchase 51 percent of the fleet for $2.5 million. Two and a half million dollars! For a half stake in over a billion dollars’ worth of ships!
From there Browder learned about Russia’s voucher system, under which citizens who received shares in public companies could sell to anybody, including foreign nationals. Browder ultimately grew famous in the investment world by acquiring stakes in these Russian companies.
Browder launched his own private hedge fund, Hermitage Capital. With tens of millions of dollars he personally raised, he set up a permanent office in Moscow to do the same kind of deals and go deeper into the opportunities Russia had to offer.
Browder was increasingly successful over the years and built a fortune in Russia. Then starts the big conflict in the book. One of the oil companies he invested in, Sidanco, announced the issuance of extra shares. Somehow, it was set up to exclude Hermitage Capital. If the company’s plan went forward, Hermitage’s ownership in the company would have gone from 2.4 percent to 0.9 percent without receiving one ruble, for a loss of $87 million.
This is when Browder started fighting the oligarchy. He went to the Moscow bureau chief of the Financial Times, who ultimately published a piece laying the scam out to the financial world. Then Browder called every American bank with interests attached to the Russian oligarch pulling this scam, pleading his case and warning them the same could happen to them.
Browder ultimately killed the deal, but he had made enemies in Russia’s oligarchy. Without ruining any more of the business drama, which prominently features state oil giant Gazprom, Browder ultimately gets his assets out of Russia. But in the meantime, his office is raided by police who beat up one of his employees.
Over time, the raid leads to Browder and his Russian staff learning of a $250 million fraud by Russian police and intelligence agents. While attempting to uncover the crime, one of Browder’s Russian lawyers is jailed and ultimately killed.
What started as high finance became a book about human rights and government corruption. I imagine most reviews of the book deal with the second half: Browder’s fight for justice, which amazingly results in the passing of the Magnitsky Act into U.S. law. Named after Sergei Magnitsky, Browder’s lawyer who died in a Russian prison, the law prohibited 18 government officials involved in Magnitsky’s death from entering the United States.
When I finished the chapter about how he got his money out of Gazprom, the last Russian company he invested in, I wondered what else could the book talk about. Was it over?
Not to be politically incorrect, but the ugly American also has to point out common stereotypes of the American Jew who won’t simply leave things alone. He follows through until justice is truly served. And if everybody were like me and left things alone that didn’t affect them, we would probably have societies that look a lot more like Latin America.
The fight to get the law passed features high-flying geopolitics among Senator John McCain, Secretary of State John Kerry, Obama’s “reset” with Russia, and more.
When Russia banned U.S. citizens from adopting Russian children in 2012, I had no idea of the context. But it was in reaction to the Magnitsky Act. I am not doing justice to the geopolitical angle of the second half of this book. Read it yourself!
My only complaint, not so much of a complaint as a plea to get real, is Browder’s somewhat regular references to hard luck and circumstances. Imagine me, somebody who never got an interview at a consulting firm, reading a guy complaining about his Bain internship’s expanded program, which made it less exclusive. Or my eyes rolling when he talks about his reckless and unfocused years, a frat boy at the University of Colorado at Boulder, before getting serious and transferring to the University of Chicago.
But even that is interesting. It shows just how “ivory tower” the ivory tower people are. This book offers a great look at ivory tower billionaires, consulting, investment banking, politics, and more.
Best of the year candidate.
For extra fun, Browder and his staff launched a public awareness campaign to get the Magnitsky Act passed. One of their more successful tactics were publishing professionally-produced YouTube videos detailing their case against the corrupt Russian police and intelligence staff who stole the $250 million and killed Sergei Magnitski. Here’s the first episode from the Russian Untouchables channel.
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