Post-Soviet States Interviews

To start out, I wanted to ask about how you basically got involved in this endeavor in Moscow. The Soviet Union falls apart at the end of 1991, and a few years later, you’re there in Moscow opening up a law office. How did you come to be interested in taking part in such an endeavor?

My interest in Russia and in engagement in the country flows from Bob [Robert S.] Strauss, who served as U.S. ambassador to both Russia and the USSR, the only person to ever do that now or in the future. Based upon his experiences in Russia, he had this idea that a law firm could be of great service to new Russian companies that would be emerging as the country democratized and privatized many of the state-owned industries. Bob was a very popular ambassador in Russia. The Russians loved Bob as much for his style as his substance. He was very dear both to the people who worked in the embassy and to those with whom he engaged while he was there.

His ideas about opening the office there were different than many traditional Western law firms, in the sense that his focus was representing Russian corporates coming out and engaging with the West, whereas the traditional business model for law firms would be to represent their U.S.-based clients as they made investments in Russia. It was very unique in that respect. I was a little over forty years old at the time and I had just finished a stint serving as an in-house general counsel for a U.S. gas pipeline company in Houston, and I served in that capacity on loan from the law firm. After spending a couple of years in-house with a particular client, when you come back to the law firm after that, you have no other clients. So, I was at a time in my career where I needed to start over again, essentially, in terms of building a client base. But I had a deep knowledge of oil and gas and particular gas pipelines, and how those assets are typically built and run and managed.

As Bob often did, he would triangulate talent and context and history, and somehow heard about my situation and he, together with Jim Langdon [James C. Langdon, Jr.]¹, who was at Bob’s side in this whole enterprise, approached me about leading our effort to establish this office in Russia for these purposes. I told both Bob and Jim that they had lost their minds, that I had no experience with Russia, I didn’t speak the language, I had not studied its history. I couldn’t imagine anybody being more unqualified for the job. But Bob said in his very simple and forthright way, “Don’t worry. You know energy very well. [0:05:00] You know people reasonably well, and I’ll be with you, so don’t worry about that.” That turned out to be more truth than not, and we can talk about that later.

But there was a guy in the law firm named Jim [James] Friedlander who went over to establish the beachhead—in other words, to get a license and do those sorts of things in order to just conduct business in Russia. Jim had done a lot of work in Africa and other places around the world, and he was there, along with a Russian woman lawyer, very young lawyer, that he came to know, and it was just the two of them in the early few months. I was the first one to be moved over to the office to serve as managing partner and start building the office into something that would resemble what we had come to know as a regional or a satellite office as part of the law firm network. That was in 1995.

I called my wife and asked if she was sitting down, and told her of this opportunity, and she said, “Let’s go. Sounds like the right thing to do, and at a very historic time.” So, we did. I started traveling to Russia, probably very regularly starting in the summer of 1995, and then we started making preparations to go there—taking introductory Russian language lessons, finding places to live, understanding about schools for children, and all those sorts of things that you typically do to prepare for any international assignment. That’s how I came to be a part of what turned out to be a business that is still running strong for Akin Gump [Akin Gump Strauss Hauer & Feld LLP] in Moscow. And as most things in life, it’s a little bit being in the right place at the right time in the right context with the right kind of base skill sets that could give you a chance to succeed.

Could you expand on that a little bit, about being in the right place at the right time? When you got to Moscow, what were your initial impressions of what kind of environment you were going to be functioning in?

I didn’t know completely, but I did have a good sense of how much I didn’t know. Of course, during this period of time, Russia was in the very early stages of trying to figure out who it would be as a country, I guess, following the fall of the communist system. It was a time where Russians, generally speaking, had been hiding under their school desks in the same way that we did under the threat of nuclear war and other things. All of their engagement and interaction with Westerners, and particularly those from the United States, was approached with a high degree of curiosity. Remember that in communist times of course, the state owned everything and so the very notion of a standalone private company responsible to investors or to financing institutions or to other commercial partners was all very, very new. The laws of the Soviet Union still were in place, in some respects, around the country.

I think it was still a [0:10:00] capital offense to pay anybody in Russia in a currency other than rubles. All those regulations and norms from seventy years of history were still in place in many respects. It very much felt like an environment that must have seemed a little bit like the Wild West was in the United States, as we went out to engage in newfound territories where the laws are fuzzy at best, the norms are being reestablished daily—weekly—where there are opportunities that are being pursued by multiple parties. And a system that essentially had been thrown open, sort of lurching from one initiative to another to try to figure out how to transition from the system that senior politicians and those who ran these state-owned enterprises [managed] into a public capitalist system. There was no playbook for that, and so we were very much making the rules as we went. Therefore, it wasn’t like you could go in and learn the system that existed previously and read the history of it, because there was no history to read about how Russia would engage commercially with other parties under this new system that was being designed and implemented and tinkered with in a variety of ways as it matured.

Against that backdrop of uncertainty and apprehension and opportunism, there was also this tremendous sense of hope and aspiration. Cab drivers in Russia, at that time, had ten thousand-word vocabularies. There was a wealth of intellectual capital in science and literature that was suddenly free to pursue a number of endeavors. There were natural resource riches that were untold and being seen really in some detail for the first time. There was a thirst amongst young Russians at that time. I’m talking about the late teens, early twenties to late twenties, where all of a sudden, overnight, the world was open to them. They could travel, they could be educated, they were thirsty for learning.

I arrived in an environment surrounded by these young people who were just chomping at the bit to learn everything that they could and saw engagement with a Western businessperson as a tremendous source of education, connection, mentorship, and a whole variety of things. The landscape was shifting enough internally that, if you could triangulate that artfully and opportunistically, there were lots of things that young people that could accomplish that would have never occurred to them even five years before.

I would imagine that, as you’re building a law firm and you’re hiring people, there are some of those young people who are looking to work with you, right?

Yes, absolutely. There were a number of firms that were there [0:15:00] about the same time we were, each with their own unique business plan for the office. But ours was heavily focused on Russia and Russian corporate representation. We needed to have a good, solid base of young Russian lawyers to engage with our clients, to understand what they were trying to accomplish and to help us navigate culture and a whole variety of other things. We found a couple of those to anchor our office with, and of course, there were support staff that we needed to hire as well. There were no restaurants or delis or Subways to go have lunch, so we needed to have a cook that would cook for our office, and we needed to have some secretarial assistance, and we needed to have things like copying machines and things like that that were not readily available in Russia.

I never will forget—the cook that we had initially was a chemical engineer at some point. But because we committed to pay our employees in U.S. dollar-equivalent salaries, we were an attractive employer, because the ruble was anything but stable during this period of time. Ensuring our people that they would have access to us, they would work with us in teams, not so much a top-down organization, but one in which we recognized early the need to engage them as mentees, as people that we wanted to raise up and be heroes in their own right—which was very important I think for the long-term success of the company and the business—opened up some talent to us that was some of the best available.

Now, reviewing resumes at that point to assess one’s qualifications for the job, you could look at it as being extremely difficult or very easy. You could see it as being very easy because there was nothing really in their past that prepared them for what they were about to do in the future. But on the other hand, it was also a bit complicated because you had to get behind their experiences, and whatever they were, to understand what they learned and who they learned it from. You had to be very perceptive of the underlying skill set that could be—did you have to do some massaging to make it Westernized, or did you have to do a complete overhaul of someone? That led us to become more knowledgeable about certain roles and certain learning institutions and other things, to be able to understand what an employee brought to the table in whatever role that they were being hired to fill.

I never will forget—our first office was in a small, nondescript building in central Moscow. I believe it was a former apartment residence, probably about three stories high, four stories high, maximum. I think we had the second and third floors. There was a dark stairway walk-up to lead you into the office, and that was very intentional as well. We wanted to feel Russian, not feel Western. So, while the shiny [0:20:00] glass-plated buildings that were going up early on in Moscow found law firms resident there, we opted to go into an environment that looked like we were a young Russian firm setting up. No air conditioning in the place, so we would open the windows in the summer to cool things. Funny story about that later, as we talk about the CPC [Caspian Pipeline Consortium] project.

In the early time, we built a little family, for lack of a better term. We had a couple of drivers because driving as a Westerner in Moscow at that time was a little dicey. I ended up driving myself on the weekends to give my driver some time away. But otherwise, we had drivers to get people to and from every place because traffic was horrendous. Parking was nonexistent. You just couldn’t do this without a driver. We had a core of those folks, we had our kitchen support staff and custodial staff. We had a couple secretaries and two or three Russian lawyers.

And then, we had a business model within the law firm—again based on Bob’s long-term vision for this—where we would bring over subject matter experts in whatever it is we were working on, and have them stay for some period of time to both learn the context in which we were operating and to also teach our young Russian lawyers the tools of the trade in their particular disciplines. That was a very attractive component to young Russian lawyers. Of course, the way we learned about available talent and the way that available talent learned about us was through word of mouth and other things, other nontraditional means of communicating those kinds of opportunities, and relationships being at the core of everything that had come before us and since. It was something that got word around pretty quick. “Hey, this firm has a little different approach, and it’s a very attractive place to work.” We were able to acquire some of the best talent that was coming out of Moscow [State] University and others that schooled people in the legal profession.

We would all gather together in the mornings and we would eat lunch together around the kitchen table, prepared by our cook. We would often work well into the evening because of the time difference and because of our intense focus on staying connected to our home base, both to educate them about what it was like to support us, and to educate our Russian base on the disciplines that we wanted them to be conversant in. It made for very long days, made for very intense relationships that carried us through some tough times over those first few years.

As you’re describing how this model was set up, how much of that was Bob or how much of that was you? Because it seems like you knew what you were doing—“you” collectively. But how much of that was something that you contributed to personally? Or were you more following the vision that Bob set out?

It started with Bob. There’s no doubt that Bob had this big picture idea around which we arrayed ourselves to pursue. That was critically important [0:25:00] and essential in terms of focus. But how that got done was very different. I would say that what I contributed to the process was some dexterity and insight into people and culture and history that enabled me to build teams to understand the realities on the ground and how to maintain our integrity and our basic principles in a very unstable and unpredictable environment. Managing the work and identifying the people that we needed, weeding out those who might not be open to sharing our values, being patient with our young people to bring them along at the right pace to give them a sense of dignity and worth and meaning in the course of what they were doing, as opposed to an approach which would have said, “Just do what I tell you to do and do it that way.” I think how it got done was of equal importance, because that vision could collapse with an autocratic style applied to that citizenry that we found ourselves in there.

For whatever reason, I had some talent in that area that enabled me to navigate those oftentimes conflicting principles, the conflicting situations. We were committed to the rule of law, but Russia didn’t have a rule of law. So, the answers to ethical dilemmas were not always clear, and so if I wanted to be a success and if the firm was to be a success, I knew that we somehow had to maintain our integrity and our values and what we considered important in terms of how we practiced law, yet apply it in a context that had never been seen before, anywhere, by anyone. This presented a number of challenges over time.

I think that while Bob’s vision is extremely important and helped us get focused on the right things from the start, how it got implemented was equally important. That’s how I would describe my modest contribution to this effort.

I’m sure that a lot of those ethical dilemmas and the challenges that you faced played out in any number of the projects that you were working on. Maybe we can get a little bit into some of the specifics in terms of if we’re going to talk about the CPC; that might focus a little bit on particular things that you think might be interesting to note. How did you become involved in that project? How did that become part of the firm’s mission?

Right. The Caspian Pipeline Consortium had been an idea since the early 1990s, as early as [0:30:00] 1992. The Republic of Kazakhstan knew that it had an oil field that was very valuable and very big, and also very isolated. The country of Oman had been active in the Central Asian region for a long time, and of course they’re natural merchants and were wealthy, certainly, because of their own natural resource base. Oman didn’t really know what the deal would be, but they knew they wanted to play a role in it and to be around. There were enterprising entrepreneurs who understood what was at play there, particularly a guy named John Deuss.²

He and Kazakhstan and Oman documented a very loose and general agreement to find a way to go build a pipeline to connect this giant oil field in Kazakhstan to world markets. They knew that Russia would have to be a part of that, because all the existing pipeline assets that were in place at the time were owned by Russia. Some were owned by Kazakhstan after the fall of the Soviet Union. Those assets that existed on Kazakhstan territory were Kazakhstan’s, but they didn’t go anywhere other than Russia. All the pipelines went north and south, and so it was essential to have Russia become a part of that, and they did. Mid-1992, Russia became a part of this little consortium.

Our law firm had represented the government of Kazakhstan on a number of matters. Jim Langdon was leading our firm’s work on behalf of Kazakhstan, and we had a number of just broad mandates that related to the country at a pretty high level. This project languished for a period of years, from ’92 until ’94 or ’95—early ’95—when the parties realized that they needed to do something significantly different and big in order to capitalize on this huge oil field. That was about the time that I was moving to Russia. I knew something about pipelines. I understood how that industry worked and so Jim asked me to be the guy on the ground there, and we determined that it would be in our best interest to represent a Russian player in that environment, given that we had opened an office in Moscow and were focused now more on Russian corporates as our primary area of interest.

And so we, very early on, developed a relationship with Lukoil, which had emerged as one of the leading oil companies out of the privatization process. We had a connection to them through one of our young Russian lawyers who knew something about the organization, who happened to be Azeri, and [Vagit Yusufovich] Alekperov, who ran Lukoil, was also from Azerbaijan ethnically. So, there were ways which we connected with him. It just happened [0:35:00] that I was coming to Moscow at a time when this project started to get off the ground in earnest, and I had some expertise in the subject matter. I was the only one in the office in Moscow who had deep natural resource and energy expertise.

And here we had this huge project that U.S. companies and European companies and Russian companies and Kazakh companies all were starting to get behind to make a go of it, because having a pipeline that would cost billions to construct was not something that you could conceive of in Soviet times, because there would just not be enough governance and independence around such an asset. And the very thought of allowing natural resources to go anywhere outside the country or outside of Russia’s complete control was just not something in their psyche.

All that converged at the same time. That put me in a position of representing a Russian oil company in this enterprise to build this pipeline and monetize what was, at that time—may still be, I don’t know—the largest deposit of oil reserves in Chevron’s history. It was huge by any measure. That’s how I came to be introduced to the project and started my time in Russia with this project just starting to coalesce.

What was it like to represent Lukoil at a time when it’s a very new company, there was an uncertain legal environment, and you’re coming from the West?

That is a very interesting and complex question. First of all, Lukoil, as other oil companies, was an amalgamation of production companies that existed in the Soviet space. Their energy industry was organized by regions and each region more or less stood on its own, and all reported up to the minister of energy. As they privatized these state-owned assets, they would combine some of these units to make them companies of substance that could have enough reserves and enough heft and weight in order to be a player on the world stage. They wanted to create, in their own mind, some national champions that could stand on their own two feet with Exxon and Chevron and Mobile and Shell and the others that existed at the time.

When you put all these production units together, you’re starting a company from nothing. The corporate laws were very raw, new, and so just putting together articles of incorporation was somewhat new territory. Corporate records and accounting rules and rules about measuring reserves and, God forbid, public reporting of any of that stuff was all very new. But we had a very good relationship with the top executives. Bob’s reputation was one that was very important. In other words, Russians then and now understand power, [0:40:00] and they understand influence, and they perceived Bob, rightly, to be a powerful and influential person. Partnering with Bob’s firm—and Bob could have been selling diesel engines and they would have wanted to do this—but affiliating themselves with Bob’s firm was a way for them to build a sense of legitimacy on the world stage, to have Bob representing them in part. Not that Bob would do a lot of legal work, but Bob was important in terms of their image, and they were building this image from the ground up.

One day they wanted to offer shares in their company to the public, to raise money for more capital. They knew you couldn’t raise any capital to speak of in the Russian capital markets, because they didn’t exist. They knew they would have to go out and raise money somehow in the London or U.S. stock market. To do that, you have to be able to represent to the investing public a great deal of detail about your company: revenues, expenses, reserves, all of that. None of that existed in any form that could be presented to Western investors.

I would spend my time learning about where they were in terms of building this database, developing relationships with the executives, spending time with them on non-business things—dinners and other things—to develop some sort of relationship to understand where they came from and who they were previously and who they were now at the time I was representing them, and to understand what their vision for the future would be. At the same time, I was their interlocutor to understanding the motives of Western oil companies. They would ask me often, my Lukoil friend would ask me, “What is Chevron’s motivation? Why are they behaving this way? Why is this important? When they tell me that this practice or that practice is standard, are they telling the truth or are they doing something that is just trying to get them to take advantage of us?”

So, I had something I could offer them, in terms of educating themselves as to the motives of a typical Western oil company. We each needed something from the other. I needed to understand more about them and where they were and what they were trying to accomplish, and who they had working on that. They needed something from me—or from our firm, broadly speaking—in terms of Bob’s reputation on the world stage and all that. But also, with this pipeline project, they needed to have an understanding of where those parties were coming from in putting something like this together.

That was an iterative process. I attacked it on multiple fronts. I would bring over, from time to time, these experts in our firm that I talked to you about earlier. One securities law expert would spend countless hours inside the Lukoil organization describing for them what an offering memorandum would look like—“if you want to raise money from other people, here’s what you will have to show.” So, there was that stream of work. There was a stream of work that I did with one of our people who was a debt expert, so that he could come in and educate them about what a bank [0:45:00] or a financial institution would require of them if they wanted to get a loan from someone.

We put in place these working teams that allowed us to gradually build a knowledge base about the company and what it actually had. We did as much diligence as we could. We’d go out into the fields and look at the production fields, and put our hands on and ensure for ourselves that they were indeed what they represented themselves to be. And at the same time, began to educate those inside the company about how they needed to prepare themselves for engaging with Western counterparties, which was going to be a necessity for two main reasons. One was technological. Western oil company technology, in terms of assessing reserve base and production means and all of the geological science, we were far ahead of Russian firms in that respect. You saw a lot of joint ventures early on in the oil and gas industry so that they could learn from Westerners these production techniques and equipment and all of the things that you needed. So, that was one thing.

They also needed to learn from them how to put together these consortiums that would spread enough risk among enough parties that you could build something big without having your entire company at risk for doing it, and to provide enough support for it, both political and otherwise, to get that done. That practice enabled us to gradually serve each other’s needs to the point where we could take more meaningful steps in terms of engagement on the CPC project, and a deep and meaningful engagement with other parties to put together, and at the same time preparing ourselves for other commercial endeavors that would happen necessarily down the road.

What were your impressions for the prospects of the CPC when you began working with Lukoil and getting involved with this project, which as you said, had been languishing for some years?

You could sense that this was a project that needed to happen from a number of different perspectives. Why do I say that? Chevron really needed it to happen because it was the largest find in their company’s history, and in order to monetize it, they had to figure out a way to get the reserves, get the oil to refining markets in order to monetize that asset. Otherwise, they had a huge investment and a huge asset that their shareholders and others would not be very happy with them about letting it sit there.

So, there was a high incentive for them to get something done. Kazakhstan was a brand new country. This was the crown jewel in what the country owned, and it was a way for them to build legitimacy on the world’s stage. Russia wanted this to happen—Russia writ large—because they’ve always wanted to control the natural resource flow. [0:50:00] And while Western companies were a lot more focused on what I call the vertical pipes—the pipes that you stick into the ground to discover things—Russia was much more concerned about the horizontal pipes—how it moved from point A to point B to ensure that they controlled enough of it that they would not be overly vulnerable.

They wanted to be involved in any decision, because their greatest fear was it would come to market through some other country other than Russia. Whether it was across the Caspian Sea into Turkey or whether it was East China or something, they wanted to make sure it went through Russia. So, you could see the economics and the politics come together to a degree that you knew something had to happen. There was just too much to be gained to do nothing.

On the other hand, the very idea of how one would organize such a venture pulled these disparate parties together in a transaction that could be financed by a Western financial institution, yet have all the government approvals and assurances that one would need to make sure that you’re not overly taxed or that the government wouldn’t come in and take the assets away and nationalize them or tax it in such a way that it would undercut or dilute the financial prospects. There were a lot of details—well, they weren’t details, they were big items that would have to be navigated in order for this to really come into being.

I was optimistic because a lot of people were optimistic. This was in the context, as I described earlier, where everybody was wildly optimistic about what could be with all of these resources and intellectual capital all of a sudden thrown open to the world, that everybody had a sense of optimism about the future at that time and in that place. This was a part of that, and something very real and very tangible that those parties I just described could try to figure out in order to bring all that promise and hope that people felt, in a number of areas, into something that would be tangible and real, and deliver on that promise. All the stars seemed to be aligned, all the parties were highly motivated by the bigger prize, and that made for some momentum where everybody saw themselves as a rock star if they could get it done in their own field.

As you’re representing Lukoil as part of this consortium, how did it move from this period of languish, where everybody knows that they need to get something done, and there’s a lot of optimism, all these resources at everybody’s disposal, in your role representing Lukoil, what did you see that transformed that project from one that there’s a bit of stagnation to it eventually becoming a reality in one of the most unique transnational ventures of its kind?

In order for a project of that size and magnitude and complexity to come into being, you have to have people involved in it that have been there before and who understood what needed to happen to satisfy these various constituencies. [0:55:00] Those people came together. Chevron got comfort in partnering with Lukoil and the Russian government, because Lukoil was represented by an entity that they had heard of before—our law firm. They felt like we could help educate Lukoil in a way that they could not obtain if Lukoil was represented only by Russian lawyers. Kazakhstan obtained some great representation, Shearman & Sterling [LLP] in New York. They had people who’d been there before.

My counterpart in this whole venture—my closest friend out of this venture—was a guy named Robert James, who works for Pillsbury Madison [then Pillsbury Madison & Sutro LLP]. He represented Chevron. We developed a very close relationship, and we had others from investment banks, CS [Credit Suisse] First Boston, I think was involved there at the time. The parties had people engaged that knew what they were doing and could bring along their clients towards a transaction with terms and conditions and documentation that would stand up in international marketplaces. That plus the geopolitical context that somebody was going to monetize this resource base one way or another.

The Russians were really pushing hard, the Kazakhs were really pushing hard, and then they finally determined to get people representing them so that you could really pursue it in a way that could be financed. Everybody knew that this would be a couple billion dollars to build. They knew that we needed the support of governments for rights of way, taxation, and a whole variety of assurances. They knew that we would likely borrow money to build it from a number of banks that would want to finance this. We knew we needed to have legal structures and contractual terms and other things like that that banks would be able to get comfortable with.

When you think about it—Russia, Kazakhstan come to the table asset-heavy and financial resource-light; the Western companies come to the table with financial resources and wherewithal in expertise and money, but relatively little in-country representation and engagement. They needed one another in order to make it work. The whole process, I remember in April of 1996, all these parties I just described, these major players, came together in London and said, “Okay, if this is going to work, these are the basic outlines, these are the basic terms we need to have. Russia will contribute their assets and support for rights of way and all that, and Kazakhstan will contribute their pipeline assets and provide support and guarantees, and the production companies will provide this sort of expertise and technical knowledge and support. Using those principles, let’s get the lawyers and technicians to start hammering out something with enough detail that would enable this project to go forward.” [1:00:00]

So, that happened and came back to life in late 1995, early 1996. The Russian Supreme Soviet had formerly, at that point, contributed its assets to this new CPC company that had been formed in Bermuda by this guy, John Deuss, that I described earlier. Some actions had taken place to create some momentum and from there, from April, this principal document I’ve talked about was pulled together in April of ’96. We signed definitive agreements in December of 1996. The whole process of taking it from a conceptual idea with basic principles into something that was highly detailed, documented with paper that was probably a foot high in total, was pulled together over about an eight-month period, which was the professional experience of a lifetime.

That seems like a very short amount of time to bring such a large project together.

It was a very short period of time. But, we were fortunate to be able to leverage time zones, and let me explain what I mean by that. The way a typical day would go, first of all, we needed to have building blocks that we could work with. We had to slow down to speed up. And what I mean by that—Russia didn’t have a word for mortgage or sovereign immunity or commercial capacity or a share of stock; they didn’t have words like that. We paused long enough to build a vocabulary of words and ensure that they would have a commonly understood meaning. The work at the beginning was very slow, because we also knew that this was not a transaction that could be documented only in English, because the Russians—it was a nonstarter for them to not have something of this magnitude reduced to something in their language that they could understand and lean into. The fact that the documentation would have to be in English and in Russian was a given from the very beginning. Developing this common vocabulary at the beginning, while tedious and time-consuming, was absolutely essential to be able to run fast. That was one thing that we did early on to give us the capacity.

The other thing was that—I described for you earlier these work streams that we had at the beginning of setting up the office, where people from various disciplines would come over to Russia and learn about the clients and learn about our business, and they were experts in documenting things, as well. They learned enough so that we could work until eight or nine o’clock at night on language around a particular provision in the agreement and then ship it electronically to the United States for it to be worked on during their day, so that when we came back to the office in the morning, we had a document that was advanced, in terms of maturity, far beyond what we could do alone in Moscow at the time.

We also [1:05:00] developed a bank of translators. I had three or four in our office, and Chevron got some people that they knew and trusted, Russian employees, and we built an interdisciplinary team of translators so that what we had agreed to in principle could be more easily placed in Russian and English documentation a lot quicker. Because these translators would work together, and what was very complementary ways that we set the tone for, by virtue of how we put our teams together. An honest broker in the Chevron—lawyer, I got to know him very well; I trusted him. He did the same with me. Our relationship—and it’s not to say that others didn’t participate as well—but Lukoil and Chevron were basically the engines that drove this train. They were the largest players. They were the most well established, along with the governments—obviously, somewhat separately at that time—although government still owned some of the shares of Lukoil. But if Chevron and Lukoil didn’t get along, this project was going nowhere. It was essential that we have a team of folks that worked well together.

Once you built the vocabulary, once you built the translators that would enable the documentation to pull together, and then you had these work streams in place to advance the documentation to reflect the negotiations of the parties, then we could have the business principals talk about the issues that they needed to resolve. And be able to then essentially have a twenty-four-hour work stream back behind that to keep up with the dialogue. In the same way that we organized the legal teams and we would divide up responsibilities for particular subject matters that needed research or development or expansion, Rob James and I—the Chevron lawyer and I—would decide, “Okay, let’s have this group do this and this group do that, and you and I will work on this piece.” We divided it up enough so that people felt included and a part of the process.

The business parties had their own teams. We had a team that were working on, for example, how we would design the rates that would be charged for shipping oil. We had a group working on rights of way, what was needed in order to be able to have the right to lay the pipeline across the northern Caucasus region at the time, over to Turkey. And we had a group that was working on the construction cost. How much is it going to take? Where are we going to get the materials? What kind of labor are we going to use? Is it local? Is it imported?

We had a construction team. They divided up the work on the construction teams, and then there was a group that would decide, “Okay, how much capacity will we have in this pipeline system versus somebody else? How much of it are we going to own versus somebody else?” You had some very senior level teams working on that. We had these complementary work streams together, which were largely designed by me and the guy from Chevron, to leverage everything we had around us to be able to work twenty-four hours a day, and yet still have meaningful business discussions during that time.

In parallel with that, we also designed a process that [1:10:00] alternated meetings in Russia and the U.S. so that each party felt like there was enough being done on their home turf to feel comfortable. We even had a couple of meetings on neutral sites—I think Singapore; between North Korea and the U.S. At any rate, place mattered to the dynamics.

The other thing that happened that was really, really important—that is the lead business person from Chevron that came onto the scene in late ’95, early ’96, was a guy named Jeet Bindra [Jagjeet S. Bindra]. He didn’t look like the previous Chevron executives that had been involved in the project. He’s of Indian decent and lineage. He could represent himself outwardly and substantively as being a citizen of the world, not just a totally U.S.-centric executive. He just had a different way about him that mattered a lot in the culture in which we were operating. At the same time, the Russian government shifted the responsibility for oversight of this project from Yuri [Konstantinovich] Shafranik to a guy named [Sergei Dmitrievich] Shatalov.

Shafranik and Bindra were both very strong personalities and sparks would fly more often than not. For whatever reason, Shatalov and Bindra developed a very good relationship. Shatalov would have Bindra come to his dacha for a weekend, and a variety of engagements like this between the two of them helped Chevron become comfortable—more comfortable than they would have otherwise—to trust what was coming out of the Russian side. Because they felt like they had a reliable back-channel interlocutor that they could lean into. As those relationships matured and as we had these work streams working seamlessly, we were able to really accelerate our work in the last months to get to the finish line by I think it was December 6, 1996. Where we ultimately signed the definitive agreements that would put the project on a footing where it could move forward. It was challenging along the way.

I told you earlier about our office in Moscow at the time and no air conditioning, et cetera. One of the more intense sessions of this negotiation occurred over the summer, and we were constantly turning out new versions of these agreements that people needed to review, so we had to make a lot of copies. Our copying machine was the best we could find at the time, but it overheated on a number of occasions because we didn’t have air conditioning in our offices and there was none to be found anywhere in Moscow.

So, here we were, all these high-powered lawyers in law firms, churning out these documents that would serve as the foundation for a two-billion-dollar project, and the copying machines would overheat during the summer. It’s just a little side venture there that we had to do most of the copying at night while it was cool enough to get done. There was a number of [1:15:00] little bumps like that that we worked through to get across the finish line. It was, I think, largely driven by building capacity, slowing down in order to speed up, relationships being developed and cemented. Trust being built, which was huge.

There were just some things in these agreements that would be considered standard in any sort of a Western-dominant transaction that Russians would have no reason for knowing whether it was standard or not. There were times when Lukoil had to take my word for it, that this is not something that they’re going to take advantage of, this is something that everybody would agree to under these circumstances, and here’s why you don’t need to worry about it. And by the same token, we had to assure the Western side that not insisting on X or Y was going to be necessary in order for them to build trust on the other side. There were any one of a number of provisions like that that we wrestled with over the months of negotiations to build trust and to get to something that people could reasonably support.

Just for example, there was a lot of debate about how we would resolve disputes. What happens if we don’t agree on something? How do we resolve those things? Over some period of time, we agreed to have the contract that we built, the base contract—even though in Russian and English and each version with equal weigh, so one version wouldn’t dominate the other in terms of interpreting it in case there was a dispute about that—even though of equal weight, it would be construed by English law. Not U.S. law or Russian law, but English law. My Russian counterpart said, “Why is that reasonable?” “Well, English law has been used to resolve commercial disputes for centuries. They have a lot of precedent built up. There’s less chance of getting some decision that is crazy because it’s a common law system and they follow precedent and it’s something that you can get comfort from because everybody can see what it is and know where it’s been over a couple hundred years. It gives you some comfort about where something will land, and so you can be comfortable with that, for example.”

The Chevron people were very concerned about giving equal weight to the English version versus the Russian version and I had to say, “Look, you’ve got a translator; we’ve got translators; let’s make sure this thing is right.” Why should they feel like this agreement would be governed and be trumped by the English language version? Why would we want to put them in some secondary subservient position which, as you know, in Russian cultures, is something that people are highly sensitive to. There were a number of little things like that that we worked through.

But perhaps the biggest thing that we had to deal with at this time was who was going to be the boss. Who would be the people responsible for building it and running it? And that was probably the issue that dominated most of the contentious discussions. Each party wanted to have their guy that would be the boss of this project because the contract, for the Russians, was a lot less important than the people that would be running [1:20:00] the thing afterwards.

It was not unimportant to Chevron either. Chevron was saying, “Look, this is our money basically, our financing that’s going to make this thing happen.” Usually people who are spending the money—and they were going to be spending all the money. The producer of the companies, Chevron, they were going to be arranging for all the financing for this because Russia and Kazakhstan didn’t have any money. They were dirt poor at the time, but asset rich. They were going to contribute their rights of way, their land, their pipelines and all that sort of stuff. But Chevron was of the view that—“look, we’re providing the financing, we ought to have some guy over there that we know and trust that’s going to run the things.”

After long conversations, and we developed—well, the other thing, Chevron was a lot more comfortable with institutional integrity, so that if you designed a management structure and team that had the right sort of disciplines and counterbalances, checks and balances, and those sorts of things, they could get a lot more comfortable with that. For the Russians, that was not important to them. They wanted to make sure they had the people there. They wanted to know who they were and all that, in order to be comfortable. We ultimately did both.

We get a management structure with a person at the top who would be Russian for the first five years and then Chevron for the next four years. For the second person in charge, it would be a Westerner in the first five years and a Russian the next four years. And then, we had heads of different departments, human resources, technical services, all the functional areas that you needed to build and run a pipeline—we staffed them with a mix of Russian and Western parties, depending upon their area of expertise.

For example, we agreed that we would use local labor as much as possible to construct and operate the pipeline, so the human resource function was run by a Russian. For the technical services piece, the technology of the Western companies was much farther advanced than the technology on the Russian end, so we had a Chevron person in that function. We ultimately built an organizational structure and staffed it with people that looked like a pretty good mix, so that each party felt like they were adequately represented and could have enough checks and balances, both in terms of organizational structure and in terms of the people that were filling the boxes, to give them some comfort that they wouldn’t be bamboozled along the way. That was the biggest area that we had to work through, and the most culturally eye-opening, in terms of who was selected.

How was it eye-opening?

It was interesting for me to see what people looked for. What attributes were important to them? Because the Western side would interview the Russian people, and the Russian side would interview the Western people, and you could see what they put at the top of their list in terms of the questions they would ask and how they would get comfortable. The Russians were looking for people who would be open-minded to accept that Russia might have a better way of doing something from time to time.

The Westerners were more focused on the technical side of things—did this person really have the experience in order to run this? Methods and processes and policies—did they have enough dexterity in those to manage well? What would be the management philosophy? Would the top Russian executive [1:25:00] manage their Westerners in a way that kept them from speaking up if they saw something wrong? Would they manage them in a way that had their thumb on them in some ways? Were they open to hearing bad news? Because, as you know, in Russian society up until that time, people bringing bad news, usually they didn’t hang around very long, and it was not acceptable to give bad news to the boss in many ways. The boss was the boss and that was it.

These very fundamental differences in outlook and management style and personality and loyalty and all of that. The loyalty in Russia was to a person, very much so. Loyalty in a Western sense was to an organization, shareholders, boards. Were there personalities involved? Yes, of course. But the foundational part of it was loyalty to organizations that had principles and values and things. That was not part of the Russian culture at all. So, watching that play out and see how it fed into the decisions they made about who they would appoint to do what was what was eye-opening to me.

How did it play out, in the sense of, are those cultural differences something that you felt like had to be overcome? Or you were able to harness to create a desirable outcome?

The key to that, I believe, was accepting that these were not differences that needed to be overcome. That these were differences, first of all, that needed to be understood and then harnessed to set a very high level, yet commonly accepted principles, that participants would be willing to be governed about. That was a dynamic that had to be built piece by piece. It was a dynamic that is difficult to maintain in any organization. Even today, corporations put out value statements and codes of conduct and all those sorts of things, and you constantly have to remind the organization about what they mean and how to live out those values and what those values mean in particular circumstances.

While that basic structure was enough to get the ball rolling, there were countless times in the early stages of the project where people would throw their hands up. “I just can’t work with this person anymore.” “The style’s just not working.” You’d have to work through that. It was constantly engaging yourself and then, more importantly, equipping others to see the role that we needed them to play as bridge builders. That was really, really important. We refined the kind of people we were looking for, over time, to put this bridge-building component into the matrix that would be used to evaluate the suitability of particular people in particular roles.

Even today, when you are determining whether a person would be [1:30:00] suitable to serve an expatriate role in another country, there are some personalities that are more adept at that than others. And we are now a lot smarter about what to look for and how to train someone for that, how to prepare and equip them for that, how much you have to look at the support structure that’s around them and a whole variety of other things and make them successful, and all that. We’re much more sophisticated now than we were then, because then, nobody’d ever done a project where they immersed themselves in Russian society. It just wasn’t available in any meaningful way, on something this big anyway. Yes, we had exchanges and things like that, but people were studying Russia and all, but nothing that would look like this.

You just had to learn as you went along and take a deep breath every once and a while, and then open yourself constantly, constantly, to your blind spots. Those who were more willing to see their blind spots ultimately were more successful. Those who had a very firm idea about how things should be done and the manner in which they should be carried out ended up not being so successful.

I’m fascinated by your description of how you built vocabulary, and used these translators, essentially, it sounds like, to create new words for the Russians to understand what you were talking about. What was that process like? Because there was a team of everybody working together, and are these words that were able to be codified? How did you come to a mutual understanding of what they were going to be? Are these words that have been used since in business in Russia?

I learned more about my English language in this job than I did Russian language because this process of developing these terms had to start with a very simple, easy to understand description of the idea. What is the idea that we’re trying to capture? Let’s take a word like “security interest.” Security interest is when a party who owns a piece of property or money will pledge it, agree to give it to somebody else, if they fail to do what they’re supposed to do under some agreement. We would get into these conversations of, “Who decides whether you failed or not in forming your obligation?” All these conversations would take place in order to get a firm idea of the basic proposition. And then, the word for security interest that we ultimately developed had about eight or nine lines of text to it, to describe the idea, because there was just no Russian language counterpart to even the idea of a security interest. I suspect over time those eight or nine lines of text might have become more commonly understood in Russian.

But at that time, we would have two words [1:35:00]—security interest—that would have all these lines of text to describe what it meant, and we put all those terms in kind of a dictionary, I guess, that accompanied us as we went along in these negotiations. Lawyers are trained—I would say overly trained—to speak in terms that are unique to their profession, and are unskilled in describing concepts in the way that you would describe how technology works to your grandmother. That was a skill that Western people had to learn new, and the translators had to learn how to capture the idea in as few of words as they could, in order to keep the definition from being longer than the contract itself.

There’s these intense conversations that would happen between the Westerners and the translators, on the one hand, in order to get the idea effectively communicated, and then between the translators, on the other hand, in order to determine what the best Russian words were going to be used to capture the idea. When you go through that process with a hundred terms, you become very adept at reducing your idea down to the lowest common denominator, otherwise you get worn out. That was a very good skill set to acquire. It helped me in other foreign assignments that I had in other countries. I didn’t realize it, at the time, that it would prepare me for that. But my English language grammar and ability to write clean and simple concepts without the “whereases” and the “wherefores” and the this and the that and the other that are sprinkled through typical lawyer language was really essential to getting to a common understanding between people. Westerners had to become more simple, Russians had to become more sophisticated, and watching that play out was just fascinating. It was a negotiation. Every word was a negotiation, in some ways.

It sounds like throughout this entire process, almost everything you described is people working in pretty good faith with each other. Would that be accurate to say?

Yes, ultimately. Ultimately. But those people working together had no basis upon which to have any faith, one way or the other, before they first met. People working together would either have to build trust in large and small ways through their interactions with one another, just being where you said you were going to be at the time you said you were going to be there, to making them look good to the people that they’re reporting to, to keeping a promise you said you would deliver on, to then, as people gained reputations, your word became a currency upon which others could rely. In other words, while someone from Chevron might have come to know and trust one of my translators [1:40:00] whose name was Volodya, they developed a relationship such that if Volodya told Chevron, “My colleague, Tonya, is trustworthy; you can trust her,” then he had developed that currency so that his word could be trusted.

That would make it easier for Tonya to be trusted for the Chevron. You built those reputations carefully, not necessarily mindfully. That’s not why you were doing it, but you knew you needed to do it at the beginning in order to just get anything done. That it became currency in ways that were not necessarily known on the front end, if you can see what I mean by that. It was something that also got developed through checks and balances. My translator would take something that Chevron gave us and translate it into Russian terms. It happened to be maybe a very important provision from the Chevron point of view, and ultimately, my translator’s work would be validated by the Chevron translator enough times to know that what they got from my guy was going to be trustworthy and they could count on it.

Early in those relationships, a small mistake would have outsized impacts, because it was either “This person’s work can’t be trusted,” or “This person’s work is not high quality, they’re not smart enough, or they’re trying to hide something.” But if you did a good job and you delivered on your promises and you did what you said you were going to do, and you listened to what the other parties said closely enough, you could build that trust over time that became an invaluable currency as negotiations intensified. It was something that you only could see happening with the benefit of hindsight, not so much in the moment.

Were there any moments along the way, in this really delicate process of building trust and making this project a reality, that you had any doubts, that you thought that it maybe would be subject to falling apart?

There were times when discussions were tense and tempers flared, but the pull of gravity, the pull of commercial gravity around this ultimately got people back to the table. Sometimes it took a couple of weeks. Sometimes it took a couple of sidebar conversations to clear up the intent behind somebody’s temper tantrum, or what they were really concerned about and why, and all of that. But nobody was willing to put their personal agenda in the way of a two billion dollar project that would deliver these huge, consequential benefits. Nobody wanted their name on that headline. And so, I always knew it was going to get done by somebody.

Now, there were times when I thought maybe this person might get fired, or that person might get fired. We need to pull somebody else in here to really get it done, but that the project would get done. It may not get done with everybody that was around. And we had a few changes in personnel along the way. Some people were more effective in this [1:45:00] process than others, and they were replaced. Once you saw people being replaced, you knew that, “Wow, this is a little bit bigger than any one person’s agenda.” And that was significant. So, no, I never got the feeling that the whole thing was going to collapse, but I did have periods where I wondered how we’re going to solve this problem if we don’t get other people involved or find some way to get comfort that we hadn’t been able to devise before.

There were times that we were able to bridge gaps unknowingly. Let me give you an example. One of the lawyers, who I won’t name, but was on the Western side of the equation, had a need to communicate to the negotiating room—the big room where everybody was involved in give-and-take negotiations—a particular point that was important to his client. He was not fluent in Russian and he didn’t have his own translator. He asked if he could use my translator to communicate his point, or series of points, to his group as a whole. I said, “Yes, I would do that.” He stood up and spoke for I suppose fifteen, twenty minutes, dutifully translated by my translator, and when he finished, my translator sat down, and I leaned over to him and I asked him, I said, “I thought the speaker was going pretty fast and he was using a lot of terms that seemed complicated to me. Did you feel comfortable with the translation?” He said, “Oh, yeah, absolutely. But, I didn’t understand a word he said.”

I said, “So, what have you been doing for the last twenty minutes?” And he said that, “I told the group of Russians assembled in the room that I didn’t understand a word this guy was saying and that when he finished, I would come back to you and understand the points he was trying to make and then communicate that to them at the next break.” I said, “So, what were you doing in the meantime?” He said, “I was bringing them up to speed on the most recent Russian soap opera that I read the evening before.” They were all sitting there nodding their heads up and down, going along with the story, and we did what we said we would do. I explained to my translator the point that the other party was trying to make. My translator, dutifully, at the break went and communicated that to the Russian counterparts, and things went on swimmingly. And the Western lawyer never knew what happened, but was thankful to me on a number of occasions for allowing him to use my translator.

You couldn’t highly publicize all of these sorts of things, but the Russian participants gained some confidence, or a different level of trust, knowing that if they got into a situation where they weren’t following the points that were being made, they could always come back. They had a back door that they could get to so that they would understand, ultimately, what was trying to be communicated.

That allowed the temperature of the room [1:50:00] to stay within tolerable limits, when otherwise it could have broken down into fits of screaming and hollering and posturing that otherwise would have been unproductive. Those kinds of interactions were essential to keep it going. Would I have designed it that way? No. But in the moment, my translator knew enough about the dynamics to be able to think on his feet and do the right thing and maintain the demeanor and respectfulness that the Western speaker knew was important to him or her, and yet deliver the substance in a way that the Russians could trust. That was just an interesting event that was meaningful as we went along.

You were working on this project and also simply trying to run an office in Moscow. Did you face any challenges from not those within the project, but just existing in that environment during a really tumultuous time?

Yes, we did. And they are the kind that you would normally expect in building an office, on the one hand, and then they were a kind that you didn’t expect on the other. Getting the right people in the right roles was, as I mentioned before, a big challenge. I needed an administrator, someone who could do the human resource paperwork, who could produce payroll and pay our people, who could engage with the taxing authorities and other governmental regulators that were constantly knocking on our door for one thing or another. The mind-numbing paperwork that was associated with everything that businesses had to do—I was not an expert in that. I had never dealt with Russian tax authorities. I had never dealt with municipal officers. We had to have countless licenses to do every little thing that you can imagine. We had to have books and records that would satisfy inspectors of various kinds, whether it was for safety or for taxes or whatever. There was something like that every day.

And then the constant back and forth between people in the office, different Tartars and Azeris. You think about Russia as being one monolithic culture. They’re not. I’d find myself in the middle of a squabble of one person complaining about another person not treating them the right way, or respectfully enough, and whatever else. Of course, it wasn’t easy to do anything.

Firing somebody, for example, if they weren’t doing their job, was not the easiest thing to do. Pregnancy leaves were a year paid, which was not something that I’d been used to at the time. How we were going to get [1:55:00] the proper tags for our cars. We had to have license tags on our cars that identified us as American businessmen, which, of course, drew the attention of all the police that would direct traffic. That was an administrative nightmare.

And then, on top of that, there was managing the expat workforce. The expat workforce had their own set of demands. “Where am I going to live and how much support am I going to get? Do you mean I have to live in this place that doesn’t have the amenities that I want?” Or whatever else. I was having to manage expectations of the Westerners who would come over and work for either extended periods of time or temporarily. I had to get them in and out of hotels or in and out of things, where to take them to dinner and what kind of access they would have to drivers. We had limited number of drivers and everybody wanted to go different directions. The Russians wanted a driver, too. All of that stuff was part of managing the office.

Now, as we got more and more people equipped in their roles, that became easier, and then we became bigger. One of the things that I focused on early was diversifying our office in a way that would bring other skill sets inside of our office, that would enable us to be equipped to represent different companies in different industries so that we weren’t entirely dependent upon energy and Lukoil, while they were a very good client and all. I was almost from the very beginning looking for other practitioners, some in Western law firms and some in Russian firms who had client bases and others that would be complementary to ours.

Ultimately, it took me about a year, but I found two very seasoned lawyers, Western-educated lawyers, both fluent Russian speakers, who were well established in the market, who had client bases that were, in one case, a Russian telecommunication company, in another case, represented a consumer goods manufacturer that had a business strategy that did not count on importing products from the West, but more making products in Russia so they had a Russian client feel to them. And it took me a year to recruit those lawyers, but I did, in time, which added depth and breadth to our office.

We ultimately moved our office from one location into another location that was built by the Hines company out of Houston. They were a property developer, one of the early ones that came to Moscow. They converted an old cigarette factory to an office building that was air conditioned and had some of the amenities, security and other things that you would want to have in an environment like that. All of those little building blocks were many challenges, if you would, to building an office that would have some sustainable characteristics to it. And thankfully, it did just what we had hoped. We were not so dependent upon a single client.

We were not dependent at all, or at least to a very small degree, on incoming investment. [2:00:00] We were mainly tied to Russian companies, so they weren’t going anywhere. They were going to stay there. But the English firms, for example, the U.K. firms, brought over a ton more people, mostly U.K. trained lawyers, and they would have offices of thirty or forty people, professionals. Our office was more like ten to twelve. And as a consequence, our resource base stayed pretty constant. We didn’t have to staff up for a big bank loan that was going to be made, or an incoming investment, or whatever. We had a pretty steady stream of work that increasingly became diversified and enabled us to maintain capacity to deliver.

In these work streams I talked about earlier, educating and keeping our resources in the U.K. and the U.S. conversant enough about our Russian business to be able to provide this after-hours support was a real key, because it cost a lot to bring expatriates to Russia. We were able to keep our financial performance more in line with our costs than others did because of the target client base and the resources we needed to have in place in order to deliver on that. So, yes, it was challenging. But thankfully they were challenges that were fueled by growth, and I think strategic growth and modest growth, but very impactful growth, and that really helped a lot.

One of the big questions that we want to talk about is why Russia would cede this kind of control over such an important asset to a group of Western oil companies in this context. The reasons for that are various, but here are some of the more important drivers. First, Russia, as a country, at that time, was cash poor and asset rich. They—when I say “they,” I mean the Russian government as a whole—were looking for opportunities to monetize their assets. That’s why the privatization program, the so-called “loans for shares” program, was put in place, because they had no taxation system, they had no way to fund the government other than what remnants was left over from communist times. They needed to find a way to maximize cash and revenues out of the assets that they had access to. That’s one thing.

The second thing that they needed was access to technology and know-how and business practices. Remember that in 1995 you didn’t have a lot of executives of companies in Russia who had run a commercial business of any sort, and they did not have access to the advanced technologies that had been developed in private industry, in and around the oil and gas industry, whether it was seismic, finding the oil and gas, or exploiting the resources, producing it in commercial quantities, the number of developments that Western companies had [2:05:00] invented and then put in use to efficiently transport natural resources.

The way that the Russian system provided reliability was through five-year plans that just built pipeline on top of pipeline on top of pipeline so that the gas pipeline that went from the northern part of the country in Siberia into Western Europe would have redundancies times twelve. Not because you needed it, but because that’s what was in the plan. And they had to keep all these people busy, so they had them building pipelines everywhere. They didn’t worry about technical expertise because if one failed, they had eleven others that were not being used that they could utilize.

There were all these gaps. A revenue gap, a know-how gap, a technology gap, a business practice gap that needed to be filled, in order to advance these companies into ones that could go toe-to-toe with their Western counterparts, wherever they were and in whatever form. Those were absolutely mission critical needs for Russia,writ large at the time. And yet you had these companies that were being formed left and right that acquired these assets, and oligarchs emerging out of the country to run them, somewhat quasi-independently. It wasn’t highly coordinated or controlled. There was some anxiety about that.

Russia needed those three revenues, know-how, business practice, and all of that, enough to say, “Okay, what’s the least we can give in order to get the most in these three areas?” And they concluded, number one, that, regardless of who did it, they wanted that oil to come west and not go east or south. West and north is where Russia wanted the oil from that field to come from, and that was a remnant as much from the way they controlled what became the republics around them—it’s a way they controlled them for seventy years. They knew that that needed to happen, and they figured that, “Look, the geography won’t change. If the pipeline goes across land that is Russian land, we’ll always have some control over the asset; it won’t go to a regional competitor, a geopolitical competitor. We will learn a lot from these industry players that we can apply to other industries and other companies inside of the country, and we don’t have to give up all that much at the end of the day.”

That’s, I believe, the calculus that was made, with emphasis on different things by different components of the governments. The pipeline people had one set of concerns, and the government taxation folks had their concerns, and the energy minister had his concerns and others. But collectively, when you look at it in the whole, you can see why Russia would do it at that time, given what they needed in terms of capacity, [2:10:00] just industrial capacity and capitalistic capacity and all that. And what they were afraid of happening if they didn’t engage in a way that brought the pipeline across their territory.

I think Chevron and maybe some of the others would have been amenable to have it go elsewhere, but to the south was Iran and that wasn’t such a good opportunity at that point. Going under the Caspian Sea and through Turkey had its own set of issues, both technological and others. It’s a long way to China, and the refining capacity had not been built at that point. So, you sort of lock yourself in to a refining capacity that you don’t know very much about.

For them, having this oil go out, even though through the Black Sea and the Bosporus and the Mediterranean, you could get it into the Western European refining asset base. That gave you worldwide access to markets, because that crude oil could be traded and shipped all over the place. To them, it made sense to take it out in that direction. And, gosh, if they could have some pipeline assets that were already in the ground—and there were some in the ground along that route—to help reduce the cost of transportation, so much the better. Both the geography and the markets dictated the construction of this particular outlet, and it served the selfish interest of all the parties that were engaged, for different reasons, but it served them all reasonably well.

That said, when you dug down into another level of detail, negotiating with the Russian government at the table was an experience in and of itself. First of all, the Russian government had gone from being headed by Gorbachev to Yeltsin, so Yeltsin was in charge of the government. But let’s just say that his leadership was less than stable all the time, and he had a variety of challenges to deal with across multiple sectors, both political and economic, and strategic, that he had to have his hands on.

So, of necessity, the responsibility for being engaged in this project had to be vested in people who had at least technical knowledge, somebody who knew something about pipelines and oil and gas, and that’s where it landed. It landed in the hands of not only Lukoil, which was still owned in part by the government at that time, but who had a number of highly competent executives who were deeply knowledgeable about the oil and gas industry in that particular geography, the best around at that time. They knew that this was going to be a pipeline, so it only made sense for them to have someone from the Russian-owned pipeline company to front the government participation in how this project was going to come together. I highlight that because the ultimate decision maker in the Russian government was not at the table [2:15:00] enough, really, to be a meaningful participant.

It was left to the Transneft representatives—the state-owned oil pipeline company—and the Lukoil executives to keep the rest of the government informed enough so that they felt comfortable as and when government support would be needed or government agreement would be needed to give the assurances necessary to make this economically viable.

One thing we did to make the Transneft people comfortable is that we let them open and close the meetings, and put them at the head of the table and at the center of attention to let them conduct the orchestra, so to speak, of the conversations. Now, he was always flanked to one hand by the Chevron guy and the other hand by the Lukoil guy. Even though everybody knew that Chevron and Lukoil had to come together to make this work, the government was right there, front and center. They would outline, “Okay, we’re going to talk about this, this, and this today.” “Now it’s time to take a break.” “Now, we’re going to go tonight until seven o’clock,” or whatever. All the formalities around the meeting were introduced and conducted by the Transneft people, and that was to build some sense of control over the process and to those who were important to it.

And then, it fell to those primary participants to inform their superiors, the minister of energy being one, the minister of the treasury executive or the taxation authorities, that was another—ministry of finance—that they had to keep in mind, and of course, the president, who was brought in at the very last to give his approval of the transaction. And those government decrees that were issued to support the project—very short. They weren’t really long documents, but they were highly discussed and negotiated with the key language that we needed to have in them, in order to make it clear that we would get the kind of guarantees and support from the governments that we needed to make this project work.

It was not always clear who the government audience was that we were dealing with, or what else they had on their mind, what was going on on other fronts that may have had an impact or had been impacted by this. What was the state of relations, in general, between Kazakhstan and Russia? They had a number of flareups there just after the breakup, among other things. What to do with all the nuclear weapons that were in each country and how to manage those. You had those kinds of issues that were very important to both.

But the details about that were not visible to us, in at least, in any level of detail, but we knew they were there, and we knew that we had to make sure that we navigated around any sort of collateral concerns that they may have had, that came up in areas that were maybe adjacent to this, but not directly related to it, if you see what I mean. But we did that and managed to get what we needed in order to get the financing and the approvals that were required to move the project forward. [2:20:00]

The other thing I think is worth talking about is this relationship between government and companies, which I think is a very important piece of context. Historically, commercial enterprises, or the government acting in a commercial capacity, was done in an environment where the commercial activity was an extension of Russian government diplomacy, at least in the international setting. The government was the commercial entity in many ways. That didn’t go away overnight one hundred percent. There was still a very strong connection—seen and unseen, formal and informal—that was certainly true in fact inside of Russia. And viewed from the outside—probably more of a connection than perhaps may have been there in reality. But the perception was that they were still reasonably well controlled. And even to this day, Gazprom essentially is an extension of Russian government diplomacy, particularly in Western Europe. So, that was the case.

Because that was the only model that Russians had been exposed to in their entire professional life, they had the same sort of perception of Western companies, that they were somehow extensions, possibly, of the U.S. government and its diplomatic and strategic activity. That is anything but the case, as we know. But there was always this suspicion, “Is Chevron or BP taking this position that they’re taking in service of a U.S. government strategic interest that could be adverse to us in Russia?” Trying to explain to them that Chevron had responsibility to its shareholders. Yes, they were regulated by the government; yes, they had engagements with the government. But they were not extensions of the government, by any means, and were not there to do their diplomatic or strategic bidding, if you would.

Getting the parties over these assumptions about the connections between the government and the companies was a constant struggle. Because the Russians would see motives that they might tie to some strategic interest of the U.S. And of course they were then, as well as now, highly sensitive particularly to their near abroad, anything in Ukraine or Kazakhstan or Belarus or the Baltics or whatever. The more the U.S. was there, the more threatened they felt. There was built-in tension around having a stronger Western presence in these newly-independent countries right on the border of Russia. That had been built into the Russian psyche over centuries and remnants of it were alive and well in the way they viewed the world and in the way they viewed their counterparts in this transaction.

It’s hard to prove a negative to someone and so we had to be robust in explaining the commercial motivations behind this, and how that all translated back into the constituencies that company served that would make sense to the Russians, so they could understand it [2:25:00] independent from how they may have seen it related to an extension of what the U.S. government wanted them to do.

I think the idea of state and company as one entity is fascinating, considering the Soviet Union as a supposedly communist system. But if a country is representing a company in a diplomatic sense, there’s a blurry line between what those even are. It’s almost inherently commercial, it sounds like. I’m curious what your perceptions were of how the Russian side that you were working with approached the capitalist model, because it’s just adapting to it, right? And in some ways, it was similar to what it has experienced itself, but called it something else, it sounds like. There’s this history of ideological issues at hand, so I’m curious what you saw in how those contradictions manifested themselves in the negotiations and deals that you participated in.

The Russian companies were starting from below ground zero, in terms of understanding a normal commercial company, a publicly owned corporation, what it was. They just didn’t have a model in their head that they could get their hands around. That, combined with their assumption that everything is controlled by some powerful person at the top, that there had to be something like that behind all these companies. My sense was that they were constantly looking for that powerful, controlling interest, even when sometimes it didn’t exist, or that it was more diffused than they had in their mind. But they also knew—and here’s where the tension came, while they were suspicious of it and didn’t understand it fully—they knew they needed to be more like them in order to access what they needed most, which was, at this point, capital investment and access to markets and legitimacy. Respect on the world stage.

There were a number of instances where that became difficult to explain. “Why do we have to disclose five years’ worth of accounting information to the public? Why do we have to have directors who are independent? That sounds to me like the U.S. is making all the rules for how things are supposed to be conducted. Why can’t we do it our way?” You certainly see this playing out in today’s terms. But then, they needed to be more like those Western companies in order to gain what was more important to them—capital investment, respect, standing, and to become national champions on behalf of their country. But boy, it was an uphill battle to convince them of why they needed to be so open and transparent, what that would gain, how much they could trust the markets to believe them, to treat them fairly, and those sorts of things. But you could understand why they didn’t have that degree of comfort; they had just never seen it up close.

That was a really big [2:30:00] difference, in terms of just knowledge and insight and understanding the relationship between the state and the company and how it played out in real life, and in this particular deal, and in other deals—that was a challenge. We managed differently with different clients and different circumstances. By the same token, there were things that Western companies had to do and do differently under a Russian system that was brand new, at best, or a relic of the past, at worst. They didn’t know what they were signing up for, a lot of times.

I guess one of the key differences in there that caused the most tension with this idea of transparency. Everything in Russia is opaque. It’s hard to see behind, hard to see through. That was as much self-preservation as a citizen from the government and otherwise in their dealings around the world. Transparency was just signing your death warrant. Not necessarily in real terms, but sometimes.

On the other side, in terms of U.S. public companies, transparency was everything, in terms of how they presented themselves to capital markets and raised the count of financing from shareholders and others that were necessary to fund growth and innovation and all those things. It was just baked into the Western companies’ DNA. To the Russians, that transparency was suicidal. That took a lot, to get people comfortable—people, meaning Russian companies, comfortable being more transparent about their business, U.S. companies being comfortable engaging with entities that had less transparency built into them. And people who were running those companies that didn’t see the benefits of being overly transparent. That was a real gap there in the mindset that people brought to the negotiating table or any conversation or any engagement of a commercial type.

What was your impression of the impact of the 1998 financial crisis, on your office and on the environment you were in, in Moscow?

It’s a great question and I will answer it by first providing some context. When we first opened our office in ’94—’95, one of the administrative matters we had to put some form to was payroll for the people who worked in our office. That was a bit of a cumbersome process, in terms of how you had to document it and report it, both from the company’s standpoint and from the individual’s standpoint. Even though Russian law required payment for services be made in rubles, the practical reality was for Western companies or companies in Russia that were tethered to a Western presence—in order to secure the services of Russian citizens, particularly those that were fluent in English or had other unique skills—would be to pay them in hard currency equivalent.

As a matter of practice, what happened was [2:35:00] we would say, “Your salary will be a hundred U.S. dollars per week, paid in the equivalent of rubles, converted at the then effective conversion rate.” At the beginning, of course, none of our employees had a bank account. Those just didn’t exist, or credit cards, or any sort of electronic or third-party institution involved in the relationship between the employer and the employee. They didn’t know very much about banks —“they,” our Russian employees—and didn’t trust them, as a consequence, for all the reasons that you might imagine.

Our practice was, on the third week of every month, we would transfer in U.S. dollars and then we would convert those dollars into rubles, and my driver would bring back to the office from a correspondent bank that had an office in Moscow. Some of the bigger banks at that point, Citibank and others, had representative offices in Moscow. He’d go get the rubles at that branch and he’d bring them back in a paper sack to our office that we would then divvy up and pass out to each of our employees on payday of every month. That’s just the practicalities of what you had to do in order to pay your people.

As we grew our office staff, that paper sack got bigger, and I started having some concern about the safety of our drivers that were routinely showing up at these financial institutions and coming out with a paper sack full of cash that they would then bring back to our office. We initiated a process of opening bank accounts in the name of each of our Russian employees. We connected with one of the U.S. financial institutions that had representative offices there, talked to the branch manager, introduced the bank to our employees, and vice versa.

For the first time in their lives, or in the lives of any of their family members, they had a bank account. We started the process of paying them by making transfers from our firm account at this bank into their individual accounts at this bank. They were a bit nervous about whether that would actually work in practice, but it did, and so after a few months of this practice being employed, our Russian employees were comfortable with it, they felt secure in that arrangement, and they understood that we were looking out for their safety and giving them exposure to a financial institution just like people in the West had. It was viewed as a step forward in terms of adapting to this new capitalism that was breaking out all around them. It made them feel proud, as well as having the security of being able to receive their pay through these bank accounts.

In August of 1997—and I remember the date and time vividly, even today—the financial crisis that started in Asia landed in Moscow, and overnight, literally overnight, [2:40:00] the banks shut down, the access to the accounts was closed off, the banks would not open their doors or respond to the request of any customer, and the rubles they had deposited in that bank were declining in value by some significant number—I want to say almost ten to twenty percent a day. This happened on a day that was about a week before, or maybe a few days before, normal pay day.

So, imagine being a Russian citizen, having put all your trust and faith in keeping your funds in this financial institution and all of a sudden, when you wake up the next morning, you have no access to what amounted to their life savings, because they were more or less living paycheck to paycheck. Nobody really had big savings accounts to speak of at that level, and you can’t get access to the money and everything you have in there is just declining in value by significant percentages every day.

Their faith in that system, as you might imagine, was shattered on that day. I realized that this was something that needed some drastic response to, because at the same time that this was happening at the bank level, the credit supply froze up around the country. Grocery stores could not replenish their shelves because payment couldn’t be made for goods that were being purchased. The commerce essentially stood still for some extended period of time until the government could work through the issues.

My office manager and I got on a plane that evening and flew to Belgium, in part because our firm had an office in Brussels. Belgium was a country, at that time, that did not require you to report the cash that you were taking out of a country. You didn’t have to declare that to customs or anything at that time. My office manager and I went together and we got the cash that was necessary to meet our payroll, and managed through a number of steps that we took to deliver the full pay to our employees, legally and otherwise—all legally, not otherwise, but legally and maybe in unorthodox forms—but we got it delivered and it was delivered on time and we were the only law firm, I believe, that did that on payday. If you want to look at a bright side there, it really helped loyalty at that point. And we were also a little bit helped by Russian law.

Russian law might be viewed as draconian in some respects, and somewhat anachronistic, given the realities of commerce in a global economy and where their financial systems existed at the time. But it was also very by the letter, not by the intent. As long as you dotted the i’s and crossed the t’s under the letter of the law, you were safe, even if the underlying impact and the realities of the transaction [2:45:00] might have been contrary to what the lawmakers had in their mind when they wrote these laws.

It was one of the things that permeated a lot of what we did. The form had to be precise; the substance and intent was a bit more flexible. Russian courts and law enforcements did not look so much at the underlying intent; they looked at the documentation and the paper. That was a bit of a holdover from the communist times and perplexing to common law systems like we have in the U.S. and U.K., where the intent of the law and the intent of the parties governs, even when the language might be technically accurate. So, we made the conversions and everything on paper that was necessary to pay our people.

While they were relieved and while they were able to secure the cash that was necessary to satisfy the day-to-day living requirements of themselves and their extended families—and most of them had these jobs as a means of providing for their extended family, not just their children or spouses, but aunts and uncles and grandmothers and grandfathers and others depended on this. Even though they were satisfied in that respect, it planted a seed of doubt about the harsh realities that capitalism can sometimes expose market participants to.

The idea that their savings and all of their financial resources were, in their view, unfairly and unjustifiably taken from them or made unavailable to them, made them, I think, start asking the question of, “Gosh, is this democracy thing and wide-open capital markets and everyone-for-himself kind of environment, is that really what we want?” And while they, on the one hand, really appreciated the opportunities to grow and learn and have all the compensation was as good as or better than they could find anywhere in the working conditions were ones that were respectful and a nice place to work. That event, I think, was a contributing factor to the Russian skepticism towards a U.S.-dominated world order and doing business and conducting your affairs as Americans do all the time.

To me, that financial crisis, even though it had a number of other impacts for the government and for the country as a whole, laid bare Russia’s vulnerabilities economically and otherwise. And it was felt in very real, concrete, sharp terms by the citizens that I was exposed to. I think, as you look back at the evolution of Russia over the last twenty or thirty years, it’s events like that which became lodged in the memories of the citizens and opened the door [2:50:00] to them thinking that, “Maybe going all the way towards a U.S. model of governance and societal norms and laws and all that, maybe there’s a better way that takes into account the realities in Russia that might be otherwise overlooked.” It was a very traumatic experience for them, and for Westerners too, to some degree, although we were a little bit better prepared than most. It was, I think, a telling moment that occurred right in the middle of the Yeltsin presidency and started to sow some seeds of doubt, and from a guy like Putin, some opportunity that he might not have otherwise had quite as much.

What was it like for you on a personal level, being there during this crisis, in your interactions, not just with even the Russians who were in your office, but on the street every day, or even other expats that were there going through the same thing?

To some degree, we were accustomed to something different and unexpected unfolding almost every day. You will recall just the massive restructuring of their society that was ongoing at that time—the loans for shares program that you can read a lot about in Bill Browder’s book, Red Notice, and some other things. All of that was being reshaped all the time and there were a lot of opportunists that were active in the marketplace. There was significant news and events that were unfolding every day.

In some ways, this financial crisis was just one more of those, but it was especially unsettling because of the depth and breadth and severity of it. We had not experienced anything quite like that. When the trajectory that you saw in life, even though it may have been a little bit up and down day-to-day, the broad trend was towards the better. And yes, did we see corruption? Yes. Did we see some failures along the way? Yes. Was government policy unclear and perhaps ill-advised in some areas? Yes. But broadly speaking, the trend was getting better, and this event was a stark reminder that young, immature economies with governments that are still in formation in many respects can make you quite vulnerable.

The community in which we engaged was shook by this. It happened in August, though, so it was vacation period and many people were at their dachas [country houses], or Americans and other Westerners may have been back home for a vacation and all that sort of stuff. If it was going to hit, August was a good time for it. And it didn’t last a long time. Gradually, things started to rebound and become repaired. Yes, the grocery shelves were empty for some period of time, but people had seen that before [2:55:00] and they soon got replenished thereafter. Russians, broadly speaking, are used to adversity. In fact, without it, they are a bit uncomfortable, I think. They sort of expect it.

They were resilient, for the most part, but the amount of poverty that one saw on the street just walking to and from work was more pronounced, and starting at that time, or maybe even a little bit before. The social safety net was not nearly what it was, and the charity impulses had not yet taken root from people who were in a position to deliver those kinds of benefits. It was, on the one hand, “This is our fate; we’ll accept it and deal with it.” On the other hand, you could really see that it had really left a lot of people behind, and we saw that spool out, particularly as you got outside of Moscow.

But obviously, those who had needs, they would gravitate to the cities because that was the only spot where they had enough people where they could get any help at all. I think it was at that point that it opened the door, I think, for a bit more authoritarian presence. You could feel that they were hungry for someone stronger, and that was evident in the press coverage and what you saw on the streets. Yes, some folks were really making out like bandits, in many ways, but the common citizen, I think, was shook by what they were seeing and what they experienced and started thinking more deeply about what they wanted for their country, for the first time since the breakup in ’91. I hope that’s responsive to the question.

Yes, absolutely. You got to Russia in early 1995 and you were there until 1999?

That’s correct.

Just generally speaking, what did you notice that, between the time you arrived and the time you left, had changed, and then what did you notice that had stayed the same over that period of time?

Right. The most significant change that I observed between ’95 and 2000 was the rise of the oligarchs and their dominance in everything around Russia. They really dominated the news cycle, these vast pools of resources, and you couldn’t pick up a newspaper without seeing some prominent oligarch or some group of them really demanding and staying at center stage. I think that was, by far, the biggest, most significant evolution that occurred during the ’95 to ’99 [3:00:00] period.

The other thing that changed was both the pace of life and the density of population in the major cities, and the, I want to say, unruliness perhaps of some of the citizens with more drugs being present. Open societies bring a lot of new things, and that was certainly one of them. There was a significant increase in density of population in Moscow and St. Petersburg. The opportunity that people saw evolving in Russia—much as you see in Asia today—there’s a significant migration from the rural areas of a country to the city centers.

In the 1890s, I think the world population was somewhere around three billion people, and fifteen percent of them lived in the cities. Now, it’s seven billion and a little over fifty percent living in major metropolitan areas. And that migration had accelerated significantly, which put demands on the infrastructure and services, social and otherwise, that were available in those major cities. They couldn’t really handle adequately that migration of people from the rural into the city. So, that certainly changed.

And then, of course, just before we left, Putin was elected to his first term, or assumed the presidency from Yeltsin, and one could see the future there, even though not nearly as robustly as we do now. But you could certainly see that change would be coming with him at the helm.

Some things that stayed the same—I don’t know if the soul of Russia changed significantly during this period. Our friends and colleagues still loved the things that they loved before in terms of art and family and just life in general. They still were happy with the simple things, even though the fringes of society were flirting with Western goods and services and glitzy handbags and fancy clothes. In large part, the soul of Russia really remained true, and our friends did not change overnight. They still had love for their country, their culture, their history, their outlook on life, broadly speaking.

That stayed pretty constant, and that impressed me in a bunch of different ways. They didn’t lose this sense of who they were, even though there was a lot around them that was changing significantly, and they would have to adapt to it. But after a while they realized, “Family’s still important and I still have to provide for them. I want to learn these new skills and be exposed to these new businesses, but I’ll decide for myself what’s important, what’s valuable to me.” Not everybody lost a sense of who they were, and I found that very endearing, I guess. [3:05:00]

You can’t overstate the magnitude of the change in many areas. The redistribution of wealth and resources from government to a private industry and all that that implied. The natural greed that comes out of that that you can see play out. Yes, all that was very different. But the Russian people, I think, still had a good sense of who they were and what their destiny should be, even though there was a lot of changing around.

Is there anything else that you would like to mention before we wrap up?

This is extremely important work that I hope will be preserved and enhanced with the conversations that will be part of this collection. I encourage further exploration in some of the arts that I think are important. I believe not only paintings and that sort of stuff, but the ballet, the writing, all of the things that are byproducts of the Russian creativity and self-reflection are subjects that I think are worth including in this overview. I think the insight that it provides, the stories behind those works of art, can tell you a lot about the soul of those who are behind them or who brought them to light or whatever. I think that that’s a subject that is worthy of more in-depth conversation and analysis to be part of this, that I’m not as equipped to explain in the depth and breadth it deserves. But I know what I saw, and those stories will be ones that will be important.

While we’re here—you’ve collected a lot of Russian artwork. Is there anything in particular, any particular story behind something that you acquired, that you think would be worth noting?

There’s one thing that we observed in assembling this collection, which I wish we’d bought twice as much as we purchased while we were there, and that was this—we saw works of art of extraordinary beauty that were created on a variety of mediums. The Russians would paint on anything, and if they didn’t have canvas, they would use cardboard or whatever else, and just the notion that they loved their art so much that it didn’t have to be perfect, and they didn’t necessarily have all the materials that one would normally want to have in order to make a great painting, they would take whatever was available and make it into something extraordinary. [3:10:00]

There are any one of a number of artists that we heard about from central Russia that had spent thirty years doing just that—capturing images and depicting them on what I’d call crude medium, yet captured a beauty that I’ve never been able to see since. My wife and I will occasionally look for additional artwork to acquire, and it’s always through the prism of what we were fortunate enough to buy in Russia, and it almost always falls short of that that we have, or is ten times more expensive than it was at that time.

But that’s the thing that stood out for me, is that they wanted to get this out of themselves and onto something to share with others so badly, that they would do it in a way that would take advantage of anything that they had available, and they treasured it.

I remember, the gift that we gave to our driver when we left was the climbing ropes that Betsy brought to Russia that she used to use in climbing rocks—very sturdy ropes that are good for mountaineering—that she brought to Russia in case we had to jump off the balcony of our eighth-floor apartment in Moscow. But it was a quality that was not available in Russia, and we divided it up in pieces and gave it to our drivers, and it was their most cherished possession. They appreciated, in some ways, this was a work of art. It may be a work of technology, perhaps, and know-how. Just their joy about something so simple, yet so useful. They’d use it to pull a car around or whatever. It was a very useful thing that they wouldn’t have otherwise had. And it’s that joy at those simple things that really stood out for us.

Thank you so much.

It’s my pleasure.

[END OF INTERVIEW]