The Man Who Stood Up To Putin: Mikhail Khodorkovsky

Mikhail Khodorkovsky in a cage in a Russian courtroom (image: Business Insider)

Mikhail Khodorkovsky is the former CEO of Russian oil company Yukos, a company that was seriously in debt when he took over in 1997. He transformed Yukos into the country’s second-largest oil producer, and by 2003 he was the richest man in the country.

Later that year he was jailed by the Russian government and imprisoned for 10 years after publicly criticizing endemic corruption. He was confined to a Russian labor camp until German president Angela Merkel intervened with Russian president Vladimir Putin.

Putin gambled that in releasing Khodorkovsky, the former oil oligarch would disappear quietly.

It didn’t quite turn out that way.

Interviewing Mikhail Khodorkovsky

I. Communist

Jeff Cunningham: As a young boy, you were a leader in the Communist Youth League. How did you become a capitalist?

Mikhail Khodorkovsky: You need to understand the times we were in. When I was growing up in the Soviet Union, the Communist Youth League was an ordinary part of everyday life.

For example, in the U.S. right now, some children are homeschooled. This might seem a bit eccentric to some but it’s done. In the same way, in the Soviet days, if you didn’t send your kids to the Communist Youth League, that was viewed as an eccentric gesture.

Unlike North Korea or East Germany, everybody was less serious about ideology, so metaphorically, we had to dress alike, but what we were actually thinking didn’t concern people all that much. That said, I was absolutely convinced at the time the proper path was Communism. In today’s America, a significant part of the population seems to think the same, and in Europe, the majority feels this way.

JC: Was there a tipping point?

MK: Change came to the Soviet Union in the early 90’s. That was when we got to see an entirely new world we hadn’t known existed.

For example, my dream since childhood was to be a plant manufacturing director, but I knew it could only be accomplished only late in life. Now, all of a sudden, I got this unexpected opportunity to head an operation.

“Do you want to follow a serious life path or do you want to play these silly perestroika games?”

JC: In your circle, how did people react to your change of heart?

MK: Older people were deeply skeptical. They said, “What do you to do with your life? Do you want to follow a serious life path or do you want to play these silly perestroika games?” In those days, this was the name they gave to business startups, perestroika games.

You need to understand in the Soviet Union, one document said you could start a business, but another document, and one that had not been repealed, called starting a business a crime. So with an understandable tremor in my voice, I told my older colleagues, “I think I want to engage in these perestroika games.” They looked at me like I was an idiot.

At that point, what had been my normal life trajectory ceased forever.

JC: You once said, if the old Mikhail met the new one, he would shoot him. I notice you’re still alive?

MK: I started engaging in entrepreneurial activity by the end of ’86. But it took time, about five years before I was able to make a total shift of consciousness. We’re talking about the period between 23 years old and 28, so I was quite young still.

JC: You became an advisor to Russian president Boris Yeltsin and the CEO of Yukos. What led you to rise so quickly?

MK: It seems I was destined in some way. In nursery school, when they asked me, “What do you want to be when you grow up.” I didn’t say cosmonaut or airplane pilot, I said plant director. I had another, perhaps sentimental reason. One of the walls of my nursery school was right up against the wall of an industrial plant. My parents worked at that plant and the plant director was the most important person there. So I literally had in me from the earliest childhood this idea to become the head of an industrial operation.

II. Oligarch

JC: You turned a collection of failed assets into the second largest oil company in Russia. How challenging was that?

MK: Technically, this was the fourth large business that I had developed up at that point in my life. I made four companies that subsequently were worth over a billion. All my life I worked in companies engaged in chemistry, which I studied in college. At the time, Yukos had about 120,000 employees. But just as importantly, it was six months in arrears on paying wages and had $3 billion in tax arrears.

The first thing I did was to ask the former CEO of the company to fly with me to areas where we were producing oil and to introduce me to the workforce. But he didn’t dare go, because he neglected to inform me in advance the employees had not been paid wages for six months, and that’s a big deal.

JC: The employees must not have been very happy?

MK: When I first met with the workers, they let me know not only did I owe them back salary, but they expected a raise, too. I said to them “There is an easy way we can solve this problem: since I don’t have any money to pay back wages, all I can do is fire you and hire new people to replace you.”

But I said I had a better idea.

Here is where the idea of becoming what you might call a business leader started to take hold. First, I said to them, “Let’s get this business back on its feet. Then I can pay you your back wages.” The big question was, would they believe me?

“….in Russia, things are simpler, as these workers could simply beat me up and take me out.”

JC: How is managing in Russia different than in the U.S.?

MK: In the U.S., it is more subtle, as unions would have gotten involved. But in Russia, things are simpler, as these workers could simply beat me up and take me out. On the one hand, we don’t have unions. On the other hand, they didn’t beat me up, so, as they say, there are pluses and minuses. By 1998, we were able to lift the company back on its feet.

JC: You turned it around. How did that make you feel?

MK: Only just as soon as the company was doing okay again, and we had paid back the wage arrears and the crisis had been avoided, the bottom fell out of the oil market.

Oil was $12.00 a barrel. Getting the oil to market cost $4.00 a barrel, taxes, another $4.00. That leaves you with $4.00 gross profit, but my cost of lifting alone was $12.00, so I had to do come up with another turnaround plan. I gathered the workers together, 700 of them who represented the 60,000 people in that one region. I say “Guys, here’s the situation: we’ve got to do something, and the first thing that has to happen is you’ve got to agree to a 30 percent wage reduction. You’re going to have to vote in favor of that.” Again, it was a stark choice. Either they agree or they can take me out. Instead, they asked, “When will you return our money?” I said, “In a year.” They agreed.

JC: What did you do to convince them to hang in there?

MK: I traveled to all the regions where the company had operations across our giant country, and spoke to the workforce about their doubts and slowly was able to convince them. But I also warned, it’s not going to be easy. After that, I had to take drastic measures and reduce the workforce two times in the following year. I just simply had no other choice. But finally, our productivity began to pay off. I knew it was the beginning of the end of the trouble when our lifting cost came down from $12.00 to $1.50. This wasn’t just due to staff reductions, of course. We also changed our technologies.

But in order to change the technologies, we had to change the culture and to do that, we needed to show that the situation was really, really dire.

JC: What was wrong with the work culture?

MK: I’ll give an example. In the oil business, you have to lay pipes into a trench. They are wrapped in insulation. If this insulation gets damaged in any way, the pipes will have a useful life of 2–3 years instead of 15. That’s why they lay these pipes on a bed of soft fabric and sand while you’re watching. But the moment you turn your eyes away, they pull out a bulldozer and toss the pipe into the trench.

JC: Were social issues a problem?

MK: Drunkenness at work is another example. The first time I came to the company, the head of one the units that numbered several tens of thousands of people was lying in the gutter drunk. This wasn’t an isolated case, it was the norm. Two years later, there were almost no cases of people coming to work drunk. The few cases that did occur, I reviewed those myself, personally.

Until you deal with all that, you can bring in new technologies, but you can’t get anything to work right until you’ve convinced people they need to change. You see, running a business in Russia, you don’t have the power to make workers do anything. There’s no police. There’s no authority. There is only you and your relationship with the workers.

JC: How did you earn your employees trust?

MK: After I’d made the acquaintance of most of the workers, I went through the whole oil production chain and actually worked for a week or a week and a half at every job.

I’ve got a dozen specializations. For instance, when the workers are way out in the field, they rotate every two weeks, living in trailers. I went into the field and lived in a trailer for weeks. I still remember this. The other thing that brought us closer together, I wasn’t judgmental about them in any way.

JC: What were your relations with the workers like?

MK: There is a really amusing situation that happened there. There were about 150 guys that got together to chat with me. At one point, I asked, “Raise your hands. How many of you have done time in prison?” All hands went up. Then I said, “Okay, who has been in jail twice or more?” A third of them raised their hands.

Yet all during that time, I felt perfectly comfortable with them. I was never scared that they might attack me or anything. Frankly, it was the same situation when I myself was in prison, too

JC: If you Google your name, you were the richest Oligarch in Russia, worth $15 billion dollars. True or false?

MK: First of all, let’s understand what 15 billion dollars means here. This is the value of the shares I held as long as I was at the helm. The largest shareholders owned 60% of the shares and I held half of their total.

When I resigned, my partners bought out most of my shares, so 15 billion is a paper number. I always had a very calm attitude about this number. In our line of work, unlike Silicon Valley, if your company doesn’t have much revenue, its shares aren’t worth much either. Had I known that there was a sector like technology where you could make losses and still be worth billions, I might’ve gone into that sector. But, I didn’t know that then.

JC: Should people resent your wealth?

MK: When people ask, I tell them, “I got three percent of the incremental growth in the company during my tenure.” I think that’s fair.

JC: Were there any regrets from this period?

MK: I do feel uncomfortable about some mistakes. Actually, I’m not sure how well an American audience will be able to understand this. As the head of the company, my focus was 100% on the company. People ask, “Why didn’t you also work at fixing social problems back then?

I respond, “In those days, it didn’t even occur to me.” I was a young person who had become the head of a big company. I, honestly, felt that what I should be doing is focusing on the company and matters of state should be handled by others.

As I look back, the problem was there were no “others.” Once I realized it, I did start to face those issues and created two organizations called Young Civilization and Federation for Internet Education that focused on those issues. I admit I should have seen this earlier and done something sooner. I do feel bad that I didn’t realize the biggest problems were not about running the company.

“I felt I was responsible for the company. I had to deal with it.”

JC: Was it lonely at the top?

MK: In my life, I had roughly six business partners and I could call on them for general advice at any time. But it was always a given that I am the one that bears the responsibility for making the final decision. That was, by the way, one of the reasons I returned to Russia after the attacks on the company began. You see, I felt I was responsible for the company. I had to deal with it.

III. Prisoner

JC: Take us back to the morning of October 2003 when Secret police commandos stormed your plane. Yet, you said you felt total relaxation?

MK: Over a span of several months, there was the expectation that this arrest was about to happen.

I was resisting the political drift of my country at that time. I wasn’t the only one, but I was the focus of the attack. It was clear which way things were going: they had arrested an employee of my company and then a friend. It was obvious they were preparing to arrest me. They allowed me to leave the country hoped that I would stay away. But I felt I had to return, and once I did, the countdown started. So, yes, you could say a certain weight lifted off my shoulders when I was finally arrested.

JC: You left Russia and then returned. Did you have any idea how tough it was going to be?

MK: I talked with friends before I returned. We were guessing that I would spend from two to four years in jail. It’s not that I was looking forward to it, but I was ready to do that. When it turned out to be 10 years, I would say that was a bit excessive.

JC: How did the ten years in prison change you?

MK: It’s very hard for me to distinguish between how I changed from being in prison and how I changed simply because I got ten years older.

In jail, I also met people who never want to leave jail. Some people in Russian jails tattoo prison cell bars across their face, as a sign that they refuse liberation, refuse to be free. But the overwhelming majority of the people I saw in Russian prisons are very young. These are people that need to be worked with because the prison system de-socializes them as people.

JC: What is the biggest problem facing former prisoners?

MK: The biggest problem they face is that after prison, they’ve been out of the workforce for several years, and it’s hard to get back.

But really the most important thing is that these are young people and what is being beaten into the heads in prison is “You don’t need to think. Do not think.” The authorities do all your thinking for you. Now, this person gets released. The military won’t take him even though the military’s a place where ‘Don’t think” might actually be a useful skill. Nobody’s going to hire them for any decent job because everybody needs independent thinkers.

“Don’t you realize you’ve created a factory for producing gangsters?”

JC: Where can they go?

MK: The only place is to go is into crime, where they play the role of foot soldiers. You go to work for a criminal organization. There, “Don’t think, just do” is exactly what is required. Some guy tells you, “Go and beat that person up.” You don’t think. You just go and beat that person up. I spoke with the prison authorities on many occasions. I asked them, “What are you doing? Don’t you realize you’ve created a factory for producing gangsters?”

Their answer, “What can we do? These are our instructions.” I think this is something that absolutely has to be changed.

JC: When you were released from prison, you said, “It was all like autumn rain, an unpleasant phenomenon, nothing more.” What did you mean?

MK: This is just how I perceive things. But I am not so calm about everything. There are people for whom I have strong negative feelings. One of these, Igor Sechin, I would call my bitter enemy. If I can do something to ensure that he ends his life in jail, I’m going to do that. Why? Because he crossed the line and made it personal.

JC: How did he cross the line?

MK: A young lawyer who worked for my company died because of him. It wasn’t just by accident. This was intentional murder. It was a horrible death. In one year in jail, this person went from stage one AIDS to stage four because they refused to let him have medicine. The reason they weren’t letting him have the medicine was that they wanted him to give certain testimony against me. That’s personal.

JC: While you were in prison, your mother, Marina, said, “It is hard to stay strong, but people should tell the truth and should not be afraid.” Did those words inspire you?

MK: For myself, what my parents think of me is important.

There is time back when I was working in the Young Communist League and my mother said to me that she’s ashamed that her son is working in the Young Communist League. I didn’t understand it then, but it certainly had an impact on me. When my mother told me “you have to remain strong and I’m proud of you,” that really had an impact on me.

IV. Putin

Jeff Cunningham: Do you agree with Garry Kasparov, the chess Grand Master, who said, “The Russian word for fake news is news.”

Mikhail Khodorkovsky: Well, I know why he said what he said. The actual situation is more subtle than that. If you talk to Russian people, you’ll find they know what’s going on. The news is not hidden. Sometimes news is distorted or the order in which stories are presented isn’t necessarily in the order of importance.

But what Putin’s propaganda machine is doing is to make people believe in presumptions. For example, you and I can see this brick wall here. We may have our own impressions about whether this is a pretty wall or not, but if I take ten people, and I say, “Look at how ugly this wall is,” eight of those people are going to be under the presumption that the wall is ugly. This is what Putin’s propaganda does. This is what we’re trying to fight.

JC: American media points to Russia’s 120 Facebook accounts (of a total of 2 billion) as a sign Russia tried to hack our election. Is this true or false, and what was the strategy?

MK: There was no strategy and the American reaction may be overstated, but I understand why they are in a huff. If I intentionally step on your toes, it’s not all that relevant whether your toe got hurt or not. You will still be angry at me.

“I assure you, the Russians aren’t even thinking about the American elections.”

JC: Do you believe Vladimir Putin was behind this?

MK: There are two very important points that need to be understood on this subject. When you hear a phrase like, “Russia wants to influence the American elections,” I assure you, the Russians aren’t even thinking about the American elections.

It’s a small, tiny group of random people, some of them sitting in the Kremlin, who for some reason have set themselves this task. The second point, and one which still surprises me that Americans do not understand, is that Putin doesn’t run all of Russia.

He doesn’t even run his inner circle, entirely. Generally speaking, he’s someone who doesn’t like to spend too much time working, and neither is he a great organizer. What he wants to be is someone who can make everything look like it’s humming along nicely without him having to work at it.

“Putin is someone who doesn’t like to spend too much time working, and neither is he a great organizer.”

JC: To Americans, Russia seems very determined to do things detrimental to us?

MK: What America sometimes sees as a straight policy line is very often just ordinary chaos. Yes, somebody there may have actually wanted to influence the American elections. What country doesn’t?

But the main reason for Putin’s interest in the U.S. election, in my opinion, has nothing to do with America. What Putin wanted to show the Russian people is that American elections are corrupt. So the attempts were not to hack the election but mainly to make it look back home like the votes were being falsified in Clinton’s favor.

JC: So what was the real motive?

MK: Putin needed to evoke outrage from Trump supporters to support this thesis. Not to accomplish any objective in America, but rather to show Russia, “See, there are no honest elections anywhere in the world.” The point Putin was making was subliminal: “When I falsify elections in Russia, that’s perfectly normal. Everybody does it.” I personally see this as Putin’s main objective vis-à-vis the American election.

“Putin mirrors you, so you see in him what you want to see in him.”

JC: What is Putin like?

MK: When there was a plan to appoint Putin president of Russia, I did not support him, but I didn’t state that publicly. The reason I didn’t is because I felt that’s none of my business. I felt that Boris Yeltsin, a man I greatly respected, knows better than I do. If he thinks that Putin’s the right guy, well, that’s his business.

Then, for a while, I actually thought that Putin may have been a good choice. Putin’s a very talented person in establishing communications. He mirrors you, so you see in him what you want to see in him. Then, the situation changed. They started doing things that very obviously went totally against the grain of what I believed in.

JC: How did that change your thinking?

MK: I took a step back and tried to minimize any interaction with him entirely. I worked with the chairman of the government, and for those occasions when you had to show up someplace personally with Putin (in fact, at that period, there were lots of occasions like that), I had my colleagues go to those events.

At one point, I realized there were two choices being made about the direction that the country would be taking. The first is an open type of economy, transparent and slowly being built along western standards. The second model is our traditional corrupt system.

At this point, I already understood that if that path is chosen, a lot of doors get closed for us. I didn’t want that and many of my colleagues didn’t want that either. That’s why I went on the attack and put Putin in the position where he had to make a choice between the two directions. What I didn’t know at the time, he had already made his choice.

Beslan school terror attack (image: CNN)

JC: In Russia, the Beslan school terror attack in Chechnya, in which hundreds of schoolchildren were killed, is thought of as 9/11 in the United States. Did this turn Putin into an authoritarian?

MK: To be blunt, no. In fact, Putin cynically used that attack as an excuse to take away the regions’ right to choose their own governors. That had nothing to do with the attack. I should mention that I am not an expert on counterterrorism operations, so I do not know if there would’ve been more or fewer losses of life with another rescue scenario. But it’s absolutely clear that the decisions that were made with respect to Beslan were, first of all, a decision to lie about the number of hostages, to lie about the situation in general, and secondly, I think the decision to attack was cynically made by Putin because he did not want to give his opponents an opportunity to get there first and play the role of peacemakers.

JC: You were in prison during the attack. How did you know what was happening?

MK: You are right, I was in jail at the time. We had a very restricted ability to make phone calls to relatives. My parents told me that a large number of the school children after the attack were now in a hospital in Moscow. My parents said “We want to help these children once they get out of the hospital to find them places to live because many of these children had lost their entire families” They were all alone now.

“This man, Putin, does not have a heart. He may have something else there, but it’s not a heart.”

JC: What did you tell your parents?

MK: I told my parents that that would never happen because these kids are now in the spotlight and the government’s going to be right there to make sure that it’s the one that gets the credit for helping them.

In the end, though, a few of those children, if my parents hadn’t gone to their aid, would’ve had nobody there to meet them when they were released from the hospital. I just can’t believe it.

When you’re the head of the country, and a tragedy has taken place and a month later, you’ve forgotten about these kids that are being released from the hospital, something is very wrong.

You asked for my opinion of Putin? This man, Putin, does not have a heart. He may have something else there, but it’s not a heart.

V. America

JC: 55 percent of the Russians expect Putin to return Russia to the status of a great and respected country. Tell us why?

MK: For the older generation, the memories of the old Soviet Union’s place in the world are very important. What’s interesting is that the younger generation has divided into two parts. One half wants to be part of the new global world. The other half wants to be in a Russia that the world respects and fears. By the way, for many Russians, “respects” and “fears” actually mean one and the same thing.

JC: Do you find interesting parallels between Russia and America?

MK: In general, I think Russia and America are very similar. Both Russia and America are big, inward-looking countries. The overwhelming majority of Russians have never been outside the country. The majority of Americans have never been outside the country either, except maybe a quick trip down to Mexico or across the border to Canada. From this point of view, neither Russians or Americans are all that interested in what’s going on in the rest of the world.

Yes, we are similar.

JC: Are Russians still believers in Communism?

MK: In the economic sphere, Americans, much more than Russians, think their personal, economic future depends on them alone — on them personally. In Russia, Siberians are like that. Central Russia is very much dependent on the state. America also has a segment of the population heavily dependent on the state, and unfortunately, this segment is growing.

JC: Why did Putin go anti-American?

MK: The reason is simple. Things aren’t going all that well in Russia. Putin needs to have some way of explaining it to the people. Can they blame the opposition? No, because the image is that the great Putin has dealt decisively with the opposition. So there can be no opposition in the country. Now China, that can get a little scary, so China’s of no use here.

“People can believe that the Americans are capable of doing all kinds of nasty things.”

JC: What is it about America that makes us a target?

MK: Look at America, it’s great, it’s big. People can believe that the Americans are capable of doing all kinds of nasty things. America’s a very convenient enemy that can be blamed for all of Russia’s ills. It’s located ‘who the devil knows where’ meaning not near Russia, and doesn’t represent a direct threat to Putin.

VI. Future

JC: Now that you’re free what do you plan to do with your life?

MK: I’m firmly convinced that my country needs to do more than just replace Putin. I have seen in my life, and I am convinced that any person who’s put in Putin’s place will become another Putin. We need to remake our state into a parliamentary republic. We need for this parliamentary republic to be based on a real federalism. What I’m talking about is something similar to what took place when the United States was founded.

I think this works for Russia because in this regard, Russia is a country like America. For this to happen, we need to have young leaders.

“If I live to see the day that Russia gets a new political system, I will feel that this part of my life, too, has been a success.”

JC: Tell us about your civic movement, Open Russia.

MK: What I’m trying to do with Open Russia today is to help develop these young leaders. The work that we do is political education, participation in elections, and providing legal support and information to society. Our organization is currently represented in 25 regions. There are a thousand people who are official participants in Open Russia. Despite all the pressure that the authorities are exerting, they continue their work.

If I live to see the day that Russia gets a new political system, I will feel that this part of my life, too, has been a success. For anyone wanting to learn more about our activities, please visit the Open Russia website online.



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