by Peter Kysel
So, the white knights club was created, leaving my father close to tears. We were all affected by his reaction.
“The Má Vlast concert will have a special meaning for me this year.”
“The white knights will attend,” added Nigel
“Smetana foresaw it all in his Blaník poem,” concluded Vojta.
#
Warnings
“Can I have a word with you Mr supreme director?” asked my subordinate, Zdeněk Čapek, hesitantly, when I passed him on the stairs to my office. He was a serious young man in his late twenties.
“Yes, of course, come up to my office. Let’s have a cup of coffee.” We both sat down in the armchairs and when Mrs Fischer left the room and closed the double doors behind her, Čapek began.
“Thank you for giving as a clear strategy. Many of us want to get the job done, but others are convinced that we’ll fail.” I wasn’t sure where he was leading. I kept quiet but encouraged him to go on.
“Important people at this bank held privileged positions under the old regime. The staff refer to the executive committee as ‘the band of five commies’ (klika pěti komoušů)” Čapek went on
“Exco are apprehensive about your motives. They resent the fact that you don’t defer to them, like everyone else. They refer to you as a renegade and an Anglo-American spy. They suspect that you were sent by a large western bank to take over KB.” I had expected an undercurrent of rancour, but this was a strong warning. Was Čapek genuine, or was he one of them? My approach has been to treat everyone cautiously. I responded noncommittally.
“Mr Čapek, the country is going through massive changes. People fear uncertainty and many of them overreact.” Čapek coughed, looked at the ceiling, as if he was searching for hidden microphones and said,
“I am glad that the old regime has gone. But be careful, we were asked to spy on you.” I listened. Čapek is warning me about red wolves at the bank. Could he be one of them?
I responded carefully, fearing a possible trap.
“I appreciate your concerns. My role is straightforward. I was asked to implement the government policy on privatisation and financial markets. These changes will be good for the Czech people. We have a massive job to do and we can succeed. The failure of privatisation would be catastrophic. All these pessimists will change their views, when we deliver results. Personally, I’ll leave as soon as I am not needed any more.”
Čapek nodded, but he wasn’t finished. He reached into his pocket and dropped a folded note on the coffee table. We parted, both wondering if we had understood each other. Our encounter had been polite, but stiff. When Čapek left my office, I picked up his note and went into the park, to read it.
Čapek’s note listed a dozen names of my opponents with their backgrounds and connections.
Their names are plausible. I’ ll put them into a single team to avoid contamination. I promised them hard work and they will get it. If they are motivated to succeed, they’ ll play less politics. If we keep office politics at bay, we’ ll deliver. They’ ll want to be in the winning team.
I went to check Zdeněk Čapek’s background. Both of his parents had been Party members. Was Čapek genuine, or was he a plant? I still didn’t know.
#
Tennis
My life called for careful planning, so that I could spend time with my family. On Fridays I drove to Ruzyně airport, caught a flight to Heathrow, where I picked up another car and drove home. On Mondays, I reversed the journey.
During the week, I came to the office at eight and stayed till nine at night. I took work home. My subordinates noticed and began imitating my routine. After a few months I relaxed a little, by taking an hour off for horse riding in Stromovka Park. Occasionally, I went riding at Hořátev, where a friend had a farm with large stables.
I alternated horse riding with tennis at the nearby Hilton Hotel, which had two covered courts. Pavel was usually my partner. One day, in the changing room, he said,
“Peter, let me introduce you to the players on the other court.” I turned around reaching for my tennis shirt.
“Sure, that would be nice.”
“Mr prime minister please meet my tennis partner. We’ll be playing on the second court,” said Pavel with a grin. A naked man, who was busy opening his locker, turned around and offered to shake my hand. Embarrassed, I focussed on his moustache. He looked at me closely and said,
“I am Klaus, but I know you already.” I tried to keep a straight face. It’ s a wonderfully absurd Czech situation. I thought, but we entered into the spirit of it.
“I am delighted to see you again, prime minister. I’m so glad that you recognise me. We met before, when you were the minister of finance.” Even the self-centred Klaus found the circumstances amusing and smiled. His encounters with men tended to be combative, usually resulting in a put down. Surprisingly, this time and to everybody’s relief, the prime minister just grunted
“Yes, I met you before I delivered voucher privatisation,” he pulled up his shorts and went off to the tennis court without further comment. After tennis, Pavel and I had a beer. He asked,
“Have your red wolves attacked?”
“Not yet. They give me low productivity. It comes from their socialist upbringing,” I suggested. Pavel disagreed.
“Maybe not. When I arrived in Prague, I thought that socialism made everyone lazy, but changed my opinion. They suffered from bad management. Remember the seventies in England. It was similar.”
We drank our beer and waved hello to the prime minister, who sat down at a separate table protected by a couple of security men. Pavel reminded me of our experience in the City.
“The partners in my stockbroking firm turned up for work just before ten. They took boozy, three-hour lunches. Then they snoozed away the afternoons at their desks, till it was time to catch the train home at five. They couldn’t have worked more than three hours. Share trading was driven by insider tips.” I agreed
“They didn’t manage their firms. City clubtocracy was no more productive than socialism.”
“It changed with the Big Bang in 1986. Partners sold their firms to foreign banks and left the City. Lunches became alcohol free. The working day increased to ten hours. Our productivity and incomes trebled. We loved the changes.”
“When I arrived, Czech productivity in car manufacturing was appalling, but it has doubled in three years. Similarly, Czech bankers will have low productivity until someone forces them to work harder and smarter,” concluded Pavel. It was an encouraging chat.
I experienced the trebling of productivity in the City seven years ago. We need to deliver it in KB too.
Zdeněk Čapek asked to see me at the office.
“I have heard that you play tennis at the Hilton with the prime minister. Would you like to have a game?” How does he know about my tennis? His information wasn’t strictly true, but I let it pass. Capek was a good tennis player. I didn’t win a single set but enjoyed our games. One day, walking back from the tennis courts, he opened up.
“I come from a small town in Southern Bohemia. You probably know that my parents were communists. I personally drifted ideologically, as a student. When I was arrested by the Jakeš’ Gestapo during the student demonstrations in 1989, my parents resigned from the Party.”
His new commitment was reassuring, but it would have to be reflected at work. I appointed Čapek as a compliance officer.
The compliance departments operated as the internal security, with the right to investigate staff and their families.
Čapek was responsible for monitoring the IKS. Several fund managers were on our watch list for potential fraud. The staff knew that they were being monitored and the IKS was outraged.
“They complained about you to Exco” said Čapek
“With what result?”
“Exco is afraid of your warnings about street riots and jail sentences. They threw out the IKS team.”
“Ok, then we’ll increase
pressure and monitor their weekly performance.” The drive for better productivity had begun.
#
Drain One Swamp
In September 1993 Borby sent Michael to Germany. Borby had a lucrative business of buying damaged German cars, patching them up and reselling them at a profit in Russia. Michael was asked to help with the contracts. He stopped over in Prague to meet up with me. The constitutional crisis in Russia was reaching its peak, but he sounded cheerful.
“Let’s meet on the terrace of Zlatá studna (Golden Well) restaurant on Malá Strana. It serves decent food and has great views over Prague.” Over a Pilsner Urquell, Michael reassured me.
“I have dealt with the emotional baggage of my identity. The last three years in Moscow have helped me to set aside all romantic ideas about my ancestors. I know exactly who I am. I am an Englishman! Russia is a foreign country for me.” I looked at him with surprise. He had become more business-like and I wondered what had brought about this change. I would miss the old romantic Michael.
It was a warm day. We sipped beer in the sunshine and chatted about families. Michael had something on his mind and as our starter was served, he came to the point.
“Boris Berezovsky heard your story about the French Impressionists in the Hermitage from the deputy mayor of St Petersburg. He was highly amused when he recounted it me on our return to Moscow” I was surprised at how quickly the story had spread.
“Over the last year, I had heard whispers in the office about the Hermitage. Colleagues made frequent trips to Petersburg and to the Baltic Republics” his voice trailed off. It was quite alarming.
“Has Borby asked you to research the Impressionists?” I asked.
“Yes, Russia has got several hundred Impressionist paintings. They were either stolen by the Bolsheviks from Russian collectors, like Sergei Shchukin and Ivan Morozov during the revolution, or from Germans, like Otto Krebs, by the Soviet army during the war. Some of the paintings aren’t officially recorded by the Hermitage and have never been exhibited, due to legal ownership problems.” Michael was well informed. I interrupted him.
“Are you going to tell me that they privatised the paintings?”
Michael looked serious.
“Yes. That is exactly what happened, but sort of officially. Your friends from MBR, the mayor’s office and selected businessmen are involved.” I was surprised. Red wolves have been at work to raise capital.
“Paintings were sold privately or pledged as collateral to finance Russian private banks. These banks will be used as vehicles for privatisation.” It was a clever scheme, confirming Andrei’s comments. The implications were clear.
“They will raise enough capital to avoid selling Russian companies to foreign investors. The nationalists will be happy, and a few Russians will get very rich.” I suggested and Michael nodded and asked,
“How much do you think they have already raised?” I calculated on a napkin.
“Assuming 500 tonnes of gold were sold for $6.5 billion dollars and fifty Impressionist paintings have been pledged for $3.5 billion, they will have raised about ten billion. We could probably add another ten billion for ‘missing’ Communist Party assets.” We paused to absorb these figures.
“Their potential war chest for privatisation is massive. I was naive when we met in St Petersburg. The stakes are astronomical” said Michael
“It would be much safer for you to move to Britain,” I suggested, but Michael dismissed that.
“I am fascinated by Russia. This will be a unique chance for me to learn how the transformation unfolds.” I tried another suggestion. “Being employed by Borby is dangerous. At the moment he’s in favour at the Kremlin, but one day, he will be replaced.” To my surprise, Michael agreed.
“Borby and his friends will finance the politicians who allow them to keep their wealth.” This is Borby’s leverage. Capital was raised for privatisation by the select few. In return, money will be injected into the election campaigns of their friends. Michael continued,
“He has given cars and jewellery to Yeltsin’s daughter, Tatyana Dyachenko, and arranged the publication of Yeltsin’s memoirs. Our Borby has been brought into Yeltsin’s inner circle.” I jumped in.
“Russians are paranoid about foreigners. They’ll try to get at him through you. You’ll be labelled angliyskiy shpion (English spy). Borby will understand that. You would do him a favour by resigning. When will you be going back to Russia?”
“Not for a while. The situation is tense and Borby has asked me to take a long holiday. I am going to Cape Town for a couple of months, then to London, but I’ll be back in Moscow after the New Year.” I agreed.
“They might have a civil war while you’re away. I hope to see you and your parents in South Africa over Christmas. Please give them my regards.
The political events in Russian accelerated. Within two weeks, on 21st September President Yeltsin took a step to drain the political swamp by dissolving its Congress of people’s deputies and the Supreme Soviet, which had been ‘elected’ under the defunct USSR. The election was called for 12th December.
Fearing their loss of office, the deputies barricaded themselves into their parliament building called the ‘White House’ in Moscow. They formed armed gangs and called for attacks on strategic points in Moscow and the bombing of the Kremlin. In response, Boris Yeltsin, declared,
“We will drain the fascist-communist-nationalist swamp”. The army was sent to the White House on 4th October, to eject the deputies and their assorted militants. They departed, predictably shouting slogans against traitors, Jews and foreigners. A thousand people died in those skirmishes on both sides of the conflict.
On 12th December Russia had a new constitution, the newly elected Duma and the Federation council. President Yeltsin’s economic reforms prevailed. He managed to drain the political swamp. The most controversial part of the Russian privatisation programme was about to occur. Michael, having sidestepped the assorted hazards of the previous three months, re-joined Deloitte in Moscow in January.
Chapter 13
Changing Work Ethics
The time had come to confront the low productivity of the red wolves in our corporate finance team. As a test case I chose a prestigious project and calculated that its success would confound our critics. I smiled at my secretary.
“Mrs Fischer, I wish to review the proposal for the ČEZ (Czech Energy Corporation) bond issue at 2 pm this afternoon. Will you please ask the whole corporate finance team to attend?” She looked at me surprised but nodded. It was a Friday.
The team had delivered a substandard presentation to win the mandate for a bond issue from the largest company in the country. Our competition included a dozen domestic and Western banks. My colleagues were unmotivated. They kept glancing at their watches, wondering how soon they could make their excuses and leave. Having demonstrated the gaps in their presentation, I dropped a bombshell.
“We are pitching for the management of the ČEZ bond issue on Monday. If we go in with your proposal, we will lose the deal. Do you agree?” A dozen people around the room murmured, but nobody disagreed.
“I will not sign off your presentation. A new proposal has to be produced over the weekend.” They looked at each other. I continued, there was a tough tone to my voice.
“You won’t be going home early today.” I was challenging them. KB staff, like most employees in the country, were used to skipping work on Friday afternoons. It was an informal practice established under the socialist regime and continued to be tolerated.
“You should warn your families that you will be working tomorrow and on Sunday. Your presentation has got to be upgraded.” I counted on their former party discipline. They were trained under proletarian centralism, meaning that bosses were there to be obeyed.
The team looked surprised but remained silent. Their team leader was expected to respond. Milan Ptáček avoided my stare by looking at his feet. When I refused to sign off the
presentation, he was in a dilemma. He realised that, if we failed to win the mandate, he would be held responsible.
When the moment of potential mutiny passed, I added, “We will arrange refreshments for the next 48 hours. I shall be available throughout the weekend for consultation. Completion is to be on Sunday at 7 pm, when we meet here for the final rehearsal and go into print.
The client presentation is on Monday at 9 am.” After they left my office, I sank back into my chair. They had accepted that substandard work would not be tolerated, but would the quality of their work improve?
It did. They worked hard. By Sunday night the new proposal was ready. We presented it to ČEZ on Monday. The IBD was appointed as lead co-manager of the 4 billion crown bond issue.
It was the first proof that KB could compete with western banks. It was a major breakthrough for us. Five months earlier our investment bankers didn’t even know what a bond issue was. Now their productivity and quality of work was multiplying. Team confidence and morale soared. The news of our success travelled throughout the bank. The pessimists were in retreat. Media coverage publicised our success against experienced foreign competitors.
From the early days at KB, we cultivated contacts with the Czech media. IBD launched weekly media briefings. Press releases and comments on international finance were written up by journalists. This led to relaxed relations with the press. Our steady drip feed helped to improve the country’s financial literacy and increased our public visibility.
#
Decree
The financial markets had incomplete laws. Issues arose, which needed to be resolved with the civil servants at the national bank, at the ministry of finance, or directly with the legislators.
“Someone from JP Morgan wants to speak to you,” called Mrs Fisher early one morning.
“Our international clients would like to buy your ČEZ bonds. Foreign investors’ property rights are not fully protected under Czech law. Could you do something to help us?” asked their European vice-president.