Top Jobs for Children of the Elite

MTValentina Matviyenko with her son Sergei, who works for Vneshtorgbank.
In Soviet times, the children of Politburo members were often awarded plum jobs in foreign trade or as diplomats in Western countries. Today, the children of the country's new political elite are being hired at the commanding heights of Russian business.

For instance, 24-year-old Sergei Ivanov, the defense minister's son, was appointed vice president in January of Gazprombank, the banking arm of the state-controlled gas monopoly.

Pyotr Fradkov, 26, whose father is prime minister, was named deputy general director in July of the Vladivostok-based Far East Shipping Co., or FESCP, Russia's third-largest shipper.

Ilya Voloshin, 29, became vice president of Conversbank late last year. His father, the former Kremlin chief of staff, is chairman of the board of electricity monopoly Unified Energy Systems.

And Sergei Matviyenko, 31, the son of the St. Petersburg governor, was named senior vice president of state-owned banking giant Vneshtorgbank last November.

They are just the most prominent examples of children of well-connected bureaucrats who have assumed high posts in some of the country's largest banks and companies.

Maxim Druzhinin, chairman of the board of Conversbank, defended the decision to hire Voloshin.

"Ilya's responsibilities have no relation to his father's activities," Druzhinin said. "Ilya Voloshin is characterized by professionalism, an elite education and extensive personal connections. Also, our friendship played a role in the decision to appoint him Conversbank's vice president."

A request to speak directly with Voloshin was denied.

Conversbank, with reported assets of $395 million, is part of Convers Group, which also owns 90 percent of Akademkhimbank and 50 percent of Lithuania's Snoras bank. The group has reported assets of $1.46 billion.

Alexei Mukhin, director of the Center for Political Information and author of numerous books on Kremlin political clans, said no one should be under any illusions as to why the children of state officials were attractive hires.

"I have no doubt that the gilded youth got excellent educations abroad, but it is their daddies' high government positions that are playing a definitive role in the decision to give them a job," Mukhin said.

"No matter where you look, you have children of state officials occupying well-paying jobs," he said. "It is a sign that the bureaucrats have become rather forward of late and are not afraid of something that might potentially compromise them."

Roland Nash, head of research at Renaissance Capital, said the practice had been going on for quite some time. Having close relations with the state can be "very useful" for a company in Russia, just as it can be beneficial for the state, he said.

Mukhin said that while there was nothing new or Russia-specific about this practice, it had been in the last year and a half that the country has seen a wave of such appointments, which he linked to a growing confidence of the new ruling class.

"After Putin came to power, it took the St. Petersburg clan several years to consolidate their power. They can now relatively easily find good jobs in key companies for their people. And who can you trust more than your relatives?" he said.

The younger Ivanov's father, Defense Minister Sergei Ivanov, a former KGB operative who is close to Putin, is among the siloviki supporters of state efforts to reinstate control over the energy sector. Gazprom, together with state oil company Rosneft, is key to these efforts.

The natural gas giant's banking arm, Gazprombank, has become involved in high-profile nuclear energy projects abroad. Last October, it acquired a 54 percent stake in Atomstroieksport, which is building nuclear plants in Iran, India and China.

Its key project is the $1 billion Bushehr nuclear plant in Iran. The United States has opposed the plant's construction, saying Russian know-how could help Tehran make nuclear weapons.

With $12.7 billion in assets as of late 2004, Gazprombank was the country's third-largest bank. It was fourth in terms of retail deposits with $1.1 billion.

The only comment a Gazprombank spokesman would make on the younger Sergei Ivanov's appointment was that "kinship was not among our hiring criteria." The spokesman said Ivanov did not want to speak with journalists.

Sergei Markov, a Kremlin-connected political analyst who heads the Institute of Political Studies, said there was no reason to believe that the appointments of the sons of prominent bureaucrats to high-ranking posts in business reflected a state attempt to strengthen its influence over the economy.

"For the most part these are sinecures, easy jobs that don't give them any real power or influence," Markov said. "This is one of the examples of specific bureaucrats capitalizing on their current positions, but I don't see any state strategy behind it."

The positions held by the younger generation tend to be that of vice president or deputy general director.

Mukhin said the appointment system was based on "mutual indebtedness" among members of various groups within the elite as they tried to secure good positions for their people.

"Before a relative's appointment takes place, there is a lengthy approval process that includes consultations between different groups to make sure nobody gets offended, including the man at the very top," he said.

"From a legal standpoint there is no violation of the law, but in reality it is used to control money flows," Mukhin said.

Andrei Piontkovsky, an independent political analyst, said something similar went on during the Soviet period, although many of the lucrative positions did not exist under socialism.

For example, General Secretary Leonid Brezhnev's son Yury was a deputy foreign trade minister, while his son-in-law Yury Churbanov made a breathtaking career that culminated in his appointment as a deputy interior minister.

While nepotism was an integral part of the Soviet system, it was after the collapse of the Soviet Union in 1991 that it began to flourish. This was particularly true in Central Asia with its traditional clan mentality, where members of presidents' extended families have come to occupy key positions in government and business.

Piontkovsky said that while in the West charges of nepotism could be detrimental to a bureaucrat's career, it is not so in Russia, since "we don't even have such a term as conflict of interests here."

"It is one of the symptoms of why it is difficult for foreign businessmen to do business here. Power and wealth are very concentrated in Russia, so it shouldn't be a surprise there are crossovers between the two," Renaissance Capital's Nash said.