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Market revolutionary

Shamil Magomedov is editor-in-chief of the Russian version of Families in Business.

Vladimir Dovgan left school at the age of 17, but this didn't stop him becoming one of the most powerful players in the Russian business world following economic deregulation. He talks honour, spirituality and market values with Shamil Magomedov

Much of the global business community is represented by family companies. For modern Russia the phenomenon of the family business is new. But as they say the new is the strongly forgotten old. To what extent are family values are typical to the Russian business mentality as a whole?
 
Vladimir Dovgan (VD) During more than 70 years of the totalitarian regime there was no business in Russian at all. If we refer to the past, we can name famous family dynasties like Sytin, Gorbachev, Keglevich, Smirnov, Eimann, the list is endless. All this is being revived.
 
I would divide all companies in two categories. The first one is "dead" companies, where a human soul suffers. And this terrible phenomenon of the modern times called bureaucracy gets worse. Certainly, it is difficult to destroy Coca Cola or Gillette. The most terrible thing about these companies is not the economic index, it's that a person cannot feel comfortable there at all. Bureaucracy is getting worse, no matter where, be it a state, or a business. Another unpleasant thing is that the goals of a top manager in a non-family business are simple: to remain in his post as long as possible and to bear responsibility as little as possible. It's all the same for a state, for Coca Cola, for Philip Morris – for all.
 
There's a second category of companies which we call "live" business. A "live" company can be compared to a living organism with a soul, interrelations, character, where a peson can use their potential. Family companies have their shortcomings. As a rule, a founder of a family business creates everything from scratch, a second generation holds the family positions and a third generation for the most part ruins everything.
 
But with all this in mind, I am convinced that happiness must come first and the economic index second. It's not just words; it's a plot of my life. Maybe that's why I am still not an oligarch or a super-rich man, but I know for sure that if the spirit suffers, there won't be an economic effect. And that's why the eastern style of management, Japanese, in particular, is much closer to me. For me the best examples are Konosuke Matsushita, a founder of Matsushita Electric, he was the richest man in the world in 1975. The practice shows that Japanese goods "knocked out" all at one stage. Automobile companies like Toyota and Honda entered the US market, nobody believed that, but the Japanese managed their success with the help of spirit and principles. I follow this example.

FIB Many big businesses in Russia are family controlled and they are already close to the second generation.

VD Yes, but many businesses that were privatised on the wave of transition to the market economy, say, Norilsk Nickel or the metallurgical industry as a whole, they belonged to the state and were created by collective efforts of all the country. Almost 50,000 people died building it in Soviet times. I don't mind if someone owns this business now, the important thing is that someone should own it. Being an ardent supporter of the private property institution, I am convinced that the fewer bureaucrats that manage Russia's assets, the better.

FIB The majority of Russian businesses that were started on the wave of the transition to the market economy at the end of 1980s was and remains family controlled mainly due to the market turmoil and the lack of efficient legal base at that time. Many of them already lost their family nature, brought in the slaughter-house of mergers and acquisitions or a simple sell-off. Do you think that preserving the family nature of the business is an end in itself or just a necessity that a businessperson can sacrifice at any time for the sake of getting a profit?

VD If one starts a business just to get a profit, sell-off is quite a natural way. My friend Robert from Germany spent nearly 10 years creating a brand "Uncle Sam". At one moment he secretly held talks, came to his office in the morning and said to his employees: "Guys, it's over. I've sold you and you are not my company anymore". This is one kind of approach, and it's not typical for me. We spend the most of our life working and one should create an atmosphere to get satisfaction.

FIB As a rule, a successful family company in its first generation is headed by an extraordinary personality. The rest of family often follow the leader unconditionally and without taking into account day-to-day realities. Sometimes it happens that from the height of his authority the founder simply does not notice these realities, and it often leads to mistakes. In your opinion, what is better for decision-making? A "strong hand" multiplied by the charisma of the founder or a balanced policy when all members of the family are equally involved?

VD When a charismatic leader takes decisions, all the huge potential is involved. Let's take the example of disposable razors and pens. Any interesting idea that changed the world was given a hostile reception by the majority in the beginning. There were a lot of revolutionaries who said: we will do so and so. Of course, nobody is protected from making mistakes, but we look into the matter from the strategic point of view. Like in a Chinese story, when a boy fell down from a horse and broke his leg, everybody in his village said "It's not good", and it was a tragedy. When a war started, all boys from the village were drafted into the army and all of them died, but the boy  who fell off the horse survived. I am an advocate of intuition, and I don't believe in business plans. All geopolitical, macroeconomic and social changes taking place in the world nowadays are so fast that they can make any business plan void within a week.

FIB So, you can say that the success of any family business is stipulated only by the business genius of a founder.

VD Undoubtedly so. Until this business turns into Coca Cola or Philip Morris. And unfortunately, we cannot always say the same about potential heirs, that's why a family business often dies in the third generation.

FIB You said you want your son to join the company when he reaches the age of six. you also questioned the necessity of getting a formal education. Why do you think that a formal education isn't important?

VD Look, I get to know this world through the biographies of great and successful people. Perhaps, the only one who got a formal education is Warren Buffet – even he was once rejected from Harvard Business School. Now I am reading a book about victories wrung from defeats. All the heroes there didn't get even a secondary education. I am convinced that a secondary and higher education is harmful. Imagine, you want to buy a mineral water, and nine of 10 bottles in the shop are not good, with dirty substances inside. Or let's say you want to buy a voice recorder, and the salesman tells you: "Sir, we have 10 machines, nine of them are with defects, so if you are lucky, you will get one working properly." Modern education and what we do as parents – the products of all these are 90 % defective.

If we look at the people who achieved something in this life, they are like me the "mistakes" or "defects" of this system. The system is terrible, and now it seems to me that people start to understand what subconsciousness is, that there are laws of psychology, other then those taught at schools.

I think unless the subjects like success, health, achieving a goal are introduced, schools will continue to do colossal harm and to produce unsuccessful students.

FIB But your daughter, your heir, was educated in France.

VD Yes, my 19-year-old daughter works successfully in one of my companies. She was brought up in France from the age of nine to 16. Originally, I am from Togliatti. In the 1990s Togliatti was a scene of constant shootings. In such an atmosphere my daughter used to go to school accompanied by two bodyguards. She developed a fear complex and I had a dilemma: either I carry on and don't fear bullets or grenades, or all my family suffers and remains under strong psychological pressure.

By chance, my friends went to buy villas near Geneva from the French side, and I went with them even though I used to visit the USA more frequently. I bought a villa too and moved my family there, including my daughter, my parents and my first wife.

My daughter did very well at school there. When she came to see me on vacation, she said: "Dad, give me advice as to what to do further". She could enter any university as she had very good marks. I told her: "I think that you don't need to go to university, just start work". Then I gave her examples of successful people who did the same way. After a while she came back and said: "I don't want to go for my bachelor's degree, and prefer to start working".

My fundamental position is that if one plans to work for someone, for employer, a formal education is necessary, it is important how many diplomas, degrees, awards one has. If you work for yourself, you don't need any education,  

She started to work in my company, although I preferred that my children work somewhere else first, get experience and learn the world of business from another side, but I found out that here in Russia we lack such companies with a proper corporate climate. Finally, she started to work in my company at the lowest position.  

FIB Obviously, she needs to make her career on her own account. What about the glass ceiling effect?

VD I am lucky to have such a daughter who is ten times more hard-working than I am, more educated and more fanatical in her work. One businessman took his daughter to work in his company. She was given a good position and work. Everybody in the company understood that she was responsible for one of the company's functions where one doesn't need to fear. The girl realised this and suffered as she could not reach her potential.

FIB To what extent is professional training important for a firm like yours?

VD Now we have five guys in our company, they are students studying in universities by correspondence, but they are being brought up with the company for three years now. I call them "the managers to be". They get the main knowledge in our company. I pay a great attention to sport as well: every day they have karate classes.
 
I didn't study in the UK, but read in books that British schools pay great attention to sport. Here, in Russia a physical training is considered as something derogatory. Accordingly, students suffer from it. It is proved that the more one indulges in sport, the faster the neurons of the brain grow.

FIB Let's return to the issue of top managers. You said in the beginning that the goals of a top manager in a non-family business are simple: to remain in his post as long as possible and to bear responsibility as little as possible. How's the situation in your company?

VD We have a policy, and it's a long-term and final one, that our employees grow only within the company. In urgent cases we look for a manager-outsider. If you entice an outsider with better pay and additional privileges, someone else can entice him tomorrow. This is not a team player, the team players are those who grow within a company.

FIB You are a pioneer of franchising in Russia. Franchising implies partnership in many respects and for family companies is one of the natural ways to develop. So can another form of partnership pose a threat to a family business and business in general?

VD Recently I was on a 16-day business tour, giving lectures in 15 Russian cities. I was really impressed by Tomsk (a city in West Siberia, founded by Tsar Boris Godunov in 1604). There's no crime at all there, the city has a lot of cultural institutions and bookshops. For me it was impressive as I grew up in Togliatti, where the culture is almost absent as the city is only 40 years old, accordingly, there's a high level of crime.

In my opinion, culture is the basis of trust and competence. So the biggest threat for a family firm involved in franchising and for any firm is the lack of culture. If a person has no inner culture, he doesn't realise what he does, he starts to rob himself, has no sense of responsibility before his clients and partners.

FIB What do Russian family companies need to adopt from the experience of the pre-Soviet Russia, from the era of great family brands?

VD I think, they need to cultivate ideas such as honour and dignity. The Russian businessmen, merchants and industrialists, always kept their words and Russia was famous for this. The power of any business lies in the sense of responsibility of its leader. I advise them to work more on the corporate ethics, to build a corporate culture, to work more on spirituality. Spirituality, a sense of responsibility, culture – they determine everything.

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