AP BETTER DAYS: Khodorkovsky with President Yeltsin in 1998

Posted Sunday, November 2, 2003; 13.45GMT
But Khodorkovsky is a different kind of oligarch. For one thing, he has become something of a socially-minded philanthropist. Yukos spends about $100 million per year on projects that include training thousands of high school teachers to use the Internet in the classroom and sending Russian teenagers to U.S. schools for a year. It also enjoys a reputation among foreign investors as perhaps the most transparent and westernized company in Russia. It has a cluster of Americans on its board and among top management, uses U.S. accounting standards and was the first major Russian company to detail its precise ownership structure. Most recently, it has been engaged in talks with both ExxonMobil and ChevronTexaco about the possible sale of as much as 40% of its equity, according to people familiar with the talks. While such a move would have amounted to a resounding vote of confidence in Russia's economic future, it also might have put Khodorkovsky and Yukos out of Putin's reach. The talks are now on hold. But the idea was characteristic of Khodorkovsky. "He's the ideal opportunist," says Anders Aslund, director of the Carnegie Endowment's Russian program, who has known him for six years. "He's at the top of any game there is."

Khodorkovsky was born in Moscow in 1963 to a-lower-middle-class Jewish family. A straight-A high school student, he earned college degrees from two of Moscow's most prestigious schools by the age of 25 and then got into politics. When Mikhail Gorbachev, who was then the Soviet President, started introducing political and economic reforms in 1986, Khodorkovsky was deputy chief of a Young Communist League (Komsomol) district committee in Moscow. It was a giddy new world of cooperatives and other legal private business opportunities and, like many Komsomol leaders, Khodorkovsky used the organization's vast real-estate holdings and political connections. "He dealt in everything: blue jeans, brandy and computers — whatever could make money," says a senior Yukos executive.

Not all his initial business forays turned out well, and from time to time he used his skills as a trained carpenter to supplement his income. But it was back then that he built the team that later was to emerge as Yukos top management — Platon Lebedev, Leonid Nevzlin, Mikhail Brudo and Vladimir Dubov. Soon they ran a network of enterprises reaching as far away as Siberia. The breakthrough came in 1988, when Khodorkovsky launched a commercial bank called Menatep. To help get it started, Gorbachev's administration gave it the right to handle Chernobyl victims' relief funds.

After the collapse of the Soviet Union, some accused Menatep of laundering Communist Party money, but the allegations were never proved. As his empire grew, Khodorkovsky acquired riches but shunned the flashy lifestyle, preferring modest clothes and cheap plastic watches. Even now, he prefers turtlenecks and leather jackets to designer suits.

He made his first million dollars in the early 1990s, when Menatep used its connections to buy large amounts of shares in companies that were being privatized. After a brief stint in the federal government, taking on the job of Deputy Fuel and Energy Minister between 1993-1994, he staged his biggest coup, acquiring Yukos at a state auction for $350 million in 1995.

Critics today accuse Khodorkovsky of grabbing valuable assets for peanuts. While it's true he paid relatively little for Yukos, the company was flat on its back, owing about $3 billion in taxes and unpaid salaries to employees. It was also torn by labor strife. Yukos executives says it took two years of crisis management before the firm got back into shape — only to be sent reeling in 1998 by falling oil prices and Russia's economic crisis. To make matters worse, Khodorkovsky suddenly found himself with a big fight on his hands when foreign shareholders, led by Kenneth Dart, the heir to an American foam-cup fortune, mounted numerous legal challenges to the way he gained control of the operations and cash flow of Yukos subsidiaries, allegedly to the detriment of minority holders.

Yukos insiders say that battle sparked a big change in Khodorkovsky. From then on, he embraced corporate transparency and began advocating Western-style govern- ance and values, casting himself as Russia's Mr. Clean. "He is the first to admit that he and the others exploited the legal vacuum that existed in the early '90s," says a retired U.S. diplomat who knows Khodorkovsky personally. "But he was also the first to start speaking out for transparency in business and the need for active corporate citizenship in a democracy, and the first to put his money where his mouth is."

Putin does not appear to have had any such epiphany about business. Indeed, he's proved himself less committed to modernizing Russia's economy than to consolidating his own power. His first priority is keeping the Russian state — and his own position — strong. While Khodorkovsky was cutting his teeth in commerce in the 1980s, Putin was a KGB major stationed in East Germany. He quit the intelligence service in the early 1990s and moved back to his hometown of St. Petersburg, where he began a political career that in 1996 brought him to Moscow and ultimately to the presidency.

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