Responding to a story in The Russia Journal in January that the European Business Club (EBC) was on the verge of disintegration and bankruptcy, three leading board members have told TRJ that the club is in strong financial health and there is no imminent threat to the EBC as an organization in Russia.

The EBC had not made any previous disclosures about the conflict within the club, till TRJ published the concerns of some key members. The lingering conflict broke out in October 2003, when the EBC board — constituted of one member from each of the EU member countries — voted out the co-founding chairman of seven years, Seppo Remes, and sidelined Irene Commeau, the managing director, of the club under very unclear circumstances.

While refusing to give any specific numbers on the club’s affairs — its membership or financial data — EBC deputy board chairman Geoffrey Cox and Aage Nielsen, board member and chairman of the EBC Executive Committee joined an interview that was only supposed to be a meeting between EBC board chairman Volker Undorf and a TRJ reporter.

The meeting began on an inquisitive note as Undorf asked TRJ reporter pointedly to reveal his sources of the January story, but later withdrew his question when the reporter protested. The trio spoke on a range of issues — from the dismissal of club’s previous top mangers to their plans for the EBC and its activities in Russia — during the interview that lasted over 60 minutes. According to them, the EBC is currently functioning without a full-time managing director with the day-to-day affairs being managed by Undorf and Cox, while Nielsen is currently searching for a new director.

Explaining the need for the change

The trio were circumspect on what had prompted the sudden management shake-up, only about five months after prolongation of a yearlong contract with Commeau. Also, they did not give any concrete reason as to why Commeau had been dismissed, referring only to “certain information, which propped up between June and October 2003 that forced the change.” However, Undorf and Nielsen specifically noted that the changes, including the dismissal of Commeau, were handled in a very civilized manner and in full accordance with the Russian labor legislation.

Meanwhile, Cox — who runs a real-estate agency in Moscow, and has become one of the most visible club members since Commeau’s departure — said one of the main reasons for the resignations was the need to change the management of the club, and since it became linked with this ‘Commeau thing’, the whole issue was blown out of proportion. He also noted that a lot of things were happening at the EBC with more and more decisions being taken by fewer and fewer people, who did not even bother to seek other board members’ opinions on such issues. “Of course, we were not very happy with several other issues.”

Cox said he does not see why a change in the club’s management should generate such resonance because the EBC board members elect the chairman, and it’s also their mandate to dismiss and elect a new one if the majority of the board decides to do so. “The board didn’t do anything wrong in trying to clean up the club. “I don’t see any reason why we are being blamed, or why we have become the guilty guys in the process.”

Most EBC board members and ordinary members have refused to speak on the record on the issue. Only Gerd Lenga — a partner at the Moscow office of German law firm Haarmann Hemmelrath, volunteered to speak on the record, and, in a lengthy meeting — aired a number of hypothetical questions on EBC finances and other issues without making any specific charge against anyone. He, however, hinted what the real problem was: “Commeau became everything in the club. The fate of the club should not be identified with just one or two people only. And besides, Commeau simply forgot that she was just an employee and nothing more in the club,” he added.

Lenga also noted that the EBC ought to be more focused in its activities — using the European, and not just a Western approach — because there is a big difference between typical U.S. and EU’s approaches on certain issues — though both are Western countries. “At present, I don’t see this emphasis placed on the “European” in the club’s name, goals and other objectives in Russia.”

Emmanuel Quidet, the former treasurer, dismissed the alleged financial mismanagement referred to in a report published by the Moscow Times, calling the shake-up “a purely power issue adopted by the current management because Undorf simply wants to become the EBC managing director.” Specifically, Quidet noted that the management shake-up had nothing to do with problems of financial mismanagement because EBC finances are overlooked by external auditors — previously by Ernst & Young, and currently by Mazars — as well as the EBC executive committee. “As a board member, I’ve seen all these reports, and none of them contained any facts of financial mismanagement. The way Commeau was fired was not fair, and as a board member, I personally did not want any litigation over this issue in the court,” he added.

But a veteran EBC member has told TRJ that the problem lays elsewhere. “It was a simple conflict of personalities. They [board members] just could not stand Commeau. Many were earning five-ten times less than her and she was a bit too independent. In the process, she hurt many big egos in and outside of the club, but worst of all, she was seen as too pro-Russian.” The member also noted that he does not exclude the possibility that Commeau was removed because of her “overtly pro-Russian stance on certain issues considered very sensitive at the very top of the EU’s diplomatic establishment in Moscow”. As examples, he cited Commeau’s pro-Russian position on the issues of visa-free travel for Russians to EU countries and her advocating for better treatment for Russians in general in Europe.

Asked to comment on the effectiveness of the EBC under Commeau, the European Union Ambassador to Russia Richard Wright said by telephone that he was aware that some sort of restructuring was going on at the club, but noted that, as a diplomat, he wouldn’t want to comment and be drawn into issues that are solely the internal affairs of the EBC. He, however, noted that the EU Delegation has always valued its co-operation with the EBC. “We regard it as a very important source for the EU Delegation’s activities in Russia. Also, we’ve had a lot of joint activities in the past and hope to continue to do so in the future, especially in the context of the upcoming EU-enlargement, which will also boost the club’s membership.”

New management to devise a more focused strategy

Undorf told TRJ that his chairmanship will be directed at devising a new strategy that will be more precise, more focused on certain aspects and more efficient because the EBC under the previous management was basically a lawless organization where everyone was working in a lawless environment.

“First off, there is a serious need to strengthen the EBC’s organizational structure because there are basically no rules and regulations for the board, management, employees, audit and treasure committees,” he noted. “We’ve decided to propose a new legal structure for the board and members to approve. Also, we are contemplating changing the club’s name because the present one does not actually reflect the real situation in the club and its objectives.”

Undorf and Lenga also noted that another key area is moving to full transparency in all club’s activities, saying, “This is very important because the club teaches transparency in Russia, where it was not really practicing it itself.”

Asked to comment on the reason why his chairmanship was abruptly terminated, and the likely effects on the EBC’s activities in Russia, Seppo Remes, EBC ex-chairman, who is currently representing Finnish companies on the board, declined, but added, “I hope the [ongoing] discussion moves from its [current] destructive track to a more positive one.”

Mishandled management shake-up

Meanwhile, the EBC has been divided into two or more camps over the shake-up issue. While Undorf’s supporters have hailed the change, supporters of Commeau contend the issue of management changes was poorly handled, with one of them saying “that the decision to effect the shake-up was forced on the board by an ambitious group led by Undorf who wants to run the club upon retirement from his banking profession.”

Explaining the motive of his memo sent to French members, Quidet who currently represents French companies on the board, told TRJ that the aim of the memo was to explain what was actually going on within the club, including certain actions the new board had intended to take against Commeau. “I explained everything in the memo to French companies that I don’t support these actions and the ways chosen by some board members to deal with the issue,” he added.

Though Undorf and Nielsen stressed that 10 out of 12 board members supported the decision to terminate Commeau’s contract, several board members contacted by TRJ have refused to go on record. And, this palpable reluctance of EBC executives, board and ordinary members to speak freely and independently on the issue only points to some lingering problems. One of them, Luc Stevens, the current EBC treasurer, was blunt in refusing to comment on the issue.

However, some members were only willing to talk on the condition that their comments not be attributed to them. According to one of such sources, some Russian sponsors walked out of a key meeting when charges against Commeau were read out loud by one of the board members. The source also said that several members have deserted the EBC, some of whom had reportedly asked the American Chamber of Commerce (AmCham) to lobby their interests in Russia. This trend was also referred to in a letter to AmCham members, in which Andrew Somers, AmCham president, said his chamber has already got positive answers from the EU Trade Commission to his request to help lobby European businesses’ interests in Russia, especially regarding the new Russian Federation telecommunications law, which endorses a state monopoly on incoming long-distance calls.

A key EBC sponsor also noted that there was nothing wrong with the previous management. “We paid our fees; and [former] managers did what they were supposed to do, including lobbying the club members’ interests at the highest level in the country. But now we are supposed to go to our competitors and real estate brokers to handle our issues. We don’t want to be a part of this.”

Several French, Finnish and Italian members are said to be continuing their boycott of the club, a trend also confirmed by Quidet. “Although I don’t have the latest data on these issues, I can say from observations that the overall current-membership figures are much lower than the usual levels because several members and big sponsors have refused to renew their membership and/or commitments to the club,” he added. But Undorf denied these statements as pre-mature conclusions, noting, “our membership campaign stops in April, and therefore, it is too early to talk on membership figures or revenues at this moment.”

Members call for radical overhaul

Some EBC members who spoke to TRJ have called for a complete overhaul of the EBC, specifically calling the club’s one-country-one-one-board-member principle of electing the board a “very flawed electoral mechanism.” For instance, a British member has told TRJ that some members prefer the AmCham’s voting style, which is based on one-member-one-vote system.

“Right now the EBC has a very weak board, especially when compared with the AmCham’s board which is full of highly capable and well-connected people in charge of large companies in Russia,” he noted. “But here at the EBC, we have real-estate brokers who are supposed to lobby the interests of multinational corporations. It should be a professional taking care of things under a directly elected board.”

However, Undorf noted that the voting principle has been discussed on the EBC board, but no decision was taken on the issue. “But my personal view is that we should keep the one-country-one-vote rule, because otherwise smaller countries’ influence and position would be significantly reduced. This will not lead to a feeling of being parties with equal rights and responsibilities,” he added. “Further, a change of the existing rule will make it more difficult to create a team spirit which is necessary to successfully represent the interests of EBC member companies in Russia.”

Litigation could put the EBC under financial duress

Quidet noted that the uncompromising position taken by Undorf over the issue, including on Commeau’s lawyer’s proposal for a settlement, were the main reasons that forced Commeau to take legal actions against the EBC. Commeau has filed a suit over the issue at one of Moscow courts, which is expected to rule shortly whether she should be re-instated as the managing director of the club, or paid compensation in accordance with Russian law in April, if an out-of-court settlement is not eked out by then. Quidet noted this route of resolving the issue would negatively impact on the EBC and its activities as an influential lobbyist organization for European businesses in Russia. “Besides, the EBC will suffer seriously from the litigation and negative image, and honestly, speaking, I don’t think it will survive thereafter, or remain as strong as it was before these problems arose in October 2003,” he added.

Lenga, the lawyer, but not representing the EBC on this issue, also agreed that a positive court verdict in favor of Commeau could put the EBC under financial distress. “You probably know what her salary was as the EBC’s managing director — and, that was not all. It came with other additional goodies — a car with driver, and several other items provided for in the compensation package. And, if you add all this up, it will come to at least 40 percent of the club’s revenues,” he added.