Shareholders Rights Not To Be Fooled With

Michael Hedges April 4, 2014 Follow on Twitter

Russian media is, if anything, full of intrigue. From Western eyes, it’s also full of controversy. This certainly extends to the rather vibrant new media scene. Color it complicated.

One of the more colorful – and elusive – characters in the Russian new media scene is Pavel Durov, founder of the popular Russian social media portal VKontakte, recently rebranded as simply VK. On Tuesday, Mr. Durov posted an announcement that he has left the CEO job with immediate effect. Maybe it was an April Fool’s Day joke because a day later he changed his mind.

“It came to my knowledge that my resignation could now create unnecessary risks for our company,” said his letter, reported by Forbes Russia (April 3). “I intend to stay and work as CEO.”

And on his VK page: “I want to wish everyone who had thought that I would resign of my own will a happy recent holiday.”

The shareholders apparently missed the humor. “We do not consider it funny especially taking into account that the board  of VK is meeting at the moment in Riga (Latvia) to discuss candidates for Durov’s  replacement,” said spokesperson Nafisa Nasyrova to AFP (April 4).

“As a result of events subsequent to the change in the shareholding of VKontakte in April 2013, the freedom of the CEO to manage the company has been significantly reduced,” said Mr. Durov’s original resignation post, reported ITAR-TASS (April 3). “It’s becoming increasingly difficult to defend those principles which were once laid in the foundation of our social network.”

Last spring two of VKontakte’s founding investors sold their 48% stake in the company, somewhat abruptly, to United Capital Partners (UCP), investment fund of Ilya Sherbovich, who happens to sit on the board of state oil giant Rosneft. After that transaction Mr. Durov’s tenure was considered tenuous as he’d refused a government “request” of remove the VK page of Alexei Navalny, a rare Russian opposition figure currently under house arrest for being a Russian opposition leader. Mr. Sherbovich is said to be unhappy that Mr. Durov has been spending time and money on a new messaging application for smartphones led by his brother in Germany. 

The bigger VK shareholder is Main.ru Group, owned by billionaire Alisher Usmanov. Among other bling, Mr. Usmanov owns the Kommersant media house, UK football club Arsenal and, until recently, significant stakes in Apple and Facebook. Two weeks ago (March 20) Russian Federation president Vladimir Putin urged Russian billionaires to “return from the offshore shadows;” meaning, bring your money home. The registered domicile of Main.ru Group is the British Virgin Islands (BVI). Mr. Usmanov granted to Mr. Durov voting rights over his sharholding, keeping Mr. Sherbovich’s intentions at bay.

And so, big global music companies have entered arbitration proceedings in St. Petersburg, , challenging VK’s hosting of material under copyright. “VKontakte is a major infringer,” said music industry lobbying group IFPI chief executive Frances Moore, quoted by Bloomberg (April 3). “VK’s music service, unlike others in Russia, is an unlicensed file-sharing service that is designed for copyright infringement on a large scale.”

“For a long while, we’ve been successfully co-operating with copyright owners in deleting illegal content,” said a VKontakte spokesperson. “Their claims are unclear to us.”

To end the week the Russian Federal Antimonopoly Service (FAS) granted to Mail.ru Group “right to determine the conditions of entrepreneurial activities of VKontakte,” reported mk.ru (April 4).  UCP, Mr. Sherbovich, in February challenged Mail.ru Group, Mr. Usmanov, before the FAS for “systematic decision-making not in the interest of the social network.” It was also reported that shareholders voted to retain Mr. Durov as CEO.

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