Cazprom and Itera

458 Words2 Pages
The case study examines the corporate misgovernance of the largest extractor of natural gas in the world, Gazprom, its illegal transfers of assets to Itera, a company registered in Cyprus and trading energy products, and Gazprom’s auditor PwC, which allegedly falsified its reports regarding business transactions between Gazprom and Itera. William Felix Browder, CEO of Hermitage Capital Management, and shareholder of Gazprom, identified several issues that needed to be fixed, and turned them into opportunities. Gazprom shares price is considerably discounted by the market due to the popular belief that “99% of its assets are stolen” (Case Study page1), which turned out to be only 10%, an opportunity seen by Browder to increase the shares prices. Browder determined that Gazprom transferred over $5 billion in assets during 1997-2001 at a loss to the company and its shareholders. In its attempt to increase the transparency of the company transactions Browder faces several issues related to international markets: corrupt business culture in Russia and Eastern Block; inability of local government to act with sanctions, due to an inefficient government and political system and failure of enforcing the trade laws; flawed international business ethics; and ill profit driven auditor, PwC, and Gazprom’s political and economic influence in the local and international markets. It is imperative that a few initiatives are started: investigate Gazprom’s transactions; replace PwC with another reliable auditor; sanction Gazprom management and PwC for illegal actions and misleading reports; improve audit legislation so that false reports are not endorsed; seek for local and international government involvement to initiate forensic investigations and retrieve Gazprom’s lost assets. As stated in the case, Russian government owns 38% of Gazprom, so it could exert significant influence

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