Stephane Frappat, head of Sodruzhestvo from 2008-2015, openly talks about the specificities of working as the CEO of a private Russian company, about his interactions with the owner, about the secrets of his success and the necessity of leaving the role in a timely manner.
TEI: Stephane, how did you become the СЕО of Sodruzhestvo?
Stephane Frappat: It’s a pretty long story. I became acquainted with Sodruzhestvo when I was the CEO of Aventis in the CIS at the end of the 1990s. Sodruzhestvo became our client: we sold them seeds and helped them financially by investing in their facilities. When I left as CEO, Sodruzhestvo made me an offer, which I turned down to work in Aventis’ headquarters in France. But after a certain amount of time I understood that the development prospects within Aventis were less interesting than I expected, and I accepted Sodruzhestvo’s offer, joining the company as COO in 2002. At that time the company was not very big – it only earned about $100 mln in revenues per year. I tried to integrate best practices that were widespread in Europe, in budgeting, management, performance assessment, KPIs, client analysis, strategic planning (which had not been done previously). We decided to sell our non-core assets and focus on the main business. After a year I left the company due to disagreements, mainly related to human resource management.
TEI: Disagreements with the owner?
Stephane Frappat: Yes, which, in my view, is a fairly common situation for a business during a period of growth. The managers who ran the company at the time had been there when it was founded. When I said that it would be difficult to move to the next stage of development with them, it was not taken well by the owner, so I left. In the years following these managers either left the company on their own or were dismissed because their competence did not meet the needs of the company’s founder. A few years later, the owner brought me back, and I rejoined the company in 2008 as the full-fledged CEO.
However, it’s important to note that during the years I didn’t work at the company, I remained on the board of directors. I remained involved in the business and provided advice to the owner, reviewed documents. We never burned bridges.
TEI: What was your plan when you came back?
Stephane Frappat: I came back in July 2008, and you know what happened in August. Whatever plan I had in July was irrelevant one month later. After a month of working in the company I went into the owner’s office and said that everything was easier than I initially thought, and a few days later the nightmare started. Once we had dealt with the crisis, we came back to our original plans – from day one, we never lost sight of our goals. The goal was to make Sodruzhestvo into an international company.
TEI: How did this idea come about? Many Russian businesses are afraid to be international. Was this your idea, or the owner’s?
Stephane Frappat: I think it was both of ours. I think the owner had wanted to, but realized that he couldn’t do it on his own. And I didn’t have the desire to manage an exclusively Russian company, even a million-dollar one – been there, done that. But I had experience transforming a Russian company into an international one, so our goals and egos coincided.
Another reason, which is more acute: to be a Russian company, to build assets in Russia and not be politically connected, to have no allies with the authorities is a risk that needs to be diversified. And one of the ways to do that is by having non-Russian shareholders, an international scope, in order to make business more difficult to manage.
TEI: Looking back on the seven years you led the company, what are your primary achievements? What are you proud of?
Stephane Frappat: We built a truly international company. When I joined Sodruzhestvo, revenues totaled $703 mln, and 95% of that was from Russia and the CIS countries. Out of 1,000 employees, there were only two foreigners, including myself. All of our assets were in Russia, and all of our accounts were in Russian banks – that is something I managed to change over the last seven years.
First of all, we were able to attract an international team that joined our company not out of a desire to make money, but because of the history and growth we demonstrated that other companies in the industry couldn’t over the last five years.
Of course, some newcomers couldn’t integrate, some failed, some didn’t fit. But overall, I think that we were able to integrate different cultures, on both an individual and overall level. Today, we have 250 employees in Brazil that need to understand how a Russian company works, and we need to understand how the Brazilians think and work.
The second important achievement was the diversification of our financial resources. Seven years ago we worked with just 2-3 banks, and now we have 20-30, including leading European banks that recognize and service us, including through loan provision.
TEI: Did you sell a portion of your assets?
Stephane Frappat: Yes, we sold a 10% stake in the Japanese company Mitsui – I’m also proud of this, we spent nearly two years in negotiations.
TEI: And now the company has become more international?
Stephane Frappat: Today the Russian market comprises about 30% of revenues, and the CIS countries – another 20%. The remaining 50% comes from the international market
TEI: Was all of the growth driven by foreign markets?
Stephane Frappat: It’s a bit complicated, as a significant portion of production is done in our Russian assets. We became one of the top five Russian exporters of industrial goods. For example, we have one factory that produces exclusively for international clients. 95% of our oil is exported globally, from Australia to Cuba. But these are niche markets, our main markets are in Europe and North Africa.
TEI: How do you explain these achievements? And what is your contribution to this success?
Stephane Frappat: As one of my friends says, “you are forcing me to step outside of my natural humility.” The first is hard work.
TEI: What does this mean for you? Long hours at work, or something else?
Stephane Frappat: Yes, it means a lot of hours spent at work. But hours spent effectively, directed toward an understanding of the very essence of operational activity. I don’t like micromanaging but, unfortunately, sometimes it must be done. When you reach the size of our company, several problems arise that require micromanagement, typically those based on personal relationships. You should discover something new and share that with your company and employees. When we invested in Brazil, I was traveling there twice a month. It took up a lot of my time but was necessary for the company
«We became one of the top five Russian exporters of industrial goods. For example, we have one factory that produces exclusively for international clients. 95% of our oil is exported globally, from Australia to Cuba. But these are niche markets, our main markets are in Europe and North Africa.»
A second point – it’s necessaryto rely on both your own humility and your ego. As far as humility goes, you need to understand that everything isn’t about you, it’s about the company. But at the same time, you are the face of the company, you can’t be unprofessional. In some situations you have to inflate your ego – especially abroad, for example, this is important for European bankers.
A CEO should also develop empathy, which is necessary for any situation in life, but especially when confronted with different circumstances. When you don’t have empathy, and you coldly examine a problem without trying to understand what people are thinking from the other side of the table, attaining success is going to be extremely difficult.
Another important thing is being firm with shareholders, the ability to assert your point of view. If shareholders want to do something that you think is wrong, then you shouldn’t do it. You don’t have to give the green light to the owners’ every initiative just because they are the owners. At the same time, you shouldn’t forget about the owners – it’s an issue of transforming a family company into a capitalist one with the right corporate governance. I see myself as a manager of change, one who is trying to transform the company, and the owners have the right to decide where they want to stop this transformation.
TEI: How do you divide your time? Looking at the primary stakeholders – how much time do you spend with the owners, top managers, the remaining company employees? What percent of your working time do you spend on working with external stakeholders (suppliers, clients, regulators?)
Stephane Frappat: I could say that I spend 50-60% of my time with my employees, including regional management, about 10% with external stakeholders, 10% with top management and 10% communicating with the owners. Of course, there is a difference in the process of negotiating with investors: there I spend 50% of my time discussing terms with them, and the other 50% with the owners.
TEI: What is the most difficult aspect of your work?
Stephane Frappat: First of all, being far away from my family. Secondly, maintaining the right balance between different approaches and languages. It’s very important for me to speak the language – I can hardly imagine how I would work in Brazil without any knowledge of Portuguese. Or to be the CEO of a Russian company without knowing Russian. Actually, to return to the start of our discussion– one of the reasons I left Aventis was my fear over leading the division in China. I would have had to spend way too much time learning Chinese. I think that some of my success in Russia is attributable to the fact that I speak Russian.
The Russian business culture and business environment is one based on relationships of strength, where everything is resolved through conflict and there is no understanding of compromise. Meanwhile, the exact opposite is true in Brazil – the Brazilians will do anything to avoid conflict: they never say no, they will simply not fulfill your request; in Russia your orders will be carried out, even if people disagree with them.
Another difficulty is that you are always between a rock and a hard place: between the realities of Russian business and the desires of the primary owner. And that’s something you need to deal with.
TEI: And how do you deal with that? Are there any techniques or methods?
Stephane Frappat: Again, this is based on empathy – you should be sure that all involved parties believe what you say and believe that you are acting in the company’s best interest. Relationships should be open. You should be sure that the owner isn’t trying to play mindgames with you, and if he does, remind him that it shouldn’t be that way. This is work. No one coddled me. And we must continue to work together as long as we have common goals and a common vision for the company’s future.
TEI: As far as I know, you decided to step down as CEO, right?
Stephane Frappat: Yes.
TEI: Why? What will be your role and – as I understand, the company founder replaced you– is this temporary?
Stephane Frappat: This is part of the shareholder’s agreement – in the case of the CEO’s departure, his temporary replacement is the chairman of the board of directors, which in the case of Sodruzhestvo is the company’s founder. The reason why I left is because tomorrow, my son will be three months old, and I haven’t even spent half that time with him. This was a difficult decision for me, and given the current situation in the Russian economy, I wondered if it wasn’t an irresponsible decision. But I don’t see a near-term solution to the situation in Russia, and I’ll waste my whole life waiting for the situation in Russia to improve. That’s the main reason.
TEI: This hadn’t been your long-term plan? Youdecided this recently?
Stephane Frappat: No. The idea had been in my head for awhile. I hadalready spent 7 years as CEOand 14 years total with thecompany. I always said that aCEO, like a president, shouldnot give himself more than 10years.
TEI: But you had no successoron the horizon?
Stephane Frappat: No. The first time I talkedto the owners about apossible successor, they wereoffended. I had to explainthat I didn’t intend to leave,but that we should be readyin case we weren’t right for each other. We didn’thave any kind of plan for succession, the owner andI just talked about my departure in detail a fewmonths before it happened.
«But between French, Brazilian,and Russian enterprises, I seelittle difference. The main issue iseffective corporate governance,which is still not entrenched inRussian culture.The main thing is the uncertaintyin which businesses operate inRussia, and a CEO should be ableto deal with it»
We discussed it and, on the one hand, it would havebeen nice to remain on the board of directors, buton the other hand, I am more and more inclined tothink that it isn’t necessary.
TEI: Research shows that if a previous CEOremains on the board of directors and,particularly, becomes the chairman, it makesthe new CEO’s work more difficult.
Stephane Frappat: Alexander [Lutsenko, owner of Sodruzhestvo]offered for me to chair the board of directors, but Idon’t think it’s a good idea.
TEI: Stephane, the lastquestion. You alreadytalked about this, butcould you sum up in a fewwords the particularitiesof being the CEO of aRussian private company?
Stephane Frappat: I don’t see any particular specificities: everything is the same as in any other familyowned company in the world, except for maybe hightech companies, which are dominated by a completely different way of thinking. But between French, Brazilian, and Russian enterprises, I see little difference. The main issue is effective corporate governance, which is still not entrenched in Russian culture.
The main thing is the uncertainty in which businesses operate in Russia, and a CEO should be able to deal with it.
This introduction was published in the ninth edition of the Talent Equity Newsletter, "Effective CEO".
To see all newsletter editions, see TE Newsletters.