Hermitage The Fund Case Pre-Analysis The Hermitage Fund was "an investment fund focused on investing in Russian equity securities" that was highly successful compared to the Russian market index. Other than being highly profitable, what made the Hermitage Fund so remarkable was the fund's manager William Browder. Unlike other investors who were passive in company involvement and expressed dissatisfaction through the sale of stock, the Browder took a much more active role in investing by "aggressively focusing on corporate governance and shareholder activism". In practice, this meant that the fund took on long term investments that Browder believed to be undervalued largely because of corporate governance problems. Using western media, he uncovered the corruption and used shareholder pressures to eliminate it. The basic issues addressed by this case are whether or not Browder's actions were just. Should shareholders and individuals get involved in the way he did to aggressively fight corruption? Or is this the role of local government or an international agency like the OECD? If it is just, how does one deal with the potential conflict of interest in that Browder personally benefited from the international press? In Doh's article "Coping with Corruption in Foreign Markets", both the direct and indirect costs of corruption are explained. This case illustrates how the direct costs of bribes and kickbacks led to the indirect costs of a weak infrastructure, a lower GDP, and socio-economic failure in Russia. The Hermitage Fund served as a type of private, non-corrupt agent that assists monitoring with and auditing as described in the Corruption (B) case. While it is not a traditional NGO, the investment fund was able to uncover corruption as it occurred in Russian industry. Once the general public was aware of the situation, changes would eventually occur. Reading this case, we saw that the main external factor is the affect the media's attention will have on the future economy of Russia. In terms of the future economy of Russia, while the direct and indirect costs of corruption will weaken with the media's coverage, there is a possibility that continual negative coverage about corruption will permanently damage the country's business reputation. If Browder's actions will stifle growth in the future, his actions may have serious consequences. Without foreign investments, the country may not be able to develop normally. In terms of the internal factors, the most obvious are Browder's conflict of interest. Because the Hermitage Fund is not an NGO or an independent agency whose sole responsibility is to monitor corruption, issues may arise. Already many have questioned Browder's motives in getting western press. Some believe he is doing so for utilitarian reasons, especially since he is gaining a profit. There also is the issue of objectivity and draining company resources in countless lawsuits. However, we do agree that even with the conflict of interest, the overall result of these media tricks and litigations is for good. His actions can be compared to whistle blowing. While internal members of the corporations will not like the initial result, it helps rid society of corruption.