The 10 people who convened in Moscow in mid-February came from multiple countries and professions, but they had one thing in common: They were all directors on the board of Yandex, Russia’s largest internet company.
Russia had not yet invaded Ukraine, and though much of the world was on edge, people in Moscow and on the board of Yandex were incredulous that war was coming.
Yandex’s board meeting in the Russian capital, the first in-person meeting in two years, was scheduled far in advance. Aside from the 11th board member — the chairman — who was videoconferencing in after catching COVID-19, the meeting went ahead as planned.
It would turn out to be the last time that group of people convened as board members.
Within weeks, the ripples of the war in Ukraine set off big changes across Yandex’s business and its boardroom. Not only did the Russian stock market shut down, but Yandex’s foreign-listed shares on the Nasdaq were suspended, putting it at risk of defaulting on more than $1 billion in debt. Several of the company’s businesses, including the Zen newsreader, were put on the auction block. And Yandex’s deputy CEO and executive director, Tigran Khudaverdyan, was sanctioned by the European Union for his ties to Russian President Vladimir Putin, leading to his resignation from the company.
Two other Yandex board members, both from the US, also resigned weeks after the meeting: Esther Dyson, a well-known tech investor, and Ilya Strebulaev, a Stanford business school professor.
Perhaps just as surprising, three other Western board members at Yandex stayed on, vowing to “support the management team and our extraordinary employees through these exceptional times, and to safeguard the interests of our creditors, shareholders, users, and other stakeholders,” as John Boynton, an American and the chairman, announced in early March.
The fractured board has left Yandex stumbling into an uncertain future, as the company and some of its non-Russian directors try to balance competing principles and pressures and as the friction between the governments in Russia and the US reaches a level not seen since the Cold War.
“It’s a knife-edge we’re trying to walk here; we need to be concerned about the health and safety of our employees,” one person close to the company said, noting the potential risks in Russia of “speaking up in a way that is, according to the law, treasonous.”
While Yandex is registered as a company in the Netherlands, the majority of its operations and its 18,000 employees are in Russia, where referring to the events in Ukraine as a war or invasion carries a penalty of up to 15 years imprisonment. Reports on Monday that the Russian oligarch Roman Abramovich and several Ukraine peace negotiators had experienced signs of poisoning added to a general fear for people with ties to Russia of doing anything that might be perceived as crossing its hawkish party line.
“You need to be careful not to start offending people and harm the lives of those 18,000 people and all of those shareholders and creditors that got involved,” another person close to the Yandex board told Insider, discussing the dilemma facing certain insiders. “Does this give you great comfort as an individual raised in the West? Of course not.”
The uncertainty at Yandex is playing out as many American and European companies with business in Russia grasp for the right approach — some, such as McDonald’s and Starbucks, have closed the doors of their stores in Russia.
Apple is no longer selling iPhones and other products in Russia, but its online App Store remains open for Russians to download apps. While Apple has not commented on its App Store rationale, some observers have noted the value of keeping an information pipeline operating in Russia’s censored media environment.
As the largest internet search provider in Russia, with about $4.7 billion in 2021 revenue, Yandex has a particularly high-profile role in the country that’s further complicated its options and — over the past several weeks — divided its own board.
Pressure from outside the boardroom
Dyson, whom The Washington Post once described as “the guiding spirit of the emerging computer industry in Eastern Europe and Russia,” and Strebulaev, the Stanford professor, have not said publicly why they stepped down.
But both faced tremendous pressure from their networks to speak out against Russia, according to people close to the company.
Strebulaev, a dual citizen of the US and Russia, received letters from student groups at Stanford, urging him to get Yandex to speak out against the war or to step down from the board, one of the people close to the company told Insider.
“Ilya and Esther were feeling a lot of pressure to make a public comment, and they felt the best way to do that was as individuals,” the person said.
By contrast, Charles Ryan, the other American board member who is a partner at a Silicon Valley venture-capital firm, and Rogier Rijnja, a Dutch executive who’s worked for Nike and Apple, both stayed on at Yandex, along with Boynton.
Dyson, a former journalist, was especially concerned about Russian censorship.
Stepping down has allowed Dyson, who speaks Russian and once trained to become a cosmonaut, a level of freedom not afforded to other board members. Speaking out for the first time last week, Dyson told Radio Free Europe that the Kremlin’s influence on Yandex search results has gotten worse over time.
“Now you get more and more propaganda results before you get search results,” she told RFE. “First you have the advertising, then the propaganda, then you have the news. You cannot get that information [about the war] on Yandex anymore.”
She added later, “It’s not like suddenly the sun sets and the next morning, it all changes. It happens, like all these things, somewhat gradually.”
People close to the company pushed back against the idea that Yandex is actively censoring its results. While Yandex does not censor its search results, they said, the government has legal grounds to restrict which news that aggregators in the country can surface, and the government blocks certain websites in Russia altogether. Soon after the invasion, Yandex added a warning to Russian-language users looking for news on Ukraine that its search results might not be accurate.
Other internet companies that operate in Russia have also had to bend to local rules. On Monday, The Intercept reported that Google has instructed its translators in Russia not to use the word “war” in certain corporate texts in the country, such as online policy pages about its advertising products, and Alphabet has said that some Russians are unable to access Google News for reasons outside of its control.
To Zachary Witlin, an analyst with Eurasia Group, the Yandex board’s internal debate over search results echoes the broader question about the most effective way to punish Russia for invading Ukraine.
“You have one argument — that is, every link that can be cut off should be as a protest against Putin’s war,” said Witlin, who researches tech in Russia.
“And you have another argument that the state is depending on cutting off information from the Russian public. … So actually it’s a point of resistance to maintain ties as openly as possible,” Witlin said.
The Google of Russia
The past month of events has brought an unexpected turn of fate for the company often referred to as the “Google of Russia,” which at one point even had offices in downtown Palo Alto, California.
Like Google, which started around the same time, Yandex began as a search engine and went on to launch products in news, email, website hosting, and a marketplace. Today Yandex is involved in services varying from self-driving cars to
Boynton, the Boston-based chairman, helped launch Yandex while running a computer-supplies company called CompTek in Russia during the 1990s. Two of his employees — the childhood friends Arkady Volozh and Ilya Segalovich — created the Yandex search engine in 1997. Three years later, CompTek spun Yandex out as a separate company.
“The Russians have proven themselves to be among the best entrepreneurs in the world,” Boynton said at a 2019 event in Davos, Switzerland, hosted by Russia’s Roscongress Foundation. In addition to the math and engineering talent in Russia, Boynton credited Yandex’s rapid growth to its corporate-governance practices.
“When we started Yandex back in 2000, we added good business practices in the DNA of the company,” said Boynton, who is the president of the investment firm Firehouse Capital and is part owner of three professional women’s hockey teams.
For many years, Yandex’s size and influence seemed to protect the company from meddling by the Russian government, even as other high-profile homegrown tech companies, like the Facebook clone Vkontakte, succumbed to government takeovers.
But signs that Yandex wasn’t impervious to the Kremlin were always there. When Yandex filed a prospectus to list shares in the US in 2011, it warned potential investors that “businesses in Russia, especially high-profile companies, may be subject to aggressive application of contradictory or ambiguous laws or regulations, or to politically motivated actions.”
“I think that the hope for those who still believed in Yandex’s future is that it was such a big company and such an exemplar of Russian innovation that this gave the company a special status,” said Eurasia Group’s Witlin, who researches tech in Russia. “It gave it more bargaining power in trying to survive in that environment, while it was understood that they had to comply with these regulations.”
That optimism became harder to maintain after November 2019, when Russia forced Yandex to reconfigure its ownership structure. Volozh, the cofounder and CEO, moved his controlling shares into a family trust that would offload his governance rights to a “public interest foundation” controlled by three Yandex represenatives, and eight representatives from universities and non-governmental organizations in Russia, most of which have close ties to the government. Two board members were added to the Yandex board to represent the interests of the PIF.
Moscow restarts trading
On March 3, as Russian troops laid siege to Kharkiv, Ukraine’s second-largest city, and the number of civilian casualties in Ukraine surpassed 1,000, Yandex released its first official statement since the war started.
In an “update on impact of current developments,” Yandex noted that it was not a target of any of the sanctions imposed on Russian entities by the US and European governments. But it noted that businesses like its online marketplace, as well as its data centers, could be affected by Western companies pulling out of Russia.
Yandex also warned that the suspension of trading in its shares meant that it could be forced to repay $1.25 billion in outstanding convertible notes at any time.
“The Yandex group as a whole does not currently have sufficient resources to redeem the Notes in full,” the company said, noting that only $370 million of its $615 million in dollar- or euro-denominated cash was held outside of Russia. Meanwhile, the rest of Yandex’s short-term cash — 47 billion rubles — has been crushed by the plunging value of the Russian currency.
Over the next few weeks, the company released a flurry of announcements chronicling the various ways the war in Ukraine was affecting Yandex. On March 7, Yandex said it had begun negotiations with bondholders regarding its convertible notes.
With Yandex’s valuation decimated and its shares frozen in both the US and Moscow, some of the board members felt a responsibility to stick around and resolve the situation with the creditors, two people close to the company told Insider. To what extent financial and reputational damage from a potential default might have also driven the directors’ decisions remains unclear.
A portion of Yandex shares started trading again Monday when the Moscow Exchange ended its a monthlong shutdown, which was meant to shield investors from the fallout of sanctions imposed on Russia.
Foreigners, however, are banned from selling stock. The majority of Yandex shares, which trade on the Nasdaq, are still frozen.
“As far as we know, this has never happened in the world where politics dictate the trading,” one of the people said.