Babiš’s mythical union |

Babiš’s mythical union

Andrej Babiš
Andrej Babiš
ZDROJ: CTK - Katerina Sulova

Miroslav Zámečník, Blahoslav Hruška

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ANO party leader Andrej Babiš recently opined to journalists that talk of conflicts of interest between him running a business empire and his role as future finance minister ignored one key fact: The greatest damages will be to me, he argued.

Damages to my company, my ability to do business, to my privacy and to my health. Very few people would have hit the nail on the head so completely. The Agrofert owner, who built his successful election campaign around the motto “We’re not like politicians; We work“, is suddenly discovering that the role of the uncorrupted businessman, tasked with saving politics from further plunder, is nowhere near as easy as he once thought.

Ultimately, Babiš will find himself in a permanent conflict of interest. So long as the ANO leader wants to avoid issues of perceived bias, he probably shouldn’t even enter his new office on Prague’s Letenská Street. And it isn’t merely a matter of contracts signed between Babiš’s companies and the state. A random sample: Uniles and Wotan Forest sell saplings to the state-run forestry body Lesy ČR; the Pardubice-based chemicals company Synthesia supplies raw materials to Explosia, which is 100 percent owned by the Ministry of Finance. The head of the treasury also partakes in the decision to appoint the chair of the emergency resources body of the Administration of State Material Reserves (SSHR), which today trades with several companies from the Agrofert empire.

Babiš’s reign as finance minister would also see the Financial Analysis Unit (FAÚ) falling under his purview. In other words, a financial regulator that will enable the ANO head to see into the cards of countless competitors, gauging data, for example, about their financial health, or on companies ripe for potential takeover by Agrofert. Yet another powerful body, which also falls under the Ministry of Finance, will also offer opportunities for dubious practices - the Financial Administration of the Czech Republic (GFŘ). Both the head of the FAÚ and the Chief Tax Inspector, along with many others, would be subject to hiring and firing by Babiš.

Promises versus conflicts

Even if we choose to believe the ANO leader that he will not abuse the public administration for the benefit of his businesses, no clear solution offers itself for how to guarantee this. According to the country’s newly adopted Civil Code, upon becoming a government minister, Babiš must give up his statutory posts - asides from positions as Chairman of the Board and General Manager of Agrofert, the business tycoon also sits on the boards of seven subsidiary companies within his holding group. The ANO leader says he will not hesitate to clear the decks: “He will resign from the statutory bodies of all Agrofert companies as soon as he is appointed minister,“ the ANO leader’s spokesperson, Karel Hanzelka, recently told Euro magazine. But a change in management at the company overlooks the fact that Babiš remains Agrofert’s sole shareholder.

Theoretically, he could choose to recuse himself from specific governmental decisions, appointing a representative instead. However, should Finance Minister Andrej Babiš seek to recuse himself in every instance of potential conflict of interest, his only solution would be to never get out of bed in the morning.

Un-sellable holdings

Evidently, the most transparent solution would be for Babiš to sell off every stake he owns, including in foreign businesses. It is worth noting that Babiš is not just a magnate in the Czech Republic - in the fields of agriculture and chemicals, he has also found success in Slovakia, Germany, Poland, Hungary and even China.

And he has no intention of selling off his copious interests - with good reason. To sell off such a large empire within an adequate time frame is practically impossible. Besides, the business world has so intertwined Babiš the man with the network of companies he runs that very few people would be willing to pay out a “synergy premium“. Conversely, countless investors could be found to buy “as it is and where it is,“ if the discount was amenable.

This gradual sell-off method of pieces of the business would enable investors to purchase at what investment bankers call “break-up value“. But there is one key flaw: even if Babiš wanted to leave this train, the process of selling such a huge conglomerate would easily take at least a year to complete. If efforts were made to only sell off more logical whole units, from which a synergy premium could be expected, then the process could take two or three years. As it stands, the law does not mandate a lack of ownership in companies, and certainly does not mandate a prompt sell-off at a likely loss of over a third of the overall value. So Babiš will not go down this route, and no-one in his position would either.

Blind, but visible

The problem with the blind trust solution is that it need not be anywhere near as blind as the name suggests. The identity of the person who manages the trust is crucial. Rarely does this person truly operate as an independent hired manager totally free of ties to the recused owner. One such example is represented by former US president Jimmy Carter, who, upon assuming office, left his business interests to be managed by advisor Charles Kirbo of the Atlanta, Georgia law firm King & Spalding. Kirbo may well have refused subsequent offers for a placeholder Senate appointment, or even to be White House Chief of Staff, but Carter was dogged by accusations of nepotism relating to those administering his business interests. In 1977, Carter nominated Griffin Bell, a long-time partner at King & Spalding, to serve as Attorney General. Similarly, President Lyndon B. Johnson appointed one Sheldon S. Cohen to manage the first ever presidential blind trust in 1963. Cohen was later appointed IRS Commissioner by LBJ.

Sooner or later Andrej Babiš will realise that he must entrust the leadership of the ANO (‘YES’) movement to someone else, thus giving a clear ‘NO’ to the world of politicsAutor: Jan Rasch, Euro

Even the basic principle that the beneficiaries of the trust will have no oversight of the management or operations by the trustees need not be strictly adhered to. Much depends on the lack of a relationship between the founder and the manager. It was actually Mitt Romney, the 2012 Republican presidential candidate, who summed it up best: “The blind trust is an age-old ruse, if you will,“ he said. “Which is to say you can always tell a blind trust what it can and cannot do. You give a blind trust rules.“ The comments were made back in 1994, with Romney criticising a blind trust set up by his US Senate election opponent, Ted Kennedy. Later, as Governor of Massachusetts, Romney too would establish a blind trust for his earnings from Bain Capital.

Czech alley

Because the new Czech Civil Code, covering amongst other matters trust funds, has only just come into effect, we can only speculate on the extent to which a gentleman’s agreement stemming from common law will be adopted and adapted for use by Czech business entities. But several options exist for how trusts could replace the current system of bearer instruments (documents that enable de facto blind ownership). Both the founders and administrators can be guaranteed anonymity by trust status. Further, profits accrued by the trust can be diverted to a third person. It is possible, directly in the trust agreement, to determine a beneficiary who is not necessarily the person who established the trust.

Nonetheless, new legal norms stemming from the establishment of blind trusts in the Czech Republic mean Babiš has no cause for alarm. “A trust fund is not on the order of business at this time,“ the magnate’s spokesperson, Hanzelka, has announced. And some political commentators believe that this “order of business“ will in fact never arrive.

“I do not believe that Andrej Babiš would allow his property to be administered by someone else, and thus minimise the influence he could have (on his holdings] as a member of the government. Another matter is the fact that partaking in the world of politics means his time is limited, and so he will likely delegate certain management duties. But he won’t do that in such a way as to tie his own hands,“ argued Josef Mlejnek of Charles University’s Faculty of Social Sciences. Asides from purely personal reasons, among which one can certainly expect a resistance to losing a growing personal empire, there are also economic factors to consider.

A trust is just as unthinkable an idea as a sell-off. The notion that Babiš would make use of the new opportunities of a trust fund and pour into these all of his companies and ownership interests is entirely theoretical. No-one in his place would give up the right to decide, as an owner, on key matters relating to overall company structure or parts of it, as he or she sees fit. Who should approve major decisions about mergers, acquisitions, sales, partnerships, liquidations or investment programmes - all worth millions or billions of crowns? Babiš’s empire is a living organism, and not just a few shareholder entities, bonds, real estate plots or properties for which a trust fund system is a natural fit. There are so many fundamental decisions of a strategic nature to be made, of such consequence for the group, that it is hard to imagine any owner would abrogate responsibility to an administrator - and actually be prevented from speaking up. Indeed, in the strictest sense of a blind trust, even knowledge of specific decisions is prohibited from being conveyed.

A story with no happy ending

It is possible to say, with a heavy dose of empathy, that Babiš cannot resolve the potential conflict of serving as finance minister while owning one of the largest business empires to be created in the post-communist Czech Republic. As minister, sitting in two chairs at once is an issue he will not be able to satisfactorily fix. And for all those who rightfully fear that a concentration of political, economic and media power is too seductive regardless of the intentions, all that will be left is to hope or believe that Babiš’s business practices are as “transparent as a forest spring“, as he claimed to the news site Aktuálně.cz. And one can only hope that this clear spring of pristine water doesn’t happen to be located in a forest in which Babiš has a business interest.

So long as the Agrofert boss wants to avoid questions of perceived bias, he probably shouldn’t even enter his new office in Prague’s Letenská Street The law does not mandate a lack of ownership in companies, and certainly does not mandate a prompt sell-off at a likely loss of dozens of percentage points of the overall value. Therefore, Babiš will not go down this route, and no-one in his position would either

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