Responsible Business Practice in Russia: Is it possible to reconcile profit with social purpose?

Susan Simpson, Director, Europe,
The Prince of Wales International Business Leaders Forum (IBLF)

The avalanche of words that have been written in the last decade about the need for companies to be 'socially responsible' has a particularly poignant resonance in the Russian context. Whilst Soviet-era government policy had dictated that state-owned enterprises should fund, manage and maintain a vast range of social facilities, from kindergartens to summer resorts, schools and shops, to arts and sports centres and in-house health care facilities, the demands of the free market produced a wave of social disinvestment by companies, resulting in some cases in the near collapse of the social fabric of entire communities.

The one-company town phenomenon, so common in Soviet economies, merely compounded the problem. Russia has a preponderance of extremely large-scale enterprises, often located in challenging and isolated geographical locations, which put even more onus on the company to provide for the community - everything from drinking water, to heat and lighting, to transportation systems. With such a degree of dependence on the one business, any disruption to normal operations, let alone withdrawal of key social support mechanisms in the wake of privatisation and restructuring, could spell disaster, not only for the tens of thousands directly employed, but for the whole city.

If such a context were not enough to have to contend with, the shift away from Communism had also meant political fracture and uncertainty, and the realisation that Government no longer had the means to provide all that it once did. In the more mature democracies, such a situation has increasingly precipitated the involvement of the not-for-profits in delivery of social services, but with largely immature, inexperienced and under-funded civil society organisations in Russia, to date this has only rarely been a viable option.

Yet the need remains. What therefore are the options for Russian society in trying to deal with its many pressing social, environmental and economic challenges? It would seem even more vital that there is a re-examination of the role and contribution that each part of society has to make. Business is clearly a very important component.

We are not talking here about a simple re-kindling of the long and proud Russian traditions of corporate philanthropy that stretch way back into Tsarist times, although philanthropy will always have its part to play. What companies are coming to realise is that market growth and competitiveness are not won merely on the back of selling more products and services more profitably than anyone else. Instead, long-term sustainability of operations will matter increasingly, and will rely on intangibles such as building and maintaining a good reputation, trustworthiness, ability to innovate and responsiveness to all stakeholders.

The era when Russian companies could blatantly ignore demands for better corporate governance, or when international companies operating in Russia could remain detached from the needs of society is fast receding. The US and other corporate governance scandals that have so rocked public trust in recent times have given a powerful pointer to what can happen if corporate governance standards are lax: it can mean corporate annihilation and jail for those found guilty of malpractice. Poor corporate governance standards in Russia are repeatedly cited as the main reason why FDI levels in Russia remain stubbornly low. And despite recent signs that investor confidence in Russia is being restored, particularly among Russians themselves, there remains as great a need as ever to project a sense of corporate integrity and commitment to conducting business in an accountable and transparent way.

This is placing new demands on the roles of corporate Board members. A recent survey amongst CEOs conducted by the World Economic Forum's Global Corporate Citizenship Initiative and The Prince of Wales International Business Leaders Forum has produced more compelling evidence than ever before that there is a strong correlation between corporate competitiveness, corporate governance and corporate citizenship. As CEOs assess the implications of this in terms of how they run their companies, one thing is certain: corporate citizenship has moved from the margins to the mainstream of corporate board decision-making.

Time will tell just how persuaded Russian companies will become of the need to incorporate sustainable development considerations into their policies and practices. Leadership companies in Russia are already sensing the dawn of a new era, and are actively seeking to improve standards of corporate governance as well as to devise more cohesive, strategic approaches to their social investment policies, to sit alongside their traditions of charitable giving. This is because they are beginning to sense the need to manage, monitor and evaluate the company's non-financial performance, its social and environmental impacts, with just as much rigour as its economic performance.

The key messages that came out of the WEF/IBLF CEO survey are as valid for Russian businesses as any other. They include the importance of the role of the CEO as the promoter of a responsible business culture and the individual company's set of values; and the growing importance of new types of public-private partnership to address challenges where no one company and no one sector in society has the capacity and competence to find solutions on their own. This includes access to training and education, healthcare, credit and markets, as well as problems such as corruption, money laundering, crime and terrorism.

Forums for discussion on these topics are emerging in Russia, two recent ones being the National Council on Corporate Governance, which involves many of the largest and most powerful Russian companies; and the Russia Partnership for Action on Corporate Governance and Social Responsibility, a recently launched joint initiative of the IBLF and the Russian Investor Protection Association. The Russia Partnership brings together leading international and Russian businesses to share good practice, ideas and experience in business-to-business, and business-to-government roundtables and seminars on a wide range of topics relating to the linkage between corporate governance and corporate citizenship. The ultimate aim is to go beyond dialogue and learning from each to other, to practical, collective action to address those issues that Partnership members identify as important and to which business can apply its unique competencies, resources and skills.

The governance framework and management skills and capacity needed to address such complex, inter-connecting issues are undoubtedly challenging, but the signs are that business in Russia is learning from the experience of the international business community and does recognise that financial profit alone will not create the type of communities that business itself thrives upon.

The Prince of Wales International Business Leaders Forum (IBLF)

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