No. 1, 2004

During the millennia of its existence mankind has worked out certain ethical norms and principles, which have historically proved their practical expedience and usefulness for business. Today, Russian businessmen are actively studying the experience of their predecessors and their colleagues abroad in that sphere. There are many successful organizations helping them to forge modern, civilized business relations.

Russian merchant is as good as his word

The ethical norms of Russian entrepreneurship have a long history. Kievan Rus, a state, which was formed more than a thousand years ago, conducted extensive trade. "The Great Varangian Way," a trade route from Northern Europe to Byzantium, crossed its territory north to south. The city of Kiev, which stood on that most important trade road, became a major political, economic and cultural center. In 988, when Christianity came to Rus, Kiev also became a religious center. The state's elite – the Prince, his bodyguard and merchants – were the first to adopt the new religion.

Orthodox Christianity formed a kind of basis for Russian business ethics. Christian ethical norms impelled a successful merchant to earmark a share of his profits for charitable purposes. From then on, many churches, cathedrals and monasteries of Kiev, Vladimir, Novgorod and other old Russian cities were built with donations from merchants.

Traders were prominent members of Russian society at that time. This fact is noted in the Russkaya Pravda, an ancient Russian code of law dating from the year 1072. Under this code, punishment for damage caused to a merchant was almost as severe as that for lawless actions against the Prince's family or his bodyguards.

In the 13th-15th centuries the first permanent trading corporations were active in Novgorod the Great, the capital of the first Russian republic and a member of the Hanseatic League. These corporations organized their work in accordance with the "codes" which regulated the various aspects of merchant activity.

Russian Emperor Peter the Great (1672-1725) made concern for the industry and the merchant community a priority of his economic policy. He described this economically most active segment of society as follows: "Merchants are the firm foundation of the wealth of all states." It was during his reign that precursors of today's ministries of the economy and of power industry were first established – the Kommerz-Kollegium and the Berg-Kollegium. It was also during his reign that a system of incentives for entrepreneurs was devised which included even conferring on them titles of nobility for special services to the country.

During the enlightened reign of Empress Catherine II (1729-1796) a powerful impetus was given to the development of the ethical norms and rules for the Russian merchant community. Alexey Fomin, one of the most influential Arkhangelsk merchants of the time, wrote that to him "honesty and firmness in keeping one's word" were the most important qualities of a tradesman.

The second half of the 19th century and the early 20th century, the so-called period of Great Reforms, was the time of an economic boom in Russia. Many members of the nobility became interested in industrial production, credit and financial activities, and trade. For instance, Victor Rogozin, a nobleman by birth and a graduate of Moscow University, after completing the necessary formalities, became a Nizhni Novgorod merchant 1st Guild. He was the first in the world to start the production of lubricating oils from fuel oil (he called them oleonaphthas), which won him a gold medal at the World Fair in Paris (1878).

The ethical norms, which took shape, then were quite consistent with the present-day idea of civilized relations. Commendable qualities, such as honesty, sound judgment, respect for the individual and for private property, dependability, competence, determination to keep one's word, purposefulness, regard for the authorities, etc. became the main elements of Russian business ethics.

After the Revolt of October 1917 and the advent of the Bolsheviks to power, the country's economy traveled a tortuous path. It included the period of the so-called Military Communism – during the Civil War, followed by a brief (1922–1927) stage of New Economic Policy when private company was allowed in the sphere of trade and small-scale industry, and then a long period of state socialism. For about six decades, business relations in the USSR developed under the specific conditions of an administrative command system. And, despite the declared adherence to the norms of the moral code of a builder of communism, these relations were far from truly ethical.

The disintegration of the USSR in December 1991 marked the advent of a new period – a transition of the economy to completely different, market-oriented principles of work. Understandably, privatization and the initial accumulation of capital were taking place in complicated conditions. The laws of a market economy did not work yet. In the obtaining situation many businessmen followed their own understanding of ethics, legality, or admissibility of their actions. Hence the appearance of a number of negative phenomena characteristic of countries in transition, phenomena which gave certain Russian companies and some businessmen a bad name, both at home and abroad.

A new perception

During the last five years the problem of forming civilized relations in Russian business came to the fore. It became clear that without well-defined "rules of the game" which are to be accepted by all actors in the country's economic life the building of a dynamic market economy and civil society is next to impossible.

One of the main tasks in this regard is formation of civilized, transparent mechanisms of cooperation between the authorities, businessmen and society. Russia's business community has come to realize the importance of an ethical attitude to society. Yevgeny Gontmakher, Vice-President of the Russian Union of Industrialists and Entrepreneurs believes that at present "this subject is extremely important for all of Russia." In his opinion, "socially responsible business must cooperate with socially responsible authorities. Only such a pattern of relations can be stable and effective."

The state is also interested in building a system in which the business community would bear part of social responsibility for the country's population. Russian President Vladimir Putin has repeatedly stressed that a socially responsible business community is important and advantageous both to society and the state.

On December 16, 2003, a congress on "The State and Socially Responsible Business" was held in Moscow. It was attended by members of the Government and State Duma of the Russian Federation and leaders of large companies and civic organizations. The resolution of the Congress noted that the mechanisms of cooperation between the business community, the state and the citizens should be based on principles of social responsibility and respect for the interests of the others.

Sergey Mironov, Chairman of the RF Council of the Federation, the upper house of the Russian parliament, has noted the extreme importance of the subject and said that it should be realized in the interests of each individual. "From now on," he said, "the main thing will be not just solving economic problems: we are now primarily interested in solving social problems by exercising influence on the economy. And the best way to support business in this is not to interfere."

Russian business community is already doing its best to work in keeping with the universal principles of business ethics. Environmental safety, social responsibility, and compliance with the product quality standards – all these aspects are gaining ever greater priority in the activity of Russian companies. According to Vagit Alekperov, President of JSC LUKOIL, "the Company invests great resources into modernizing its refining facilities and organizing the production of environmentally clean fuel. Over the last ten years, we have allocated more than $1 billion for these purposes..." The leading oil and gas corporations of the world observe social standards just as strictly as environmental ones. Expenditures on social needs must, above all, be transparent and targeted. In 2002, the LUKOIL Board of Directors adopted a document called 'The Social Code,' which reflects our Company's new approach toward addressing social questions."

Fully realizing the need to support the sphere of education and science, Russian business community is actively cooperating with the country's leading universities. For instance, in December 2003, JSC LUKOIL-Neftekhim signed an agreement on cooperation with the Dmitry Mendeleyev University of Chemical Technology. Under this agreement, the Company will render the university material and technical support, including admitting students for doing practical work, while the university will conduct research in the interests of the Company and train highly qualified specialists for it.

Nor do Russian entrepreneurs overlook the need to support cultural institutions. Mikhail Shvydkoy, RF Minister of Culture, believes that the state must do everything possible to encourage philanthropy. It is planned to introduce tax privileges for companies, which take part in socially significant charitable programs.

The obvious conclusion is that Russian business community, which has already assumed a part of responsibility for the condition of society in the transitional period, is even now to a considerable extent motivated by moral and ethical considerations. The holding of forums like the congress called "The State and Socially Responsible Business" and the interest shown to them imply that the time is near when the phrase "business ethics" will be both habitual and meaningful to Russian businessmen.

Knowledge and experience – for business

Most analysts, businessmen and experts believe that establishing the rules of "fair play" in the sphere of business must not be an exclusive prerogative of the state. That is why, through their organizations and associations, Russian businessmen take an active part in working out modern, morally justified and effective rules of business ethics. These rules are intended to regulate relations in those spheres of business communication, which the state is unable to control.

In 1995, the Russian Chamber of Industry and Commerce initiated and commissioned the development of a national program called "Russian Business Culture." Under the guidance of Galina Ratnikova, Minister of Culture of the Moscow Region, and Professor Pyotr Shikhirev, many scientists, including sociologists, psychologists, historians and economists, have worked on the program. Its aim is "relying on our historical experience and the experience of other countries, to help entrepreneurs in this country assimilate modern business culture as soon as possible and raise it to the level of the universally recognized intellectual and educational potential of Russia."

In order to implement that program a committee on business ethics, headed by Galina Ratnikova, was set up within the framework of the Chamber of Commerce and Industry. The committee is a standing body, which regularly holds events related to the problems of business ethics in Russia. Its conferences, seminars and round-table discussions are attended by representatives of the authorities, of Russian and foreign companies, and by experts.

The conference on "Corporate Culture and the Reputation of an Organization," held in July 2003, was an important step in this activity. Experts and businessmen from all over Russia and from foreign countries took part in it. Reports and discussions on practical application of the rules of business ethics at enterprises and on management of corporate culture, as well as issues related to creating ethical codes and ensuring their functioning attracted especial interest.

In 1995, a fund named "National Business Culture" and headed by Pyotr Zrelov was set up within the framework of the National Program. The Fund performs a number of important functions – from general coordination of the activity of the regional chambers of commerce and industry and other potential participants in the program to rendering financial and information support to development projects in business culture and ethics. The Fund's representatives take part in practically all actions of the Chamber's Committee on Business Ethics.

Today, the Russian Union of Industrialists and Businessmen has two relevant bodies – a supervisory council on corporate management headed by Vladimir Potanin, and a Committee on Corporate Ethics headed by Boris Titov. One reason for establishing these bodies is "the necessity to conduct systemic work in order to improve corporate management as a condition for investment attractiveness" of Russian companies. One of the priorities here is "to sum up the existing standards of business ethics and, on their basis, to formulate the principles of corporate management." Moreover, the Union's leaders believe that "in the long term, improvement of the practices of corporate conduct in Russia will be linked with self-regulation of corporate relations by the business community rather than with administrative control. As international best practices have shown, the mechanism of self-regulation is the most effective one. Therefore, the Union's position is that the initiative must gradually pass to the business community which will promote the new rules of corporate conduct and strictly observe them."

The Union's experts took an active part in elaborating the Code of Corporate Conduct, which in April 2002 was presented by the Federal Commission on Securities. Commenting on this, Igor Kostikov, Chairman of the Commission, said: "The Code of Corporate Conduct will play a fundamental role in changing the image of Russian companies, which will greatly increase the attractiveness of their securities for both domestic and foreign investors."

The emergence of nonprofit organizations (including regional ones) which assist other organizations and companies in improving corporate ethics and in drawing up codes of ethical conduct is a new development in the Russian business community. A case in point is the "Strategia" fund for promoting business culture and supporting innovations and cultural initiatives. The fund was set up in 1995 in the city of Kaluga. Since then its specialists have implemented many projects aimed at forming civilized, ethical relations within the business community of the region.

Foreign specialists and organizations also render some support to structures engaged in promoting civilized relations in the sphere of private business in Russia. For instance, they regularly participate in actions of the Committee on Business Ethics of the Chamber of Commerce and Industry as well as by the Committee on Corporate Management of the Russian Union of Industrialists and Entrepreneurs. These organizations include Richard Lewis Communications, a British company which has for over 20 years conducted research and held seminars and training sessions on problems of cross-cultural communication; the Konrad Adenauer Fund, a German organization whose priorities include dealing with problems of economic ethics and social partnership; and the office of the World Bank in Russia.

The intensive activity of the American Chamber of Commerce in Russia deserves special mention. This organization is most active in building bridges between the Russian and American businessmen, helping to bring their ideas of modern business ethics closer together. According to Andrew Somers, head of that organization, introduction of various channels of solving differences among businessmen, of which the United States has several, is an important instrument for establishing trust in business. In Russia, one of these channels is the Joint Committee on Corporate Ethics under the Russian Union of Industrialists and Entrepreneurs with which the American Chamber of Commerce in Russia has an agreement on cooperation.

Professor Pyotr Shikhirev notes: "It is well known that foreign capital which brought new, more advanced standards of business conduct to this country played an important role in the development of capitalism in Russia before 1917 Revolt. This factor is present today too, but it acts, as a consequence of the general globalization and internationalization of the world economic process, development of information technologies and the growing overall role of the moral and ethical aspect of the economy."

Generally, many leaders of major foreign companies admit some progress in the evolution of a full-fledged system of ethical guidelines in Russia's business. Structures intended to facilitate the formation of business ethics are already functioning successfully. The volume of resources allocated by Russian companies for charitable purposes is growing: according to the Russian Union of Industrialists and Entrepreneurs, even now, on average 17 percent of the companies' profits is used for this purpose.

Investors, both foreign and domestic, have appreciated the level of transparency and openness of Russian companies: according to the Russian Ministry of Finance, in 2003, total investments in the country's economy amounted to $68 billion.

Russian business is becoming increasingly open. The shares of a number of oil, telecommunication, metallurgical and other companies are quoted at major stock exchanges in the West. Practically all of the large Russian corporations have adopted codes of corporate conduct for their employees. The basic provisions of these codes do not differ much from similar Western documents, as they rest on the same moral and ethical values – honesty, a responsible attitude and mutual respect.

The extensive, painstaking work of forming civilized relations in the Russian business community is bearing fruit. In the opinion of many leading analysts, the difficult transitional stage in Russia's economy will soon be succeeded by a period of stable growth. Then the standards and rules of modern business ethics, which are taking shape, now will be fully in demand, and that will be an important step toward Russia's entry into the world economic community.