Russia in 2008: Corporate Social Responsibility in a Post-Socialist State

Sergey Dayman

Moscow, Russian Federation
March 2008

Business practices and even business ethics are increasingly standardised throughout the world. There are of course known differences between “Western” and “Eastern,” “developed” and “developing” country practices, but it is expected that general business operations and conduct are similar globally. Social responsibility of businesses is an area which, regardless of the growing standardisation of approaches, will remain ever dependent on the local, regional, and national settings. In this respect, post-socialist industrialised countries, such as Russia, have their own, and very significant, peculiarities that affect the way in which social responsibility of businesses is perceived and put into practice.

Social and economic background
The Russian Federation is a successor of the Union of the Soviet Socialist Republics (or “USSR”). That state, now almost forgotten, was one of the World’s political poles at the times. Its differences from post-war Europe and in particular the US were manifold — for example, although socialism during the times of the USSR was flawed in the area of human rights, strong achievements were made in the areas of education, health and medicine, as well as the support of the elderly. Another feature of the USSR, which is important in the context of corporate social responsibility (“CSR”) in Russia, was its planned economy structure and significant size. The results of these were, amongst others, the construction of huge industrial plants for which entire cities were built. These cities were practically parts of the plants, embedded within the communal and social infrastructure of the USSR.

When the Soviet Union collapsed, various Russian business people acquired the major part of the existing industries. A good many enterprises, however, remained state-owned or inherited the Soviet administration style and method of doing business. In the next few years following the collapse of the Soviet Union, many changes took place and virtually all such changes brought with them problems in numerous social spheres. Enterprises struggled to find a strong foothold in their respective markets — or (nearly) went bankrupt as there was no demand for many of the products planned in the USSR. Managers tried to improve efficiency and reduce costs. Social infrastructure, including water supply and wastewater treatment, heat supply, residential building maintenance, solid waste management, medical services and so on, quite reasonably became the focus point of such efforts — and also an inevitable victim of these. In most cases, the facilities were passed into the ownership of the respective municipal governments. However, the shift of management to the municipalities did not always impact positively on the administration of the social infrastructure. This was so due to the municipal government’s budgetary limitations, in many cases, the lack of motivation and management experience, insufficient control over funds spending and transparency, and many other hampering elements commonly found in public administrations of various sizes around the globe. As a result, in many regions, towns and settlements, all types of infrastructure — from cultural (libraries, cinema, theatres, youth groups etc.) to transportation and communication — began to collapse.

First steps towards CSR
Increasingly, Russian businesses have come to recognise that their support of society is a vital ingredient to their commercial survival and development, within the developing Russia as a whole. This recognition commenced at the turn of the century, when Russian companies, from the largest to the very small entities, came to adopt the CSR practices, in most cases unknowingly (and sometimes even unwillingly). Business was not necessarily eager to assume the role of local government by investing in infrastructures and communities, but often they have been left without any other option but to do so. In order to maintain and develop their businesses, companies have had to build (or assist in building) public roads to access their sites and nearby settlements, to arrange, by way of example, natural gas supply to the business sites thus also providing it to the homes of the people, to improve supplies to the local stores, and so on. Along with providing jobs, and so increasing the income of the surrounding population, companies have trained employees and developed their skills and social positions. Larger companies have contributed significantly to regional and national universities, high and technical schools, providing support for the establishment of new courses and even for entire faculties. Furthermore, sponsorship has become a part of every major company’s budget — not only to increase their visibility and improve their public image, but also to respond to the most urgent, or most appealing, community requests.

In one example, a medium-sized company in Russia invested into a plant which was practically abandoned for three years. Inhabitants of the relevant village were generally surviving on forest products, their gardens, unqualified labour, and theft; spending their minimal income on alcohol. Not only did this company provide new jobs and income to the local community, it also improved goods supply to the village shop and introduced free alcoholism treatment to everyone willing to undergo such treatment. The response to the proposal was nearly 100 %. A few years following the recommencement of business, the plant has become very competitive, attracting large corporate clients. This example of socially responsible investment, however, was done without actual knowledge by the directors or the company owners of the very concept of CSR. Furthermore, one of the audits conducted by one of the company’s clients, concerned about its own CSR image, revealed child labour requirement violations — young people were working at the factory in jobs were considered dangerous, to increase their family’s earnings. Following the audit such practices were of course stopped. This is a good example of how Russian business has, without real knowledge of CSR as a concept, invested in a socially responsible manner – but at the same time, not complied with the formality of CSR.

With respect to the environmental and economic components of CSR, the evolution towards adopting environmentally responsible practices has not happened quite as dramatically. Nevertheless, the transition towards adopting environmental elements of CSR has been challenging for all players. Most businesses in Russia at the wake of the emerging free market economy tried to avoid paying taxes, often had no way to escape bribery, and kept investments to a minimum, trying to avoid risks and obtain maximum returns as quickly as possible. Attempts to save were made at the expense of health and the environment, as well: e.g. by switching off existing ventilation equipment to save on electricity, setting up facilities without obtaining environmental licenses and so on. After the first decade of such chaotic development, the Russian government tried to establish effective enforcement in all fields, combat corruption and increase tax collection, with the instruments it considered necessary. After a number of years, the changes have become visible: The introduction of environmental or tax inspections has made it difficult for businesses to avoid major law requirements, and Russian legislation has been generally further developed. In addition, businesses themselves have learned their lessons. Those businessmen who took a long-term view, sooner or later recognised that creating a reliable future for their businesses requires not only good marketing and financial management, but — of course — process management, material and energy efficiency improvements, and a safe working environment. In this respect, first steps have been made regarding investments in environmental and safety measures — and not only technical, but also managerial, measures, for leaders — by way of adopting ISO 14001- and OHSAS 18001-based management systems.

Unexpected developments
The above would have been an adequate description of CSR in Russia until the autumn of 2003 when the YUKOS case occurred. Apart from its political and business implications, this case has come to be very important from the point of view of recognising businesses’ role in social development.

YUKOS was one of the companies which oriented itself towards the current European business model, including significant social investments and focus on increasing transparency in its business operations. Long before the case was developed, YUKOS published materials about its social programmes in English, which suggests that the Russian government and decision-makers were not considered the target audience for these materials. Press coverage of YUKOS' social programmes was also mostly regional. However, following charges made against it, YUKOS responded by demonstrating its social importance — as a taxpayer, employer, sponsor and community developer in many regions. Instantly, most of the largest companies operating in Russia, who were perhaps fearful of becoming the next YUKOS-style victim, busied themselves with demonstrating their loyalty to — and their role in Russian society.

Social reports
In order to do this, international experience came in handy: demonstrated by British American Tobacco Russia, which by that time had published its first social report and was preparing its second social report; glossy reports of major international companies; ready instruments such as Global Reporting Initiative (“GRI”) guidelines and the AccountAbility AA1000 assurance standard were uncovered and further publicised by consultants. These standards and practices have now become hugely popular in Russia — at least in speech and in consultants’ proposals.

Conferences and large-scale presentations discussing various aspects of social or sustainability reporting, audit, and CSR in general, were held in Moscow every month if not more often. Companies promised that they would soon publish their own social reports. At first, a few Russian open social reports were published a year later, including the YUKOS Social Report 2002/03. This latter report extensively covered economic, environmental and social company contribution and took into account both GRI and AA1000AS requirements. Other reports, which were also released in 2004 were not as comprehensive, but bore more resemblance to PR booklets or a section of an annual report. A large, if not major, part of these reports covered sponsorship and philanthropy activities, and only a little information was provided on actual economic, social and environmental policies, actions and impact(s) of the companies in society.

Large companies have only just begun to prepare their social reports, and mostly outsource their preparation to external organisations. The next wave of social reports came in 2005. These reports were more detailed, but again reflected the fact that the management structure underlying CSR declarations is lacking in most aspects, except probably with respect to human resources. In general, the CSR is still thought by Russian top managers to be mainly a tool to managing non-financial risks and improve capitalisation via better public image. In this respect, the following example can be indicative of the situation at that time in Russia: An international consultancy company was contracted to prepare a non-financial report for a large industrial corporation that has significant environmental impacts. The consultants explained that the report would not cover environmental issues as the audience was not interested in such issues. Yet, the corporation itself made significant efforts to improve its environmental performance and gain a more environmentally friendly image. This is certainly a contradiction — and it has a reason: the company prepared a “nice” report, and it was not ready to discuss any problems whatsoever.

Concluding remarks
Thus, the question begs as to whether the CSR practices of Russian businesses are now the same as they exist in Europe, North America or Japan? The answer is: yes and no. The management and more importantly the directors and shareholders of Russian companies have yet (as is the case in other regions of the world) to understand, firstly, the sustainability concept (which may be a further reason why the title “Social Report” has become standard) and distinguish it from what they think it is about, the “sustainability of the company”, and secondly, their role in the development of the country and the community, not just with respect to the country’s tax budget and its own risk management. And still, the country from the very top to every person would have to recognise the inherited value of human rights and the meaning of responsibility to the society. Else the country would return to the USSR’s state not just with all qualities that were good to its people, but also with all bad that hindered its development and finally brought it to collapse.

However, if one cuts out the fashionable words from the reports of most international companies, or from the speeches of public persons and looks at the actions, one arrives at the same point: CSR is not yet a generally accepted practice, but for all but a few leaders it represents the same, nice and necessary though it is, but only a side activity, as is the case in Russia. Thus, the differences are minimal — meaning, effectively, that Russia just needs to develop its own “sustainability leaders” that would be brave to take this role and show the way for those who might follow.

(1)At the time, Guidelines version 2002:

Last modified by: C. Schmidt on 21-Mar-08