* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
The demonstrations in Moscow following the recent parliamentary elections have highlighted graphically the continuing public anger at the persistence of corruption in Russia. With corruption fast becoming what might best be called a “selection issue”, the stability and continuity promised by the Putin-Medvedev tandem is beginning to look somewhat illusory.
This cannot but impact companies’ plans for business and investment in Russia over the next years. The initial reaction must be to temper investors’ already waning enthusiasm for one of the biggest growth markets on Europe’s doorstep. However, the events of the last few days are in fact a sign of change and a unique opportunity to accelerate Russia’s adherence to international business standards and integration into the global economy.
The fight against corruption in Russia is of course nothing new. During his tenure, President Medvedev did succeed in introducing legislation forcing senior civil servants to declare their earnings, and managed to get Russia to sign the OECD’s Anti-Bribery Convention. Russia is set to accede to the WTO and beyond that to the OECD. Joining the international institutions brings with it obligations and responsibilities which the government sooner or later will have to translate into new domestic legislation, and which, when implemented, will have an impact on how companies operate.
Furthermore, the experience of companies operating in Russia suggests that it is not impossible to create a clean corporate culture, even when theft, bribery and fraud are all around. The traditional arsenal of deterrence and detection, such as employee education, internal audit, and whistle blowing, has been elevated to new levels of sophistication. It may need some cultural adaptation but it seems to work as well in Russia as in any other corrupt environment in the world. Even joint venture companies, like TNK-BP and Sakhalin Energy, which are at least half owned, and more than half managed by local companies, have instilled a culture of intolerance to corruption amongst their workforces, based on the experience of the Western partners, BP and Shell respectively.
The real difficulty is for Russian companies which are dependent on the state for their “right to operate”. Even here there are encouraging signs. Several Russian companies – especially those with an international footprint - are trying to clean up their act. They may or may not be motivated by a set of ethical beliefs, but underlying it is a strong business motive: these companies believe - or have calculated – that the cost of engaging in corrupt activities - in the form of bribes, future bribes (once you start you can’t finish), shoddy quality and delivery, theft by employees and agencies, reputation loss, legal costs and settlements and personal liability in the event of getting caught – may actually outweigh the cost of business lost by refusing to pay up. They have understood that a strong commitment to corporate governance and responsible business practices not only helps them run their companies more efficiently, but makes them more attractive to international purchasers and suppliers, lenders and investors.
The leading companies that are already committed to doing business honestly already contribute to a cultural change which is poised to infiltrate the market. Contractual arrangements with local companies obliging them to adhere to the best international standards, compliance training programmes for suppliers, distributors and agents, and terminating contracts when standards simply don’t match up – can all bring the culture of compliance to a wider range of companies.
More can be done. Senior executives of multinational companies and their Russian counterparts can and do informally exchange ideas of how to raise business standards and manage corruption challenges, for example at Moscow-based workshops and roundtables of the various business associations such as IBLF. Top executives visiting Russia can find time allow some time to speak to MBA students and young managers about ethical dilemmas which they may have confronted in their professional career. Companies can work together and with local and federal government to establish fair rules in specific markets and industries. With the help of these role models, and a concerted effort at this crucial time of change, the business leaders of Russia will come to their own conclusions: corruption is more costly than it is worth, that there is a place for values and leadership in business, and that “corruption” and “Russia” do not forever have to be synonymous.
Brook Horowitz is Director of Business Standards at the International Business Leaders Forum, an independent business association that promotes responsible business practices worldwide.
