Essay on applied corporate responsibility: what are the main corporate responsibility strategies of Russian companies?

State University – Higher School of economics

Faculty of management

ESSAY

on applied corporate responsibility: what are the main corporate responsibility strategies of Russian companies?

Timur Mongush

.

Moscow 2009 г.

Introduction

Discussion of the concept of corporate social responsibility in the Western literature began in the 50’s of XX century. This process began in Russia much later, and that applies to every research in the field of business in the former Soviet Union. In Russia academic studies on CSR now appear frequently, it’s enough to view such journals as Russian Management Journal, Vestnik of Saint Petersburg University. But a growing number of publications on this subject does not mean that companies in Russia immediately began to pay attention to corporate responsibility. Too difficult were the conditions of the origin of Russia's business in the 90's, when a new country emerged where people were more worried about how to survive. Over time, Russia's business get stronger, our economy grew, our companies went public on the foreign stock exchanges. Simultaneously, interest in social responsibility of business increased, and so did awareness of CSR among Russian companies. In this regard, it is interesting to look at what companies do in the field of CSR. Do they pay attention to it or adhere to Milton Friedman’s idea that «the business of business is business»? This essay is an attempt to analyze the strategies of Russian companies in the field of CSR, their distinctive characteristics and the conditions in which they were formed. As it turned out, in Russia the “leaders” in CSR are mostly large companies, while social responsibility of small and medium businesses is virtually unknown. In general, we can see a tendency that most of large Russian companies are on managerial and even strategic stages of organizational learning [Zadek, 2004]. But, of course, not all large companies are socially responsible, there are examples of companies that are in defensive position about expectations of their stakeholders.

The historical context of the development of CSR in Russia

For a more complete understanding of the development of CSR in Russia we should also take into account its history.

In Soviet times, the concept of CSR in its pure form could not exist, although a lot of Soviet enterprises had social infrastructure facilities. For example, in 1980s 30 million people used health facilities of enterprises, 1.5 million children used enterprises’ sanatoriums [Шишкин, 2005]. In the USSR it was difficult to distinguish government social programs and programs of enterprises. There was the idea of the enterprise as social guarantor that performs a wide range of social functions.

In Russia, the concept of corporate social responsibility began to appear with the transition from planned economy to a free market, in connection with the privatization of enterprises and the relevant changes in social infrastructure supported by business (mainly by the owners of privatized organizations).

Researchers distinguish several stages of owners of privatized enterprises’ poison on social infrastructure enterprises [Шишкин, 2005]:

• Stage 1 (early - mid 1990). The sharp decline in social infrastructure of businesses. The spontaneous and uncontrolled dumping of social facilities. As a result, more than two thirds of social facilities was transferred from enterprises to municipalities.

• Stage 2 (1998-2000). Stabilization panies started to weigh up the short-term benefits of dumping of social infrastructure and long-term benefits of maintaining it. As a result, the transfer of social infrastructure for municipalities has slowed.

• 3rd stage (since 2000). Optimization of the core business of social infrastructure. Use of social facilities was considered by enterprises as part of their social policy. Issues of social responsibility became urgent.

CSR in Russian companies

Before discussing strategies for Russian companies, we need to define the object of study. We need to clearly define what companies will be considered. We will look at large domestic companies (with gross sales of over 1 billion rubles) and their social responsibility. Why? This decision was made for two reasons. First, because of the specificity of Russian business, which is that the basis of Russian economy is large companies, whereas in developed countries we can just the opposite: the economic backbone is small and medium businesses. And secondly, there’s no data on the social responsibility of small and medium businesses in Russia. In RSPP’s Library of non-financial reports overwhelming number are reports of large companies. Besides, we can’t study small companies applying the same criteria as in the study of big business.

Why big companies are the leaders in CSR in Russia? First, the scale of their business is so large that they have a great impact on the environment. So CSR for them is "license-to-operate". This especially concerns the mining industry, on which Russia is now so dependent.

Secondly, the shares of many large Russian companies are traded on foreign exchanges, and these companies can increase their stock value through CSR, and thus attract investors.

Thirdly, the number of employees of these companies makes it impossible to ignore social issues.

Fourthly, CSR demands sufficiently large number of funds, and not all companies are convinced that this would be a good investment, many companies in Russia consider CSR as costs. Indeed, costs for preparation of non-financial reports may be too high for small companies. This includes gathering all necessary information, drafting of the report, audit and other costs. Of course, for a large company it is easier to introduce the practice of CSR, including the publication of non-financial reports.

Considering CSR strategies of Russian companies, we can say that business in Russia makes progress very quickly, and the development of CSR in Russia is basically the same as in the whole world [Благов, Иванова, 2009, p. 22]. To analyze the situation in Russia, we can use 5 stages of organizational learning by Simon Zadek [Zadek, 2004, p. 127].

Table 1. 5 stages of organizational learning

Stage	What organizations do	Why they do it
Defensive	Deny practices, outcomes, or responsibilities	To defend against attacks to their reputation that in the short term could affect sales, recruitment, productivity, and the brand
Compliance	Adopt a policy-based compliance approach as a cost of doing business	To mitigate the erosion of economic value in the medium term because of ongoing reputation and litigation risks
Managerial	Embed the societal issue in their core management processes	To mitigate the erosion of economic value in the medium term and to achieve longer-term gains by integrating responsible business practices into their daily operations
Strategic	Integrate the societal issue in their core business strategies	To enhance economic value in the long term and to gain first-mover disadvantage by aligning strategy and process innovations with the societal issue
Civil	Promote broad industry participation in corporateresponsibility	To enhance long-term economic value by overcoming any first-mover disadvantages and to realize gains through collective action

Also there are three main attitudes to CSR [Шишкин, 2005].

• The concept of "corporate egoism" was formed on the basis of the classical M. Friedman’s quote, according to which "the social responsibility of business is to increase its profits”[1]. Thus, CSR is interpreted as providing economic and financial interests of owners and generating high ch a conception is typical for companies of Anglo-Saxon model of capitalism.

• The concept of "corporate altruism”. CSR in this case is interpreted broadly and, along with social obligations, includes business involvement in charity and social projects. Thus, the company is understood as a social community in which the owners are cooperating with managers, suppliers, staff, customers, community representatives, and social responsibility is the result of their collaboration. This concept is typical for the continental model of capitalism and is spread in Japan.

• The concept of "rational egoism". This concept emphasizes that social responsibility of business is simply "good business" because it helps to reduce long-term loss of profits. In implementing social programs a company is reducing its current profit, but in the long term creates a favorable social environment for its employees and areas of its activities, while creating conditions for the stability of its own profits.

Now let’s have a look at what large Russian companies do in the field of CSR.

In most companies decisions on CSR are taken by the board of directors (64%) and top management (61%) [Доклад о социальных инвестициях..., 2008, p.19]. The broad range of solutions, specificity and the contents of which are directly dependent on the prevailing interpretation of CSR in the company, include: the documents setting up the corporate strategy of social activities, establishment of social policies, the confirmation of the budget for CSR and social investment, assertion of the format and standard of social accountability.

Companies represented in the report use different instruments for the consolidation their CSR strategy [Доклад о социальных инвестициях..., 2008, p.21]. The most popular among these documents is the collective agreement (58% of respondent companies), which corresponds to popular interpretation of the CSR strategy as a strategy in HR management.

At the same time we can see a very high combined share of corporate codes of conduct (29%), ethical codes of conduct (22%), and other charters, corporate standards and concepts of socio-economic development (12%). These total 63% demonstrate understanding of the role of CSR in the development of corporate social activity by boards of directors, although that does not reveal the development of such activities as an integrated system. At the same time, 12% of respondent companies don’t have these documents at all.

All this suggests that large companies in Russia are on managerial and even strategic stages of organizational learning CSR. Thus, these companies adhere to the concept of "rational egoism", creating the conditions for prosperity in the long term.

You can also say that there are no Russian companies on the civil stage. Rather, it is a matter of time.

But not everything is rosy in the field of CSR in Russia. There are many companies that can be called as socially irresponsible. For example, a timber company Continental Management is the largest corporation of pulp and paper industry in Russia[2]. It runs Baikal pulp and paper mill. Baikal Pulp and Paper Mill (BPPM) is an enterprise located in the town of Baikalsk (Irkutsk region), on the south western shore of Lake Baikal. Till the fall of 2008 BPPM was the main pollutant of water of Lake Baikal. Lake Baikal is more than 3 / 4 Russian stocks of fresh water.

The plant was put into operation in 1966, and it is the main enterprise for 17000 people in Baikalsk.

In fact, history of BPPM should have been completed long ago after numerous rulings of the Soviet and Russia's government of completely re-profiling, even closure. For a variety of reasons none of these rulings have been met, but mainly because of the unwillingness of the managers at all levels to take responsibility.

Talks about the closed water cycle dragged on for decades, despite the desire of the World Bank to finance and supply the plant and its conversion. However, on the closed water cycle management of the plant slowly, but still progressed, since the execution, though unhurried, of this promise, allowed each year to renew a license to discharge waste into Baikal.
In September 2008, use of the closed water cycle began, discharge of untreated waste was stopped.

It suddenly turned out that the introduction of the closed water cycle does not allow the use of chlorine bleaching of paper pulp, and, consequently, the plant could not produce the most profitable products. Plant became unprofitable, workers were made redundant.

This situation created not only environmental crisis but also economic and social crises in the region.

As we can see, "Continental Management" is on the defensive stage of organizational learning in the field of CSR. The company takes no responsibility for the environmental crisis, which arose due to discharges of industrial waste into Baikal. The company resorted to blackmail saying after the introduction of the closed water cycle that they can not continue production of cellulose without throwing the waste into Baikal. If the plant is closed, the waste of the town will fall directly into Baikal without purification in plant facilities. In addition to this, the city will be left without heating because the power plant of BPPM was supplying electricity to the entire town.

We can also say that the company adheres to the concept of "corporate egoism" as its only concern was the profit of the plant. As soon as the plant was ordered to use the closed water cycle, plant immediately stopped production.

Features of CSR in Russia

Unfortunately, the number of Russian companies adhering to the same attitude to social, environmental, economic aspects of their activities in Russia is higher than number of socially responsible companies. In order to understand why this is so, we need to look at the context in which CSR has been developing in Russia

First, it is a consequence of dramatic changes that occurred in the late 80s of the XX century, when in fact there was a brand-new country. 90's were a very difficult time not only for Russia's business but to the whole country. That’s why we observe the lag in the field of CSR in Russia, because all companies, like people, turned over a new leaf. They had to re-build their lives. In our country everything is just beginning to evolve, we are still falling behind developed countries.

The second feature is that there is no common understanding, common benchmarks of CSR among Russian panies have different understanding of corporate social responsibility.

Table 2. Different definitions of CSR in Russia

Company	The definition of CSR
Uralsvyazinform	Social responsibility of a business is a social concept which suggests that a company should not only observe laws and offer quality products and services, but also voluntarily undertake certain social commitments and obligations.[3]
ЕuroChem Mineral and Chemical Company	EuroChem views its corporate social responsibility as a voluntary contribution to economic, ecological and social activity which provides for the sustainable development of the company itself, the areas where it is located and society as a whole.[4]
MMC Norilsk Nickel	Social mission of MMC Norilsk Nickel is producing output required by society - base and precious metals – in the safest and most efficient manner possible on a sustainable, long-term basis, thereby contributing to social progress and prosperity, sustainable development of Russia’s regions and the well-being of their inhabitants, and improved living standards for the Company’s employees.[5]
Russian Railways	As one of the largest and most stable companies in the country, Russian Railways takes its corporate responsibility seriously, supporting socially important projects and providing charitable assistance to public and religious organisations, foundations, associations, art unions and various not-for-profit organizations.[6]

Corporate social responsibility for Russian companies is undertaking obligations (Uralsvyazinform), and a voluntary contribution to society (EvroChem), and performance (Norilsk Nickel), and support projects and initiatives (Russian Railways).

Also, Russia's companies use different standards in the preparation of their non-financial reports [Развитие..., 2008, p.21]. A wide variety of accounting standards can be confusing, especially if a company intends to publish its first non-financial report. Quite a large number of companies (20%) make a report in a free form. But, in principle, the majority of companies use the international standard GRI Guidelines G3. Spreading of this standard among Russian companies will help the development of CSR in Russia in general.

A consequence of the lack of common standards is the fact that in companies the function of CSR is integrated differently into the organizational structure [Доклад..., 2008, p.22]. First, the persistence of traditional broad representation of Public Relations departments remains (38%), which is a characteristic of the first stages of "organizational learning": "defensive" and "compliance”. Secondly, CSR is being actively integrated into the activities of major functional services. The undoubted leader is HR departments (59%). In the above sample, there are also departments of marketing (6%) and investor relations (3%), which indirectly illustrates the priority of building a socially responsible relationships with specific stakeholders. Thirdly, 39% (!) of companies reported that all departments within the framework of their functions are responsible for the implementation of CSR strategies. This can be interpreted as the domination of "managerial" stage for these companies, but data is not supported with the information on the relevant regulations of subdivisions. Fourthly, units corresponding to a "strategic" and "civil" stages of "organizational learning" are under-represented: a special coordinating department for CSR is in only 5% of companies, specially created cross-functional teams are in 7% of companies.

Another feature, which is a direct consequence of the lack of a common understanding of CSR lies in the fact that when there is no taxonomy in accountability. Reports often come out very late. In many companies non-financial reporting does not exist at all.

Also, one of the main features of CSR in Russia is the fact that the government is the main stakeholder of Russian companies. Many of them, especially large companies, engaged in CSR because the state puts pressure on them. Many companies would have adhered to the concept of "corporate egoism" if the government would not have forced them. In Russia a very strong position of the government remains. Many of the initiatives of Russian business were started because the government "wanted" them to do it.

Also it is worth saying that in Russia the population is very unevenly distributed on the territory. Large cities are located in the western part of Russia, while in Siberia and the Far East there are very few big cities, and they are not so developed as Moscow and St. Petersburg. As a result, business is also distributed unevenly. Even if a large company was formed in the Far East and Siberia, often the main office is located in Moscow because it's the main city in Russia. Therefore, the closer a company is located to the East, the less developed its practice of CSR, and the more often we can see the defensive strategy in CSR. This applies to small companies especially.

And one more characteristic of CSR in Russia is that CSR is discussed in the narrow circles of specialists in Russia. Many people in Russia have no idea about corporate social responsibility. Therefore, for the development of CSR in our country we need a dialogue at all levels, we need to attract as much attention as possible to this problem. Awareness is an essential component in the development of CSR in Russia.

Conclusion

Analysis of leading companies shows that in general the development of CSR in Russia is in line with the worldwide trend of integration of CSR into corporate strategy, the transition to the ideology of social investment, long-term interests of both society and business. Nevertheless, the analysis allows us to point out the following conclusions about the national characteristics of CSR in Russia:

1. Dissemination of "best practices" and develop common approaches to the development of corporate social investment is largely constrained by the lack of a common understanding of CSR and the systematic nature of corporate social activities as innovative.

2. Widely proclaimed by the integration of CSR into corporate strategy is not always supported by systemic efforts to develop appropriate organizational learning.

3. The government can greatly influence the development of CSR in Russia as its "weight" is not comparable with the “weight” of the largest Russian companies, just recall the situation with the plant in Pikalevo. But the government should help the spreading of CSR practices by information dissemination, not by pressure on companies. The government can increase awareness, thus solving one of the major problems of CSR in Russia.

As aptly remarked Tatiana Dreyling, chief expert of the Corporate Communications Department in JSC SIBUR Holding: "What does it mean: does a company have corporate social responsibility or not? Of course, it always has. It’s the same as the discussion about culture. Everybody has culture, it’s just different. Another thing is that in ordinary consciousness culture is generally understood as high level of culture. So is the question of CSR "[Доклад ..., 2008, p.16].

It is necessary for Russia's business to realize their interdependence with society. Society needs strong companies, business needs a healthy society. That’s the condition of stable, systematic growth that Russia needs so much.

References:

1.  Доклад о социальных инвестициях в России – 2008 / (и др.); под общ. ред. , , . – М.: Ассоциация Менеджеров, 2008. – 92 с

2.  ,  Корпоративная социальная ответственность в России: уроки национального Доклада о социальных инвестициях // Российский журнал менеджмента. 2009. Т. 7. № 1. С. 3-24. 

3.  Развитие социально ответственной практики: аналитический обзор корпоративных нефинансовых отчетов, 2006–2007 годы выпуска. Аналитический обзор / А. Аленичева, Е. Феоктистова, Ф. Прокопов, Т. Гринберг, О. Менькина. Под общей редакцией А. Шохина — РСПП, Москва, 2008 г. — 128 с.

4.  , , Бизнес как субъект социальной политики: должник, благодетель, партнер?/ Независимый институт социальной политики. - М.: Изд. дом ГУ ВШЭ, 2005. - 232 с.

5.  Zadek S. 2004. The path to corporate responsibility. Harvard Business Review 82 (12): 125-132.

6.  http://www. rspp. ru/Default. aspx? CatalogId=2257

7.  http://ru. wikipedia. org/wiki/ЛПК_Континенталь_Менеджмент

8.  http://www. usi. ru/en/company/projects/

9.  http://www. eurochem. ru/internet/8

10.  http://www. nornik. ru/en/development/socmission/

11.  http://eng. rzd. ru/isvp/public/rzdeng? STRUCTURE_ID=101

[1] The New York Times Magazine (13 September 1970)

[2] http://ru. wikipedia. org/wiki/ЛПК_Континенталь_Менеджмент

[3] http://www. usi. ru/en/company/projects/

[4] http://www. eurochem. ru/internet/8

[5] http://www. nornik. ru/en/development/socmission/

[6] http://eng. rzd. ru/isvp/public/rzdeng? STRUCTURE_ID=101