Business Ethics Get Codified

By Khristina Narizhnaya
Feb. 24 2011 00:00
Last edited 19:02

Business ethics are improving in Russia, on paper at least.

More local companies are emulating Western standards and adopting ethics
codes to help them operate in a corrupt environment and create the appearance
of trustworthiness.
Such codes regulate everything a company's employees do, from how they
dress to how they act in case a bribe is offered. Businessmen jokingly compare
them to a famous poem by Vladimir Mayakovsky called "What Is Good and What
Is Bad," in which a father gives simple life-guiding advice to his son.
In the last three years, state companies, including Sberbank and Rosneft, have
established codes for their workers as part of President Dmitry Medvedev's
initiative to increase transparency. Gazprom has begun putting together its
ethics guidelines, which could take more than a year to deploy. Private
companies have followed suit.
Companies are reluctant to talk about the efficiency of the codes, however.
LUKoil added a code for workers at the end of last year. Since LUKoil has offices
in many regions of the world and a staff of about 130,000, a common set
of rules was necessary, LUKoil spokesman Vladimir Simakov said.
"Were there any infractions in terms of business ethics? Of course there were,"
Simakov said, without elaborating. LUKoil established a committee to monitor
the efficacy of the code, but Simakov said he couldn't assess whether
the measure is working yet since at least a half a year is necessary.
It's not just the banks and oil and gas giants that are formalizing an ethics
culture. Last year, members of Opora of Russia, an association of medium-sized
businesses, signed a resolution on ethical conduct.
Opora member Econika Corporation, which includes shoe stores, industrial
equipment and real estate investment, published a set of rules for employees
in 2008.

"It is good for the image and clients, investors and partners respond with
trust," said Econika chief executive Andrei Iliopulo.
Some experts see the ethics code trend as an example of transforming
the economic model from wild capitalism to socially responsible business.
"Business feels this need and tries to fulfill it," said Alexander Sergeyev,
a professor at the School of Higher Economics. "It might seem strange, but
people like to live by the rules."
Companies are adopting codes based on international best practices and include
clauses on conflicts of interest and social responsibility.
British-Russian conglomerate TNK-BP has one of the most respected codes in the
country, said Mikhail Kuznetsov, head of the Association of Independent
Directors. His group consults companies on implementing ethical codes
and other ways to improve their practices.
TNK-BP's code outlines a set of principles covering ethical conduct, employee
behavior, external relationships, health, safety, security and environmental
performance, control and finance. A company spokesman told The Moscow
Times that they have never had any issues with the codes, which were
implemented in 2004.
Codes are not a completely new foreign phenomenon. Delovaya Rossia,
an association of 65 companies in the retail and franchise sector, including
the X5 Group, the country's leading grocer, has required members to sign
a code of ethics since its founding in the 1990s. An updated version of the code
was rolled out in 2003.
The association's director, Yury Mikhalchenko, said a specific benefit of their
code has been a reduction in franchise fraud a common occurrence in which
unauthorized agents sell franchises to unsuspecting regional small businessmen.
Another advantage of trying to get employees in the franchise sector
to subscribe to codes of conduct is that, by standardizing behavior
and expectations, they come closer to providing uniform quality of customer
service, Mikhalchenko said.

But effective codes of conduct are not yet the mainstream. Kuznetsov said that
less than 100 companies are firmly committed to their codes.
"It's more like a facade, something needed to improve the image to outsiders,
not something to take seriously," said Kuznetsov, whose clients range from giant
state companies to private businesses with an annual turnover of $100 million.
The Committee to Fight Corruption, an independent public organization that
works to battle graft, started earlier this month to research the effect
of companies' ethics codes on governance.
The committee will poll 60 German companies operating in Russia that signed
anti-corruption measures last year. The results will be published in the April
issue of the committee's magazine.
"The companies signed the codes, but do they follow them?" committee
chairman Anatoly Golubev said. "Nobody has this information."
Although many companies implemented codes over the last three years,
corruption is at a 10-year high. Russia scored a low 2.1 on the Transparency
International Corruption Perceptions Index, in 2010 down from 2.2 in 2009
and less than the 10-year average of 2.4.
Many local companies are cynical when it comes to ethics codes.
The owner of a midsized travel agent laughed when asked whether there is
a document that outlines ethics for employees of her company.
"There are no written postulates of behavior," she said.
In their employment contract there are written guidelines concerning customer
service, but that's all. The agency's more than 150 workers are expected
to show good judgment and respect toward the company and its management.
The company does not accept bribes, but when it comes to giving, it's
a different story.
"There is no way to get around it. It's not called a bribe, it's a 'thank-you,'"
the travel agency's owner said.

Thank-yous include free or reduced international travel fares for tax officers who
inspect the company's finances and monetary presents for the firemen who
approve the safety of the company's offices.
International companies are not exempt either.
Last year, a number of businesses were caught in corruption scandals, including
Hewlett-Packard, Daimler, Siemens, IKEA and the Swiss logistics company
Panalpina. The U.S. Department of Justice has pressed charges against several
of them for violating the Foreign Corrupt Practices Act.
Although, like many international companies, HP has a detailed code of conduct
published openly on its web site, the company's Moscow office was raided last
April on suspicion that employees paid bribes in exchange for a $44.5 million
contract to supply equipment to the Prosecutor General's Office.
HP declined to comment on its ethics code for this article, citing the ongoing
investigation.
A former HP Russia chief of financial operations told The Moscow Times that
companies seem to succeed at implementing their worldwide codes in Russia,
since the number of publicly reported cases of misconduct is relatively small
when compared with the large number of transactions that big companies like
HP carry out.
But, he said, in general, the motto, "In, Rome, do as the Romans do" is quite
appropriate. "It's very hard, if not impossible, to always go against
the mainstream."
One of the key feedback elements of most ethics codes requires an employee
to tell a superior or call a hotline when he sees a coworker doing something
wrong. But this type of action is traditionally seen in Russia as tattling. "It's not
a part of our culture," Kuznetsov said.
The Committee to Fight Corruption's Golubev said although there are codes,
there are no instruments to apply them practically to the local reality. If the code
says don't give bribes, but a tax or a fire official is threatening to impose
exorbitant fines unless you pay up, what can you do? This is especially true
in light of an ineffective judicial system and law enforcement.

Sergeyev of the Higher School of Economics said it's natural that people are
likely to be skeptical toward a set of rules imposed from above that they were
not involved in creating.
The apathy evoked by the "Moral Code for Builders of Communism," a set of 12
rules that every proper Soviet citizen was supposed to follow, is still fresh even
in middle-aged Russians' minds, Sergeyev said.
Econika's Iliopulo said one way to get employees to take codes seriously is
to include them in the drafting.
"They have to feel like it is done with their interests taken into consideration,"
Iliopulo said.
Small companies are not likely to have a document that outlines employees'
conduct, said Tatyana Rybakova, director of the Center for Study of Corporate
Citizenship. But she has seen many companies develop codes as they grow. It is
now considered good form to have an ethics code.
"Little by little, whether they want to or not, they are realizing that it is
important it influences public opinion, investment, it makes communication
easier," Rybakova said.
Both Kuznetsov and the former HP financial officer agree that the younger
generation, coming of age in a more business-oriented society, is more likely
to respect ethics codes.
"The big companies have planted the flags, so now hopefully everyone else will
follow," Kuznetsov said. But, contemplating the demand for his company's
consulting services on ethics codes implementation, he added, "I have to say,
people aren't exactly knocking on our doors."
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Russian Business Ethics

To many Russian businesses, business ethics remain terra incognita. Even some entrepreneurs who decide to enroll
in time-consuming and expensive MBA programs view business ethics and social responsibility as obstacles imposed
from outside. Among the painfully few structures in St. Petersburg that possess relatively solid experience in teaching

business ethics, each follows a strategy of its own to reach the common goal -showing that business ethics is in fact
an effective tool to make a profit. Experts in the field are convinced that as businesses become longer-term profit
oriented, ethics will naturally become an indispensable component. However, they add, by teaching ethics extensively
in MBA programs the process can be catalyzed.
Acknowledged business ethics specialist Yury Blagov, head of the International Management department at St.
Petersburg State University's School of Management, said that until the end of the 1990s, business was seen as
unethical by definition. Business ethics were seen not as a vital yet ordinary element of business development, but as
a "separate valuation" mainly connected with the morals of society as a whole. Still lacking, Blagov said, is a clear
indication that ethics are closely linked to social responsibility, the latter often being misinterpreted in a narrow sense
as charity. On the other hand, Blagov said, just a few years ago the Education Ministry included business ethics as a
mandatory component into the MBA Business and Society course, which signaled a better understanding of the
subject.
Three fourths of the open joint-stock companies that participated in the Training Needs Assessment for Business
Ethics and Corporate Governance Improvement survey conducted by the Center for Business Ethics and Corporate
Governance, or CFBE, last December expressed a need for business ethics training. Survey respondents most
consistently considered bribes, dissemination of confidential information, and theft as the most serious violations of
business ethics principles.
"Business behavior in Russia remains uncultured," said CFBE director Alla Vinnik. "We are positive that business
ethics must be taught," she said.
In Blagov's opinion, business ethics, meaning "a set of informal rules created and shared by businessmen," always
existed in Russia's emerging market-oriented society. In the example given by Blagov, in the 1990s, consumer
electronic dealers often used "gray" importing schemes, since rejecting such schemes meant loss of competitive
edge. There used to be a whole system of "black," "black-gray," "gray-white" and other schemes accepted, and
businessmen who refused to use them would be squeezed out of the market. Such developing game rules were
amoral from society's standpoint, but could be explained as "ethical for business of that time, Blagov said. But now
that a more adequate, stronger legal system has been created, "white" schemes are becoming more favorable, he
said. "Ethics and the law are always tightly linked," Blagov added.
The MBA program taught at the School of Management views ethics as a set of expectations that various
stakeholders have. It is accepted that no ideal ethical solution can be reached because many players have
contradicting expectations, both rational and irrational. Blagov believes that trying to dictate standards that do not
correspond to the situation that businesses find themselves in today is harmful for their development.
At the School of Management, businessmen learn to elaborate a set of ethical norms of their own, in other words,
they learn to react to actual outside expectations in ways that lead to sustainable development. This is the way
Russian businessmen learn to see ethics as a powerful business instrument suited to today's Russia, and not just a
fashion trend, Blagov said. If the ready-made American or other western ethical standards are applied there is always
the risk they may prove to be irrelevant in local conditions, Blagov said.
Yet it makes no sense to reinvent the wheel, Vinnik of CFBE said.
Internationally accepted standards and codes are reliable and they need only be adapted to Russian norms, she
argued. CFBE offers short-term training courses by independent tutors working directly with companies. "I know
Russian companies that successfully work to international standards. They select their staff on the basis of these
standards, and this allows them to keep on the mark," Vinnik said.
The Stockholm School of Economics, or SSE, puts its confidence in the personal maturity of the students. "The
Swedish mentality does not tolerate pressure. We aim to prepare the next generation of leaders, and therefore we

generate knowledge that can be applied not only today, but also tomorrow," SSE's Margarita Adayeva said.
Professors teaching at the SSE MBA program are foreigners and no Russian case studies are discussed since
Russia is not viewed as a developed country in terms of business ethics. The emphasis is put on value-based
leadership, and it is stated that the business leader is the carrier of ethical values. Students spend a lot of their time in
class discussing good practices. One example given by Adayeva was the case of the U.S. Shell Corp.
At the School of Management, on the contrary, it is explained in the Integrative Social Contract Theory course that
there are national, regional and industry-specific peculiarities in the current business ethics in various parts of the
world. Blagov said it became possible to speak of good practices in Russia around 1999, and two examples would be
Cherepovets-based steelmaker Severstal and St. Petersburg-based Otis Elevator Russia.
"Our main task is positive self-identification of Russian businessmen. By and large, no country has an ideal ethical
system," Blagov said.
"Ethical problems can not be segregated by national identity," said Adayeva. "Everything is based on the way money
and property are treated in a particular society. As opposed to the developed economies, it is characteristic of the
developing economies to have insufficient respect for private property," she said.
Multiple attempts to create universally suitable codes of ethics, such as the Caux Roundtable Code of Ethics recently
drafted in the French town of Caux, can only be regarded as recommendations, Blagov said. Russian business
creates its own ethics step by step, he added. In Blagov's view, when choosing an MBA program it is always
important to pick the one that reflects the expectations in the market where the student plans to work. If you see that
an ethics course is named something like "Business Ethics and Etiquette," discard it immediately, he warned. "Ethics
is not about which color of socks to wear," Blagov said.
"In the course, I acquired an absolutely new view on business and society, a wider view," one of Blagov's graduates,
director of local consulting firm SMT Development Anton Avdeyev said. Avdeyev emphasized the concept of mutual
expectations of the parties involved.
"The main thing I got from the course is the idea of being honest. Be honest with yourself, with your staff, with
partners and competitors," an SSE graduate, branch manager at Vitrina A Advertising Group Sergei Mitrofanov said.
"It is not the easiest way to do business within Russia at the present time. But on the other hand, our honest behavior
will help to establish long-term relationships [at all levels]," he said.

Russian Business Etiquette and Protocol

Relationships & Communication

Russians are transactional and do not need to establish long-standing

personal relationships before they do business with people.
It is still a good idea to develop a network of people who you know and
trust. The Russian word "svyasi" means connections and refers to having friends
in high places, which is often required to cut through red tape.
Patience is essential.
It is best to err on the side of formality when you first make contact.
Sincerity is crucial as it is required to build trust, and trust is needed to
build a relationship.

Most Russians do not trust people who are 'all business'.

An indication that you have successfully developed a personal relationship
is being asked for a favour by that person.
Business Meeting Etiquette

Appointments are necessary and should be made as far in advance as

possible.
It often takes roughly 6 weeks to arrange a meeting with a government
official.
Confirm the meeting when you arrive in the country and again a day or two
in advance.
The first week of May has several public holidays so it is best avoided.
You should arrive punctually for meetings.
Typical Russian schedules are constantly changing and everything takes
longer than expected, so be prepared to be kept waiting.
Meetings can be cancelled on short notice.
The first meeting is often a vehicle to determine if you and the company
you represent are credible and worthy of consideration for future business
dealings.
Use the time effectively to demonstrate what differentiates your company
from the competition.
Expect a long period of socializing and getting-to-know-you conversation
before business is discussed.
Have all printed material available in both English and Russian.
Russians expect long and detailed presentations that include a history of
the subject and a review of existing precedents.
Meetings are frequently interrupted. It is common for several side
conversations that have nothing to do with the topic of the meeting to be carried
on during the meeting.
At the end of the meeting, expect to sign a 'protokol', which is a summary
of what was discussed.
Business Negotiating

Meetings and negotiations are slow. Russians do not like being rushed.
It is a good idea to include technical experts on your negotiating team.
Hierarchy is important to Russians. They respect age, rank and position.
The most senior person reaches decisions.

Russian executives prefer to meet with people of similar rank and position.
Russians see negotiations as win-lose. They do not believe in win-win
scenarios.
Have written materials available in both English and Russian.
Russians view compromise as weakness. They will continue negotiating
until you offer concessions.
Russians may lose their temper, walk out of the meeting, or threaten to
terminate the relationship in an attempt to coerce you to change your position.
Russians often use time as a tactic, especially if they know that you have a
deadline. Be cautious about letting your business colleagues know that you are
under time pressure or they will delay even more.
Nothing is final until the contract is signed. Even then, Russians will modify
a contract to suit their purposes.
Do not use high-pressure sales tactics as they will work against you.
Dress Etiquette

Business dress is formal and conservative.

Men should wear business suits.
Women should wear subdued coloured business suits with skirts that cover
the knees.
Shoes should be highly polished.
Business Cards
Business cards are exchanged after the initial introductions without formal ritual.
Have one side of your business card translated into Russian using Cyrillic text.
Include advanced university degrees on your business card.
Hand your business card so the Russian side is readable to the recipient.
If someone does not have a business card, note their pertinent information.
Doing business in Russia?
We can help you with Russian translation services, Russian interpreters worldwide andRussian
cultural awareness training!

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Russia

The People

Russia has had a long history of totalitarianism, which has resulted in a rather fatalistic approach to living. T
desire to work individually under personal initiative was suppressed by the Czarist and Communist states. With
advent of perestroika (restructuring), the Soviet/Communist value system has been scrapped, but the pace of
reform has been slow and many are finding it very difficult to adapt to the Western values of individualism and
profit maximization. Older Russians are generally quite pessimistic and don't have much faith in a better life in
future. Younger urban Russians have adopted a more Western outlook on life.
Meeting and Greeting
Initial greetings may come across as cool. Do not expect friendly smiles.

A handshake is always appropriate (but not obligatory) when greeting or leaving, regardless of the relationship. Remove your gloves before shakin
hands. Don't shake hands over a threshold (Russian folk belief holds that this action will lead to an argument).

Body Language
Russians are a very demonstrative people, and public physical contact is common. Hugs, backslapping, kisses on the cheeks and other expansive
gestures are common among friends or acquaintances and between members of the same sex.
Russians stand close when talking.
Putting your thumb through your index and middle fingers or making the "OK" sign are considered very rude gestures in Russia.

Corporate Culture
Russians appreciate punctuality. Business meetings generally begin on time.

Under Communism there were no incentives for bureaucrats to perform well or to even be pleasant toward clients; this meant that the usual answe
any question was "No." This practice is still found in Russian society today, but "No" is usually not the final word on an issue. One has to bargain and be pers
to get what he or she wants.

Business cards are handed out liberally in Russia and are always exchanged at business meetings. The ceremony of presenting and receiving busin
cards is important. Don't treat it lightly.

Representatives of the Russian company or government body are usually seated on one side of a table at meetings with guests on the other side.
Your company should be represented by a specialized team of experts. Presentations should be thoroughly prepared, detailed, factual and short on
"salesmanship."

Russians usually negotiate technical issues very competently, directly and clearly but, being newcomers to capitalism, often do not fully understan
Western business practices and objectives. You may have to explain the reasoning behind some of your demands.

Russians find it difficult to admit mistakes, especially publicly. They also find it difficult to risk offending someone by making requests or assertio
Trying to do business in Russia over the telephone is generally ineffective. The Russian telecommunications system is inadequate, but improving
quickly. The telex is widely used.
Personal relationships play a crucial role in Russian business.
Business negotiations in Russia are lengthy and may test your patience. Plan to be in for the long haul.
No agreement is final until a contract has been signed.

Dining and Entertainment

When dining in a restaurant, arrive on time.
Russians are great hosts and love entertaining guests in their homes. They will often put more food on the table than can be eaten to indicate there
abundance of food (whether there is or not). Guests who leave food on their plates honor their host. It means they have eaten well.
If you're invited for dinner, don't make other plans for later in the evening. You are expected to spend time socializing after the meal.
An invitation to a Russian dacha (country home) is a great honor.
Do not turn down offers of food or drink. Given Russian hospitality, this can be difficult, but to decline such offers is considered rude.
At formal functions, guests do not usually start eating until the host has begun. At such functions, no one should leave until the guest of honor has
If you are the guest of honor, do not stay too late.
Know your limits when drinking alcohol in Russia. Drinking is often an all-or-nothing affair -- moderation is not understood.

Toasts, which are sometimes lengthy and occasionally humorous, are common. The host starts and the guests reply. Do not drink until the first toas
been offered.
After a toast, most Russians like to clink their glasses together. Do not do so if you are drinking something non-alcoholic.

Dress

A "serious" businessperson is expected to look formal and conservative. Wearing very light or bright colors might make you appear lazy or unrelia
a Russian.
Men should wear suits and ties. Women should wear suits and dresses or pantsuits.

Gifts

A small business gift is always appropriate, but its value should correspond to the rank of the Russian businessperson with whom you are meeting.
As a general rule, do not give items that are now easily obtainable in Russia.
Bring a gift for the hostess when visiting a Russian home. A small gift for a Russian child is always appropriate (and appreciated).

Helpful Hints

Russians are very proud of their culture and enjoy opportunities to talk about their music, art, literature and dance. Knowledge about art, music and
some Russian history is appreciated.

Learn Russian! Learning the language is of incalculable value, and is the best way to win friends for yourself, your company and your country. If t
simply isn't possible, try to learn at least a few phrases in Russian. It doesn't have to be perfect; Russians greatly appreciate any attempt by foreigners to spea
their language.
Never refer to a Russian as "Comrade."

Do not expect to find smoke-free areas anywhere. A standard joke among foreign businesspeople in Russia is that Russian buildings have two sect
"smoking" and "chain-smoking."

Especially for Women

Women are initially regarded with skepticism and may have to prove themselves. Before you visit, have a mutually respected colleague send a lett
introducing you. Your business cards should clearly state your title and academic degree. If you establish your position and ability immediately, you will enco
far fewer problems.

Be feminine. Allow men to open doors, light cigarettes, etc. Even if you think such customs are antiquated or silly, respect the cultural background
your Russian colleagues.
Foreign businesswomen can use their femininity to their advantage. For fear of not appearing a gentleman, many Russian businessmen may allow
foreign businesswomen to get away with some things (requests for meetings, favors, etc.) that foreign businessmen aren't allowed.
A woman can invite a Russian businessman to lunch and pay the bill, although it might be interpreted by some men as an invitation to flirt.