Reducing the Risk of Corruption in Russian Business Initiative (RRCRB)

History of the Programme

The issue of corruption has come into sharper focus in Russia over the last few months thanks to some new initiatives at the government level, led by President Medvedev. The immediate result of the President’s programme has been the introduction of a new anti‐corruption law which requires government and company officials to be more transparent in declaring gifts.

Furthermore, the global trend towards clearer and more stringent regulation following the economiccrisis and the increasing need for strengthening corporate governance will also impact how Russian companies and multinational companies in Russia operate.

At the same time, corruption, fraud and graft are still rife in Russia. Over 2008, the reputation of Russian companies was pulled down to a new level by various shareholders disputes. Transparency International’s Bribery Index keeps Russia near the bottom of the list.

Multinational companies and Russian companies with investments, customers, suppliers or shareholders abroad are clearly challenged by the increasingly difficult environment in which they are forced to operate. They are still searching for ways to reduce risks and uncontrolled costs that are inherent in the current environment.

It is clear to market participants that companies cannot have an impact alone – so several companies are searching for a collective approach. That idea is very much at the root of this initiative.

The anti-corruption landscape in Russia:

There are a number of initiatives which address the overall issue of corruption in Russia:

the Corporate Governance Committee of the Russian Union of Industrialists and Entrepreneurs (RSPP)
The National Anti‐corruption Committee
The local initiatives of the Center for International Private Enterprise (CIPE)

Furthermore, some local business associations have focused on the topic usually in the form of conferences (Opora, USRBC, EAB). Fr om an NGO perspective, Transparency International is a leading local activist organization. And a number of local regional initiatives focused on supporting SMEs in dealing with corruption are also operating.

Although all of these initiatives are strong on raising the profile of the issue of corruption overall and in highlighting the particular angles, there is currently no offering of practical solutions and concrete recommendations specifically addressing the business community.

Moreover, there is a clear lack of informal dialogue between business and government.

Aims and objectives of the initiative:

The overall aim of the joint initiative is to level the playing field for companies operating in Russia, and contribute to an improved operating environment, through

a) supporting the practical advancement of corporate engagement against corruption in Russia, and

b) fostering public-private collaboration on the issue in Russia.

Building on that, the programme objectives are:

Inform corporate executives of legislative and regulatory developments, e.g .through regular upd ate briefings.
Enhance companies’ understanding of what measures and actions they can take to address the issue, e.g. through outlining reaction opportunities when confronted with corruption.
Support companies in the development and implementation of effective anti‐corruption programmes., e.g. through providing a framework and supporting tools, as well as through cultivating regular experience and best practice exchanges amongst practitioners
Establishing a local self‐help network of senior executives corporate executives fr om different functions interested and informed about anti‐corruption management processes)
Increase executives’ understanding of the issues, e.g. by conducting research into the critical issues for business locally, adapting and translating international materials, guides, training modules and tools to serve as practical support for managers, offering guidance on how to avoid corruption before it happens, and how to deal with it when it has already happened.
Improve effectiveness of Boards and management in companies, e.g. through advancing practical implementation of corporate governance principles and thereby supporting the reduction of corruption risks.
Contribute to government understanding of issues and possible solutions, e.g. through profiling best international practices in fighting corruption, and highlighting opportunities for how the public sector can support the advancement of a level playing field (for example by offering incentives to companies)
Raise awareness with the public sector and other stakeholders of business’ sincere interest in addressing the issue, e.g. by profiling laudable corporate engagement against corruption in Russia.
Explore opportunities for collective action by companies, e.g. through controlled meetings of key market players to agree on common approaches to avoiding corruption in the context of “ethical projects” or public procurement tenders.
Create a culture of improved understanding and support of ethical business standards, e.g. by moving towards “zero tolerance” at all levels of corporate and supply chains engagement

For all endeavours, it is critical to ensure participation fr om both Russian companies and multinational companies operating in Russia.

How it works

We propose 4 types of activities to meet these goals.

I. Company-to-company workshops:

These workshops, taking place every month, will be aimed at board members, legal counsels, compliance officers, and internal audit officers from multinational and Russian companies. The aim will be to assure an exchange of the best practices from companies experiences within Russia and in other markets wh ere corruption is a dominant part of the culture. The round‐table format and good facilitation should assure a lively exchange of information amongst practitioners.

We expect the themes to be divided into three broad categories:

What are the rules? – Workshops will focus on the latest legal and regulatoryndevelopments in Russia and internationally. A valuable source of information for companies at a time of major change.
How can the rules be implemented within companies? The workshops will focus on practical management issues ‐ training, compliance programmes, whistle-blowing, response and discovery.
How to create a values-based corporate culture? Focused at the corporate leadership –the role of the CEO, the Board, non‐executive directors, se tting the “tone from the top”.

Examples of topics to be discussed over the first year will include:

Improving effectiveness of foreign executives and non-executives on Russian Boards
Managing the risk of gifts and entertainment expenses
Whistle-blowing – can it work in Russia?
Response and discovery process ‐ the roles of Legal, Security and HR departments
What is public official in Russia?
Corruption risk assessments for Mergers & Acquisitions, JVs and distressed assets
Creating a values-based Corporate Culture which works in Russia
Developing in-house ethical training programmes
Creating an ethics measurement and tracking system

The workshops will be hosted by different companies in their offices. Speakers will be from the participating companies and occasional guest speakers. The programme, topics and agendas will be agreed with the Leadership Group.

II. Dialogue with government

The purpose of these quarterly meetings will be to help improve understanding of government officials responsible for the introduction of anti‐corruption legislation, for regulating it, officials responsible for relations with the private sector and senior management of state‐run companies. The format will be a dialogue of a small number of companies with the government official. Lobbying will be out, and advocacy will take a “soft” form of dialogue.

As relationships are built up by companies and individuals in government, there could be more advanced forms of collaboration. For example, training programmes in “cross-sector partnerships” wh ereby negotiating techniques and management technologies are brought to bear to replace “traditional” methods of agreement.

A further programme could be a G2G approach wh ereby officials responsible for developing and implementing anti-corruption legislation met with their international counterparts on a training session.

III. Industry platforms

The idea will be to focus on a number of high-risk industries and organise in camera sessions between market participants to discuss specific actions to reduce the risk of corruption from the supply chain, distribution and public tenders.

A more advanced approach could involve the introduction of “Integrity Pacts” wh ereby the potential bidders and the public tendering organisation agree to the rules of the game and third party monitoring up‐front. These sessions are open to all market participants and driven by the understanding that the talks will not be related to the competitive position of the participants. The success of this aspect of the programme will be critical for delivering lasting impact.

IV. Publications and web-site

Best practices should be shared with wider business community. This can be done in a controlled manner through the existing IBLF web-site or a new web-site (to our knowledge no such site exists). An annual publication reporting on the initiative’s achievements will also include best practices learnt from the various activities. There will be a quarterly newsletter to all subscribed members.

Events

Publications

Improving Business Standards in Russia. Actions and Results

Selected articles

April 20, 2010 No more bribery. Vedomosti. Comment of Brook Horowitz on Russian Initiative for Corporate Ethics
April 6, 2010 Companies can pool their resources to fight corruption. Financial Times (pdf. copy of the page)
March 12, 2010. Long Road to Zero Tolerance of Corruption. The Moscow Times (.pdf copy of the page)
July 23, 2009 «IKEA and the Graft Factor» pdf copy The Moscow Times
July 9, 2009 «Investing in Russia calls for a subtle approach» Financial Times
June 12, 2008 Just Say 'Nyet!' International Herald Tribune

Contacts

Brook Horowitz, Executive Director for Russia of International Business Leaders Forum, Brook.Horowitz@iblf.org