report on social investments in russia

Report on Social Investments

in Russia 2008Integrating CSR Principles

into Corporate Strategy

MOSCOW 2008

British Embassy MoscowRussia

Report on Social Investments in Russia 2008

Integrating CSR Principles into Corporate Strategy

MOSCOW 2008

British Embassy MoscowRussia

INTERNATIONAL EDITORIAL PANEL:

O. Yu. Golodets, President of the All�RussiaCross�Industry Union of Employers – Producersof Nickel and Precious Metals

Maurizio Zollo, Bocconi Dean ChairedProfessor in Strategy and CorporateResponsibility, Bocconi University (Italy),Director of the Center for Research onOrganization and Management (CROMA)

Andrew Kakabadse, Professor of InternationalManagement Development, Cranfield UniversitySchool of Management (Great Britain)

Stephen B. Young, Global Executive Director,Caux Round Table (USA)

LEAD AUTHOR:

Yu. E. Blagov, Director of the Center forCorporate Social Responsibility, GraduateSchool of Management, St. Petersburg StateUniversity

WRITING TEAM:

Yu. E. Blagov, Director of the Center for Corporate SocialResponsibility, Graduate School of Management, St. Petersburg StateUniversity

A. E. Dynin, First Deputy Executive Director, The Russian ManagersAssociation

E. A. Ivanova, Director of the Strategic Studies Department, The Russian Managers Association

A. E. Kostin, Executive Director, NGO ‘CSR – Russian Centre’

S. E. Litovchenko, Executive Director, The Russian ManagersAssociation

Yu. V. Ovchinnikova, Analyst of the Strategic Studies Department, The Russian Managers Association

S. P. Peregudov, Chief Research Officer, The Institute of WorldEconomy and International Relations (IMEMO)

A. A. Savchenko, Researcher of the Center for Corporate SocialResponsibility, Graduate School of Management, St. Petersburg StateUniversity

I. S. Semenenko, Chief Research Officer, IMEMO RAS

Yu. A. Vedenyapina, Project Coordinator of the Strategic StudiesDepartment, The Russian Managers Association

The Report on Social Investments in Russia 2008 has been prepared by the Russian Managers Association as partof the UN Development Programme's Global Compact promotion project together with the St. Petersburg StateUniversity's Graduate School of Management and with the support of the Strategic Programme Fund of the BritishEmbassy.

The report has been compiled by Russian and international experts. The authors' opinions do not necessarilyreflect the views of the UN system and institutions, where they are employed.

The Report on Social Investments in Russia 2008 / Yu. E. Blagov (etc.); Editors�in�Chief: Yu. E. Blagov, S. E. Litovchenko, E. A. Ivanova – Moscow: The Russian Managers Association, 2008 – 88 pages.

The second release of the Report on Social Investments in Russia is presented herewith. Its main focus is to analyse the current state of corporate social responsibility and social investment trends in 2004�2008.

The report provides an overview of the approaches to corporate social investments as an element of effective corporate strategy aimed at thelong�term sustainable development of a company. By using the social investment index of Russian business, calculated in the same way as in2004, the dynamics of social investment flows of Russian companies were tracked by industry and investment type, and future developmentshave been forecast.

The report is based on the findings of quantitative survey on corporate social responsibility carried out by the Russian Managers Associationas well as on data provided specially by Russian companies. Expert assessments and material from topical events organised by the RussianManagers Association were also used.

The report is aimed at both Russian and international audiences: business community leaders, government officials, representatives of international agencies and civil society organisations.

© United Nations Development Programme, 2008

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any meanswhatsoever, electronic, photocopying or otherwise, without the prior written permission of the copyright owners.

ISBN 978�5�902500�29�2

UDC 005.35(470+571)

Iam pleased to present the second release of the

Report on Social Investments in Russia. This

paper is a sequel to the similarly named research

project of 2004 which explored the phenomenon

of social investments in Russian business.

This is a unique joint project of a consortium

between the Russian Managers Association, the UN

Development Programme, the Strategic Programme

Fund of the British Embassy and St. Petersburg

State University's Graduate School of Management

carried out by a team of leading Russian and interna�

tional experts on corporate social responsibility.

This report is based on the findings of a compre�

hensive survey of leading Russian companies' CSR

practices and aims to address the following goals:

to classify existing experience and identify innova�

tive practices of socially responsible business con�

duct, formulate common approaches to under�

standing CSR and social investments, analyse

quantitative and qualitative trends in social invest�

ment indices of Russian business over the last four

years, and make recommendations on CSR for the

government, private sector and future researchers.

The focus of this report is on the integration of CSR

principles into business processes, managerial

routines and ultimately into the corporate strategy

of successful Russian companies seeking long�

term sustainable development. This publication is

released amid turmoil in the global economy, which

pushes the quest for sustainable development of

business onto the central stage. Hopefully, our

report will prove to be a helpful tool for advanced

domestic companies to build long�term corporate

strategies.

The conceptual core of the report described in the

first chapter evolves around establishing common

approaches to understanding CSR and the defini�

tion of corporate social investments as an essential

element of efficient corporate strategy. The second

chapter deals with the actual implementation of

CSR principles through multilateral dialogue

between companies and all stakeholders, from

employees through to the government. Finally, the

third chapter sets forth the major findings of the

comparative analysis of data from 2004 and 2008

reflecting the evolution of the volume and structure

of social investments by sector, both quantitatively

and qualitatively.

I am certain that the report's conclusions and

recommendations, together with commentaries by

respected CSR experts, will provide much food for

thought to the business community, government

officials and future researchers, thereby promoting

the role of socially responsible business in Russia.

You are cordially invited to contribute to the inter�

active discussion of the report's major conclusions,

theses and recommendations at the Russian

Managers Association's web site: www.amr.ru.

Yours sincerely,

Sergei Litovchenko,

Executive Director of the Russian Managers Association

PREFACE

The nature and content of corporate socialresponsibility (CSR) has been discussed inbusiness and academic communities world�

wide for more than half a century. Huge though theaccumulated theoretical knowledge is and abundantthough the practical experience of doing business ina socially responsible way is, corporate executivescontinually return to the same questions: is it worthfollowing CSR principles in earnest? To what extentand where exactly are these principles to be imple�mented? Does the ‘social investments’ buzz standfor a real competitiveness enhancer or just forcedexpenses?

These questions are hard to answer and require dueregard to the specific characteristics of the socialand economic development of Russia and particularindustries and companies. In our view, however, nonational peculiarities should be allowed to over�shadow the already available, suffered through andtested results and approaches. Here are just few ofthem:

Firstly: the CSR agenda is not to be viewed assomething secondary and extraneous to the busi�ness as such, with the terms ‘ethical’ and ‘efficient’as applied to business being not at all antonymic.Furthermore, promotion of responsible and mutuallybeneficial relations with the entirety of stakeholdersbecomes vital for sustainable development both forcorporations, and society as a whole.

Secondly: regardless of the preferred terminology –‘corporate social activity’, ‘corporate citizenship’,‘corporate sustainability’ or simply CSR, in manage�rial terms this is about a holistic system: principles,their implementation in specific processes, and theoutcomes of the latter that can and should beappraised.

Thirdly: integration of CSR into corporate strategyand recognition of corporate social investments as areal source of competitive advantages require com�

panies to make serious managerial efforts to create,develop and match necessary resources, and alsorequire them to develop their corporate governancesystem and undergo relevant phases of ‘organisa�tional learning’.

As was rightly stressed by the authors of a specialJanuary 2008 issue of the Economist, a sociallyresponsible business is ‘just a good business!’.Corporate social activity of Russia's leading compa�nies as presented and analysed herein illustrates inmany respects this premise. Importantly, the leadingcompanies look equipped to change and to workout common progressive approaches. With this inview, it is hard to overestimate the consolidatingimpact of the Russian Managers AssociationCommittee's position on the key issues of CSRdevelopment. Yet, the overall situation in Russianbusiness is improving very slowly. But time waits forno one. If business still construes CSR as forcedlosses, its striving for ‘sustainable development’may actually result in ‘sustainable lagging’. We hopein earnest that this will never happen thanks, amongmany other things, to this report.

P.S.: This report was made before yet anotherfinancial crisis hit the global economy. The unfold�ing crisis is largely a crisis of trust begotten by manycompanies' short�termism at the expense of sus�tainable development and failure to build a systemof reciprocally rewarding relationships with theentirety of their stakeholders. This crisis manifeststhe actual, as opposed to the declarative, level ofCSR in global business. We are not to forecast theextent to which economic changes will impact therelevance of the CSR agenda and the scale and rateof evolution of corporate social performance.However, we believe that there will be responsiblecompanies who will show greater vitality in the faceof the crisis and will lead the economic upturn.

FOREWARD BY THE INTERNATIONAL EDITORIALPANEL

We express our deepest appreciation and gratitude to everyone who helped make this report possible.

SPECIAL THANKS

To the United Nations Resident Coordinator and United Nations Development Programme ResidentRepresentative in the Russian Federation, Marco Borsotti, for giving extensive support to the project. Wethank all the staff of the UNDP Moscow office and, in particular, Larissa Zelenina, Viktoria Zotikova, LilianaProskuryakova and Evgeniy Levkin, for their unfailing commitment to the project and cooperation through�out the whole process. Our thanks go to the British Embassy for providing financial support and, in particular,Yana Trukhina, for her sensitive attitude. We express our profound gratitude to the Dean of St. PetersburgState University's Graduate School of Management, Valery Katkalo, for his assistance and unerring belief inthe project's success.

TO ALL THE EXPERTS

For their validation of the general concept of the report, participation in expert interviews and discussions onits main theses: Igor Beketov, OJSC LUKOIL; Alexander Bim, OJSC SUEK; Andrey Buzov, OJSC OGK�4;Andrey Bykov, OJSC Russian Railways; Tatyana Dreyling, OJSC SIBUR Holding; Veronika Kabalina, OJSCMMC Norilsk Nickel; Nadezhda Kuklina, OJSC Russian Railways; Oleg Kulikov, All�Russia Trade Associationof Employers in the Power Industry; Marina Mikhailova, Renova Management AG, Renova Group ofCompanies; Peter Neev, OJSC TNK�ВР Management; Pavel Pletnev, Rosneft Oil Company; Olga Fedoseeva, Management Company Evolyutsia.

TO THE MEMBERS OF THE RUSSIAN MANAGERS ASSOCIATION'S COMMITTEE FOR CORPORATE RESPONSIBILITY

Represented by its Chairperson, Olga Golodets, for their active support of the project.

TO THE COMPANIES WHICH PARTICIPATED IN THE SOCIAL INVESTMENTS INDEX OF RUSSIAN BUSINESSSURVEY 2008

For your willingness to disclose your CSR strategy and corporate social investments and to complete ourquestionnaire.

TO OUR ORGANISATIONAL PARTNERS

For their expert support: the Agency of Social Information, the Russian representative office of the CharitiesAid Foundation and the Global Business Coalition on HIV/AIDS, Tuberculosis and Malaria.

TO ALL THOSE WHO PARTICIPATED IN THE PUBLIC EVENTS ON CORPORATE SOCIAL RESPONSIBILITYORGANISED BY THE RUSSIAN MANAGERS ASSOCIATION

For your active involvement, suggestions and ideas which we have tried to reflect in this report.

ACKNOWLEDGEMENTS

CONTENT

CONCLUSIONS AND RECOMMENDATIONS ....................................................... 8

CHAPTER 1. CSR AND STRATEGIC MANAGEMENT: THE ROLE OF SOCIAL INVESTMENTS ............................................................ 12

1.1. Corporate Social Performance: the Scope of the Report and Terminology ................. 12

1.2. Integration of CSR into Corporate Strategy .............................................................. 16

1.3. CSR in the Corporate Governance System................................................................ 18

1.4. Organizing CSR: The Managerial Perspective .......................................................... 21

1.5. Corporate Social Investments as an Element of an Efficient Corporate Strategy .......... 26

CHAPTER 2. STRATEGY OF BUSINESS'S INTERACTION WITH STAKEHOLDERS .......... 32

2.1. ‘Internal’ and ‘External’ Stakeholders: Means of Interaction ...................................... 32

2.2. Impact of Shareholders and Investors on the Formation of CSR Strategy .................... 36

2.3. Business�Government Interaction ........................................................................... 37

2.4. Employees in the Social Investment System ............................................................. 39

2.5. Educational and Scientific Institutions in their Interaction with Business ..................... 41

2.6. Local Communities: Prospects for Partnership ......................................................... 42

2.7. Consumers as Recipients of Social Investments ....................................................... 44

CHAPTER 3. EVOLUTION OF CSR AND SOCIAL INVESTMENTS IN RUSSIA .............. 48

3.1. Scale of Companies' Social Activity: Quantitative Social Investment Index .................. 48

3.2. Social Investments by Sector .................................................................................. 50

3.3. Scope and Consistency of Making Social Investments .............................................. 55

3.4. Forecast of Changes in Social Investments .............................................................. 56

3.5. Weaknesses in the Organisational Support for Social Investments ............................. 58

APPENDICES

APPENDIX 1. Glossary ................................................................................................... 62

APPENDIX 2. Research Methodology ............................................................................. 63

APPENDIX 3. Methodology Used for Calculating the Social Investment Index of Russian Business .................................................................................. 65

APPENDIX 4. Best CSR and Social Investment Practice of Russian Companies ................. 67

APPENDIX 5. Organisations and Companies which Participated in the Social Investment Index of Russian Business 2008 ................................................. 81

1

2

3

6

List of figures, charts and tables used in the report

Figure 1.1. Model of Corporate Social Performance

Figure 1.2. The pyramid of Corporate Social Responsibility

Figure 2.1. Interaction of business with major stakeholders

Chart 1.1. Companies' compliance with the principles of the UN Global Compact and Social Charter of Russian Business

Chart 1.2. Major goal of a company's corporate social responsibility strategy

Chart 1.3. Corporate governance actors who authorise new forms of CSR and CSR activities

Chart 1.4. Documents which enact a company's corporate social responsibility strategy

Chart 1.5. Departments entrusted with implementing CSR strategy

Chart 1.6. Publication of periodic non�financial reports

Chart 1.7. Standards and principles governing periodic non�financial reporting

Chart 1.8. Selection criteria for targeting corporate social investments (programmes)

Chart 1.9. Appraisal of corporate social investment efficiency

Chart 1.10. Criteria used by companies to appraise the efficiency of corporate social investment

Chart 2.1. Communication mechanisms for ‘external’ stakeholders

Chart 2.2. The most efficient government incentives for corporate social investments

Chart 2.3. Take�up of government incentives for corporate social investments

Chart 2.4. Corporate social programmes as a partial substitute for public social expenditures

Chart 3.1. Social investments by Russian enterprises per employee by sector in 2003 and 2007

Chart 3.2. Social investments by Russian enterprises as a percentage of gross sales by sector in 2003 and 2007

Chart 3.3. Integral qualitative social investments index and its components

Chart 3.4. Total planned allocations for corporate social programmes in 2008 compared to actual expenditures in 2007

Chart 3.5. Breakdown of Russian corporate social investments, 2007 / 2008

Chart 3.6. Forecast of changes in social investments by Russian companies, 2003 / 2004

Table 1.1. CSR strategy goals by sector

Table 1.2. Corporate involvement in society: a strategic approach

Table 1.3. The five stages of CSR organisational learning

Table 1.4. Choice of department entrusted with implementing CSR strategy as a function of the declared goal of such strategy

Table 1.5. Departments entrusted with implementing CSR strategy, by sector

Table 1.6. Periodic non�financial reporting as a function of annual financial reporting in accordance with international standards

Table 1.7. Selection criteria for targeting corporate social investments (programmes) as a function of the goals of CSR strategies

Table 2.1. Means of external communication for achieving various CSR goals

Table 3.1. Quantitative social investment indices in 2003 and 2007

Table 3.2. Quantitative Russian company social investment indices by sector in 2003 and 2007

Table 3.3. Application of social investments by industry

7

Conclusions

1. The development of CSR in Russian business isgenerally in line with the global trend of CSR princi�ples being gradually integrated into corporatestrategy and the transition to social investment ideology matching the long�term interests of bothsociety and business.

2. During 2003�2008 leading Russian companieshave been gaining extensive knowledge from inter�national experience, accumulating their own expe�rience of corporate social performance and identi�fying reasonable targets and the optimal scale ofsocial investments.

3. The dissemination of ‘best practices’ and estab�lishment of common approaches to the develop�ment of corporate social investments is still largelyhindered by the lack of a common understanding ofthe nature of CSR and the systemic innovativecharacter of corporate social performance.

4. The growing willingness of companies to linkCSR to the gaining of long�term competitiveadvantages is a long way from the traditional notionof the forcible nature of corporate social pro�grammes as ‘substitutes’ for the respective publicexpenditures.

5. The 2003�2007 quantitative social investmentindex of Russian business did not show any majorgrowth, remaining broadly within the same brac�kets. The structure of social investments is stilldominated by ‘internal’ stakeholders, principallycompany employees, to the prejudice of ‘external’

stakeholders, which can be considered a deep�rooted characteristic of the Russian CSR model.

6. 2007 did not demonstrate any significant growthin the qualitative social investments index ofRussian business compared to 2003 either. Theintegration of CSR into the corporate governancesystem and promotion of organisational support forcorporate social activity progressed slowly and, onthe whole, chaotically. Just as in 2003, CSR prac�tice in companies is mainly a responsibility of HR orPR departments.

7. CSR development issues in Russian businessare properly recognised by leading domestic com�panies who increasingly demand a continuation ofthe national dialogue and building of a ‘nationalCSR platform’, development of the relevant edu�cational and consulting services market, andexamination and implementation of the best globalpractices.

Recommendations to the private sector

1. View corporate social activity as an integral inno�vative system which not only helps to address societalproblems and relevant business developmentstrategies effectively, but also provides companieswith sustainable competitive advantages.

2. Actively integrate CSR into the corporate gover�nance system, promote the organisation of corpo�rate social activity by setting up, inter alia, desig�

CONCLUSIONS AND RECOMMENDATIONS

This report reflects the current standing of CSR and corporate social investments in Russianbusiness, and analyses key CSR and corporate social investment development trends andcharacteristics. The work carried out by the report's authors has led to the following majorconclusions and recommendations for both the private sector and the government, as well as for future researchers.

8

nated committees in the boards of directors, inte�grating CSR principles into managerial routinesand periodic social reporting.

3. Maintain interaction with both ‘internal’ and‘external’ stakeholders, regarding balanced mutuallybeneficial relations with them as a crucial resourcefor the sustainable development of a company.

4. Integrate CSR principles into the managementphilosophy, show socially responsible leadership inpromoting public dialogue and building a ‘nationalCSR platform’.

5. Maintain the exchange and dissemination of thebest CSR practices at public, professional andexpert forums.

Recommendations to the public sector

1. Maintain an open dialogue with the business com�munity on how jointly to tackle the current problemsof Russian society, focussing on the ways to a recip�rocally rewarding public�private partnership.

2. Promote a legal basis for and practice of encouraging, materially and morally, the businesscommunity to engage in solving societal problemsthrough corporate social activity.

3. Facilitate socially responsible business practiceby fighting corruption and by improving the overallperformance of the State machinery.

4. Support, by way of tendered financing and otherwise, development of civil society institutionsinvolved in dialogue with the business community.

5. Further dissemination of ‘sustainable develop�ment’ ideas through the educational system, governmental and non�commercial entities, andthe media.

Recommendations to future researchers

In order to examine the current CSR issues facedby the Russian business community, record anddisseminate the best global practices and generatenew CSR knowledge, research should cover thefollowing:

1. CSR's role and place in Russia's economicdevelopment strategy (CSR and the four ‘I’s: insti�tutions, innovations, investments and infrastruc�ture).

2. Corporate social performance in an economiccrisis.

3. Corporate social performance as a function ofsector and form of incorporation.

4. Role and place of civil society institutions as promoters of public CSR discussion.

5. CSR in SMEs: specific features and develop�ment prospects.

9

CSR and StrategicManagement: the Role of SocialInvestments

CH

AP

TE

R11.1. Corporate Social Performance:

the Scope of the Report andTerminology

1.2. Integration of CSR into CorporateStrategy

1.3. CSR in the Corporate GovernanceSystem

1.4. Organizing CSR: The ManagerialPerspective

1.5. Corporate Social Investments as an Element of an EfficientCorporate Strategy

12

The four years that have passed since the first Report on Social Investmentsin Russia have brought CSR discussion in the domestic business commu�nity a long way from where it was, devising key definitions and concepts aswell as attempting to identify specific characteristics of the Russian modelof corporate social responsibility. The intermediate results of that discus�

sion were summarised in the progressive position formulated by the RussianManagers Association's Committee for Corporate Responsibility which expressed theconsolidated opinion of the senior manager professional community with regard tothe current issues of CSR development in the context of the present�day economyand social and societal transformations1. Now practical examples of responsible busi�ness conduct such as social programmes and dialogue with stakeholders, corporatesocial reports and ethical codes can be found. CSR topics are debated at the mostauthoritative forums. Having recognised a strong demand for relevant managerialknowledge, domestic business education professionals are now also in the loop of thediscussion.

Analysis of leading domestic company practices shows that the development of CSRin Russian business is generally aligned with global trends. This, however, gives no rea�son to relax as many critical problems remain on the agenda. Whilst companies declaretheir adherence to CSR principles, recognise its strategic potential and report progressof social investments, the variety of social programmes does not always seem to evolvearound any clear logic, and the expected results are not always achieved.

1.1. CORPORATE SOCIAL PERFORMANCE:THE SCOPE OF THE REPORT AND TERMINOLOGY

As of today, there is no single generally accepted definition and, therefore, no com�mon understanding of the nature of corporate social responsibility. Given the nationalpeculiarities of societal expectations and specifics of the business of different com�panies, the practicality of any abstract definition would be very limited. However, byformulating their understanding of CSR, companies do not simply practise definition�making, but determine the role and place of the relevant practices in the developmentof their business. Thus, the CSR definition deliberately assumed by a company haswide implications, unless such definition is merely declarative.

Report on Social Investments in Russia 2008Integrating CSR Principles into Corporate Strategy C H A P T E R 1

Chapter 1. CSR and Strategic Management: the Role of Social Investments

1. See: Current Issues of the Development of Corporate Social Responsibility. Position Paper of The Russian Managers AssociationCommittee for Corporate Responsibility, 2007. Russian Managers Association. Moscow, 2007.

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Most companies featured in this report (see Appendix 2 for our research methodolo�gy, and Appendix 5 for the list of survey participants) keep to generalised approachesaligned with the latest documents of international and Russian organisations,including the approach proposed by the Russian Managers Association's Committeefor Corporate Responsibility (see Glossary, in Appendix 1). All of these approachesregard CSR as responsibility to society represented by a system of stakeholders, andsupport the idea of sustainable development both at the corporate and ‘macro’ level.Unconventional definitions of CSR which highlight certain specific features are usedby as few as 15 respondent companies out of 102. Such definitions, nevertheless, arealways illustrative; they were ‘born’ the hard way through trial and error, and have asense of rightfulness and clear position behind them. Here are four typical examples(see insertion 1.1).

Each of the definitions cited is well thought�out and correct in its own way, but evi�dently different in substantial respects.

Firstly, these definitions construe CSR both as ‘commitment’ (OJSC SUEK), as ‘activity’(OJSC OGK�4 and OJSC Uralsvyazinform), and as ‘contribution to the developmentof society’ (OJSC Tatneft). Thus, companies focus on various elements of the systemof corporate social performance as a set of CSR principles realised in the managerialprocesses of corporate social responsiveness which bring measurable outcomes ofthe respective corporate behaviour (see fig. 1.1).

Secondly, these definitions vary in their coverage of CSR levels as set out in the clas�sic model of A. Carroll: economic, legal, ethical and philanthropic responsibility (seefig. 1.2). OJSC OGK�4 focuses on meeting consumer needs as the key to fulfillingeconomic responsibility; OJSC Uralsvyazinform refers to all CSR levels, with respon�sibility being addressed to specific stakeholders; OJSC SUEK's definition of CSR dis�regards basic economic responsibility, at least directly; OJSC Tatneft mainly links CSRto philanthropic responsibility, but underlines its connection with the mechanism ofsocial investments.

Thirdly, these definitions differ in how they regard CSR's ‘voluntariness’. While OJSCTatneft takes the entire CSR as a ‘voluntary’ contribution, OJSC SUEK refers to ‘volun�tariness’ only in connection with investing in social causes, OJSC Uralsvyazinformdoes so only in the context of sponsorship and charity programmes, with OJSC OGK�4ignoring this issue entirely, as ‘voluntariness’ of economic responsibility is traditionallynon�debated.

C H A P T E R 1

Report on Social Investments in Russia 2008Integrating CSR Principles into Corporate Strategy

Insertion 1.1

1. OJSC OGK�4: ‘The responsibility of generatingcompanies is to provide a reliable, high qualitysupply of electrical and heat power. OGK�4'scontribution is to ensure its power facilities havethe required capacity, are reliable and supplypower which is affordable for existing and potential customers in its areas of operation’.

2. OJSC Uralsvyazinform: ‘Social responsibilitycomprises:

1) Responsibility to the company's clientele, i.e.providing the full range of high quality com�munication services;

2) Responsibility to the state, i.e. paying taxes infull and promoting the region's development;

3) Responsibility to society, i.e. voluntary partici�pation in various sponsorship and charity pro�grammes;

4) Responsibility to the staff, i.e. providing highsalaries and certain social guarantees to theemployees subject to competition and labourproductivity’.

3. OJSC Siberian Coal Energy Company(SUEK):‘SUEK’s corporate social responsibility is theCompany's conscious acknowledgement of itsobligations to its stakeholders (shareholders,partners, employees, local communities, publicinstitutions), including full compliance with appli�cable legislation and voluntary and targetedinvestment in the achievement of social objec�tives in conjunction with the Company's long�term strategy and social policy’.

4. OJSC Tatneft: ‘CSR is a business's voluntarycontribution to the development of societythrough social investments aimed at professionalgrowth and the social protection of personnel,support for health care, sport, culture, educationand environmental causes. Such activities shouldbe systemic in character and accord with theinterests of all stakeholders’.

Source: Russian Managers Association, 2008.

Figure 1.1

Model of Corporate Social Performance

PRINCIPLES Corporate Social Responsibility

PROCESSESCorporate Social Responsiveness

OUTCOMESCorporate Behaviour

Source: Wood D. Corporate Social Performance Revisited // Academy of Management Review.1991.№16.P. 694 (adapted).

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These differences illustrate serious problems. Above all, the inadequately systemicapproach to corporate social performance results in occasional de�linkage of therelated processes from CSR principles and in an overt opposition between the moralcase for social and environmental programmes and the instrumental case for socialinvestments. An allusive sign of the acuteness of the situation is how most companiesanalysed in the report treat the principles of the UN Global Compact and the SocialCharter of Russian Business of RUIE as a kind of ‘best practice’ of CSR principles (seechart 1.1).

Only 5 respondent companies have joined the UN Global Compact, and 11 havejoined the Social Charter of Russian Business of RUIE, while 20 and 16 companiesrespectively are not at all interested in those principles. The prevailing position, how�


Figure 1.2

Chart 1.1

The pyramid of Corporate Social Responsibility

Companies' compliance with the principles of the UN Global Compact and Social Charter of Russian Business, %

Insertion 1.3

‘It is not overly good that a business spends up to30.6% of its net income on social programmes(based on data from the first release of ‘Report onSocial Investments in Russia – 2004’). Why? Becausethis removes money from the business's turnover.Therefore, the business cannot upgrade its produc�tion when needed, carry out innovations and developnew competitive products which meet the latestrequirements and standards. The business involvesitself, say, in supporting the town which hosts its pro�duction facilities, but fails to upgrade its facilities in atimely fashion. So, without the introduction of neweconomically justified and mutually beneficial interac�tion mechanisms to enable simultaneous resolution ofthe current issues relating to both the locality and thedevelopment of the business, instead of simply chan�neling significant funds from each enterprise intosocial causes, there will come a day when our busi�ness and its output become uncompetitive in themarket and, consequently, the very source of socialwelfare for the local community can be lost’.

Olga Fedoseeva, Head of Philanthropy ProjectsStrategic Consulting, Management CompanyEvolyutsia


PHILANTHROPIC RESPONSIBILITIESBe a good Corporate Citizen*

ETHICAL RESPONSIBILITIESBe Ethical

LEGAL RESPONSIBILITIESObey the Law

ECONOMIC RESPONSIBILITIESBe Profitable by satisfying consumer demand

Source: Carroll A. The Pyramid of Corporate Social Responsibility: Toward the Moral Management of OrganisationalStakeholders // Business Horizons. 1991. July�August. P. 42 (adapted).

*Identification of corporate citizenship and philanthropic responsibility conforms to the ‘classic’ interpretation wide�spread in American scientific literature. If taken broadly, corporate citizenship is viewed as a model of a company's

responsible societal conduct aiming for its systemic interaction with other social institutions.

Not officially joined, but comply with the principles

No, but thinking about joining

No

Officially joined

UN Global Compact

Social Charter of RussianBusiness

Note: Data is given as a percentage of the respondents who answered both questions on compliance with the principles of the UN Global Compact and Social Charter of Russian Business.


34

46

21

16

20

16

5

11

Insertion 1.2

‘Yes, of course, we stick to the Social Charter. We also stick to the UN Global Compact. However,the first priority for the Company is real action andthe implementation of its long�term strategy andsocial policy. Social responsibility is seen by us asthe coordination of our activities with our stakeholders’interests in order to ensure sustainable developmentof the Company and its stakeholders. The latter are not as much interested in any declaredprinciples as they are in the specific content of ourprogrammes and projects: what we actually do toachieve our goals and fulfill our commitments’.

Alexander Bim, Advisor to General Director, OJSC SUEK


15

ever, is a ‘neutral’ one whereby companies do not challenge those principles and areready to advocate them, but do not regard them as an essential element of corporatesocial activity (see insertion 1.2). As for other ‘best practices’ such as the Caux RoundTable Principles for Business, these are barely known to the domestic business com�munity.

No less important, albeit largely false, is the dilemma of ‘choice’ between CSR andefficient business (see insertion 1.3). On the one hand, interpretation of CSR as a ‘voluntary’ responsibility beyond economic and legal obligations limits corporatesocial performance to the traditional set of ‘social programmes’ and makes of it a prerogative of the ‘noble club’ of rich and successful companies. Companies whichconcentrate their resources on investments in production, technological and productinnovations or which are just struggling to survive are driven out of the ‘sociallyresponsible’ confines. On the other hand, the narrow economic and legal approach toCSR effectively justifies rejection of broadly defined social expenditures.

This dilemma, however, has quite an obvious solution: CSR can and must be imple�mented in the interests of both business and society. A business receptive to thenumerous needs of society, but inefficient and increasingly exposed to bankruptcy isa ‘socially irresponsible’ business. In their turn, companies ‘advanced’ in the imple�mentation of CSR principles can and must claim competitive advantages regardlessof their original reasons (see insertion 1.4). If linked to such advantages, CSR issuesacquire a strategic nature, with social investments ceasing to be a ‘figure of speech’and turning into a plain tool for strategic management.

In fact, CSR is a matter which concerns the competitiveness of both individualcompanies and the national economy as a whole. It is quite indicative that the2004�2007 international research project RESPONSE supported by the EuropeanCommission's Directorate�General for Research linked the implementation of CSRprinciples to ‘processes’ and ‘products’. And even more so, as the project's findingsshow, ‘the research found that in the high alignment companies, managersare more likely to express the business case for corporate social responsibility interms of innovations to develop new market opportunities’2. Such an approachlooks particularly relevant in the light of the four ‘I’s programme of economicdevelopment of Russia promulgated by the President of the Russian Federation.Innovative activity, transition from ‘social costs’ to social investments, support forinstitutions and development of infrastructure – not only social, but also transport,energy and telecommunicational – are becoming CSR objects. This also expandssignificantly the headroom for mutually beneficial public�private partnership, whilethe very development of corporate social activity plays a role in important manage�rial innovation.

And, finally, the differences in understanding CSR are largely attributable to the globaltradition of presenting socially responsible companies by a record of ‘good deeds’.In Russia, this tradition is further encouraged by existing stereotypes of societalexpectations regarding large enterprises particularly those which form companytowns. The global situation, however, is changing (see insertion 1.5). And a similarchange, as the research suggests, is being experienced by Russian business, whoseleaders increasingly tie CSR issues to their corporate strategy.

C H A P T E R 1


Insertion 1.4

‘What is the point of asking if [a company] practisescorporate social responsibility or not? Of course, italways does. This is like asking whether a personhas a culture or not. Culture is an attribute of anyperson; it simply varies from one person to another.At the same time, culture commonly implies a highlevel of culture. This duality is also true for CSR’.

Tatyana Dreyling, Chief Expert of CorporateCommunications Department, SIBUR Holding


Insertion 1.5

A survey of 250 world business leaders carried out by the IBM Institute for Business Value showed that,whilst preferring to talk of CSR in public in terms of philanthropy, in practice they increasingly orient to the strategic approach:

– over 2/3 (68%) of the world business leaders surveyed by IBM are focusing on CSR activities to create new revenue streams;

– over a half (54%) believe that their companies'CSR activities are already giving them an advan�tage over their closest competitors.

Source: Attaining Sustainable Growth ThroughCorporate Social Responsibility.

IBM Institute for Business Value, 2008. P. 3.

2. Understanding Corporate Responsibility: An Executive Briefing. Results and Insights from Project RESPONSE. 2008.

1.2. INTEGRATION OF CSR INTO CORPORATE STRATEGY

Representatives of the majority of companies covered by this report emphasise thelink between CSR and corporate strategy. However, even here there are signs of diver�gence in understanding the nature of CSR. Respondent companies interpret CSR asa starting point for the formation of a corporate strategy, as an ‘element of the generalcorporate business strategy’ enabling non�financial risk management, and as anunderlying ‘ideology’ for HR strategy (see insertion 1.6).

The divergence in interpretations, though, does not affect the agreement on CSR'slink to competitiveness. An overwhelming majority of the respondents (83%) viewCSR as a means for companies to achieve ‘long�term competitive advantages’. At the same time, about half of them do not deny such strategic goals as ‘maintainingreputation in the medium term’ (54%), and ‘mitigating risk of damage to stakeholdersin the short term’ (40%) (see chart 1.2).

16Report on Social Investments in Russia 2008Integrating CSR Principles into Corporate Strategy C H A P T E R 1

Insertion 1.6

‘Our corporate social responsibility covers production, environmental and social activity. Fulfilment of this responsibility is what the company'sstrategy is all about. Everything here is interconnected’.

Igor Beketov, Head of Corporate Communications, OJSC LUKOIL, General Director of the LUKOIL Charity Fund

‘Corporate social responsibility is directly accounted for in the company's strategy. If a company is to perform efficiently, successfully, and with a view to a long�lasting market presence, then corporate social responsibility must be built into its business strategy. Through corporate social responsibility, plainly speaking, business can manage non�financial risks’.

Olga Fedoseeva, Head of Philanthropy Projects Strategic Consulting, Management Company Evolyutsia

‘Corporate social responsibility is a part of our business development. Our strategic vision of this notion is actualised in our HR strategy. Although it is quite casually labelled, this strategy is our realisation of CSR ideology. Our HR strategy is, in its turn, tied to our strategies of production development up to 2020’.

Veronika Kabalina, Head of Social Programmes Department, OJSC MMC Norilsk Nickel Source: Russian Managers Association, 2008.

Chart 1.2Major goal of a company’s corporate social

responsibility strategy, %

Gaining long�term competitive advantages

Maintaining reputation in the medium term

Mitigating risk of damage to stakeholders in the short term

Note: Data is given as a percentage of the respondents who answered the question. The total of responses exceeds 100% as the respondents could choose as many answers as applicable.


83

54

40

17

It is quite characteristic that ‘gaining long�term competitive advantages’ as the goal is almost equally recognised irrespective of the company's sectoral cluster.Contrastingly, the services sector shows, as expected, stronger drive for ‘medium�termreputational effects’ (32% vs. 24% in the primary sector and 29% in the processing sector),with accordingly weaker drive for ‘mitigating risks in the short term’ (see table 1.1).

No less important is the question of how exactly companies attempt to achieve the desiredcompetitive advantages and what kind of advantages those are. Using the popular model ofM. Porter and M. Kramer, two possible ways for corporate involvement in society that lead tocompetitive advantages can be outlined: ‘responsive CSR’ and ‘strategic CSR’ (see table 1.2).

‘Responsive CSR’ is about positioning a company as a ‘good corporate citizen’ andmitigating harm from value chain activities. This approach ensures medium�termmaintenance of reputation and mitigation of non�financial risks in the short term.‘Strategic CSR’ comprises strategic philanthropy enhancing the company's competitiveposition in its industry, and transformation of the value chain by appropriate inno�vations. This approach stems from the idea of common interests and is directedtoward long�term competitive advantages. Opposition of these two approaches as‘better’ and ‘worse’ is definitely incorrect. Corporate social activity is as diverse associetal expectations. Yet, this is the development of ‘strategic CSR’ that fits best thelogic of refocusing from ‘social costs’ to ‘social investments’.

C H A P T E R 1


Table 1.1CSR strategy goals by sector, %

Sector

Primary sector Processing sector Services sector

Mitigating risk of damage to stakeholders 25 25 16in the short term

Maintaining reputation in the medium term 24 29 32

Gaining long�term competitive advantages 41 46 45

Other 10 0 7

Total 100 100 100

Note: Data is given as a percentage of the respondents who answered the question.


Goal

Table 1.2Corporate involvement in society: a strategic approach

Source: Porter M., Kramer M. Strategy and Society: The Link between Competitive Advantage andCorporate Social Responsibility // Harvard Business Review. December 2006. P. 89.

Generic Social Impacts

Good citizenship

‘Responsive CSR’

Value Chain Social Impacts

Mitigate harm from value chainactivities

Transform value�chain activities tobenefit society while reinforcing

strategy

Social Dimensions of CompetitiveContext

Strategic philanthropy that leverages capabilities to improvesalient areas of competitive context

‘Strategic CSR’

18

Our research confirms the traditional adherence of the respondent companies to the‘responsive CSR’ ideology. Firstly, companies implement various charity and sponsor�ship projects ranging from support given to museums in the Russian North (OJSCSeverstal) and the Ryazan Paratrooper Academy (TNK�ВР) to assistance to children andteenagers with disabilities or deprived of parental care (OJSC TGC�5). Characteristically,federal and regional ‘external’ social programmes are not viewed by many companieswithin the confines of ‘pure’ philanthropy, although understanding of the benefit to thebusiness is plainly very general (see insertion 1.7). Some companies, including those ofthe Renova Group of Companies, strongly support ‘volunteer’ charity activity by theiremployees. New for Russian business, this practice is not directly linked to corporatestrategy, but definitely drives the overall promotion of CSR culture within companies.Secondly, almost all the companies within the primary and processing industrial clustersrun ecological safety and environmental programmes intended for mitigation and pre�vention of the relevant risks.

Leading Russian companies are actively mastering ‘strategic CSR’. For instance,Rosneft Oil Company goes beyond active participation in the social development of regions to covering a significant slice of the population – its employees and theirfamilies – by various social projects from mortgages to spa resort treatment.Furthermore, Rosneft is co�financing together with the municipal authorities a housingconstruction programme and building accompanying gas boiler houses to serve boththe company's entities and municipal facilities. TNK�ВР looks at environmental issuesin the context not so much of remediation of ecological ‘flaws’, as of the introductionof the most advanced technologies under a large ecological upgrade investment programme. Generally, however, the innovative component of ‘strategic CSR’ is stillalien to many Russian company managers.

Thus a kind of ‘vicious circle’ is created: on the one hand, insufficiency of innovativeactivity impedes the development of companies and, accordingly, opportunities forcorporate social performance, while on the other hand, bringing innovations out ofthe CSR scope strips them of an additional ethical incentive.

There is a risk that the acknowledgement of CSR's link to corporate strategy as wellas the choice of CSR ‘approach’ may remain a mere declaration or at best result instand�alone social programmes, successful though they may be. Securing sustain�able competitive advantages by a company hinges immediately on its capability tocreate, develop and match in a unique way relevant resources, including organisa�tional ones. Successful development of corporate social performance requires,respectively, integration of CSR into the corporate governance system, organizing theprocess of corporate social responsiveness and tracking the outcomes.

1.3. CSR IN THE CORPORATE GOVERNANCE SYSTEM

A key to building an efficient corporate social performance system is an advancedcorporate governance system with a reasonable, well�thought�out and consistentdistribution of the relevant powers and competences between the owners, boards ofdirectors and senior management. As our research shows, all major corporate gover�nance actors of the respondent companies are much engaged in the formulation andadoption of decisions on the introduction of new forms of CSR and in making appro�priate arrangements (see chart 1.3). Nevertheless, this distribution gives an insight


Insertion 1.7

‘We help promote a favourable social climate in thecountry as a whole and in the regions of our opera�tion in particular. And this is all beneficial for thebusiness. So, when they say it's charity we don'tquite agree, because charity can be of various kindsand we strongly link it to our interests’.

Peter Neev, Director for Social Investments, OJSCTNK�BP Management


19

into some important matters reflecting both common corporate governance trends inRussia and increasingly the strategic nature of CSR.

Owners (major shareholders and general meeting) take principal decisions on thedevelopment of socially responsible business in 32% and 15% of the respondentcompanies respectively. It is of note that in discussing CSR issues owners theoretical�ly have a two�fold motivation:

On the one hand, non�financial risks and actions by some stakeholders may harmthe company beyond remedy or lead to its downfall. Given that, shareholders must putup with substantial expenses to offset the adversities of the business environment.

On the other hand, while in the short run CSR actions may reduce the company'sprofitability and the dividends payable, in the long run they help push up the compa�ny's shares and capitalisation. It is due to this that owners take deliberately positivedecisions in favour of CSR, especially in its ‘strategic’ version.

However, today’s Russian realities are far more complex than any such assumptions.It suffices to stress that the insider control model prevails among the respondentcompanies. The role of blockholder owners is played by one or, more often, a fewmajor private owners or the government however represented. Large institutionalshareholders are more the exception than the rule. Therefore, the leading sharehold�ers have more influence on shaping the company’s overall attitude to CSR and thechoice of directions for corporate social activity.

For large private shareholders, such influence is dependent upon their personalunderstanding of the nature of CSR and its link to corporate strategy (see insertion1.8). Thus, on the one hand, we see examples of ‘responsible leaders’ with CSR prin�ciples being their personal conviction who can instill these principles into the compa�ny's corporate strategy and daily managerial practice, and on the other hand, a con�siderable number of leading companies are still characterised by their shareholders'‘moral choice’, particularly concerning charity programme priorities, contradictingthe company's ‘business interests’.

For publicly controlled corporations things are much simpler. Whilst the corporations'‘public nature’ dictates that the principal directions for their social programmesshould correspond to such national priority projects as ‘Affordable and comfortablehousing for Russian citizens’, ‘Education’ and ‘Health’, their ‘business form’ requiresthe corporations to treat such programmes as investments (see insertion 1.9).

C H A P T E R 1


Chart 1.3Corporate governance actors who authorise new forms of CSR

and CSR activity, %



Board of directors

Management (CEO)

Major shareholders

General shareholders' meeting

64

61

32

15

Insertion 1.8

‘A lot depends on the vision, ethics, integrity andstrategy of the company's leader, because he doesnot just ‘do business’ but rather lives it through’.

Marina Mikhailova, Director of the Department ofSocial Policy and Non�Financial Reporting, RenovaManagement AG, Renova Group of Companies

‘Our social programmes are related first and fore�most to the shareholders' position, not necessarilyto the company's business strategy, but to the moralposition of the shareholders, who believe the com�pany should not automatically stick solely to its busi�ness interests, although nobody is ruling that out’.



Insertion 1.9

‘We feel responsible to society, and this is detailedin our strategy. Rosneft is an efficient business, butwe look after our shareholders' interests. Presently,our main shareholder is the state. So we have avested interest in keeping our main shareholderhappy’.

Pavel Pletnev, Head of the Corporate CultureDepartment, Rosneft Oil Company


20

The board of directors takes CSR�related decisions in 64% of the respondent compa�nies. The broad range of these decisions, whose individuality and scope derivestraight from the company's dominant interpretation of CSR, comprises, above all:adopting documents stating the corporate strategy for corporate social performance;approving social policy; ratifying the CSR and social investment budget; approvingsocial reporting policy and standards.

The companies covered in this report use various documents to state their CSR strategy(see chart 1.4). Characteristically, the most popular of such documents is the col�lective agreement (58% of respondent companies), which tallies with the aforemen�tioned popular interpretation of CSR strategy as an HR strategy. Yet, aggregately,there is a large share of corporate codes of conduct (29%), ethical codes (22%) and,behind the ‘other’ option (12%), articles of association, charters, corporate standardsand socio�economic development concepts. These ‘aggregate’ 63% plainly indicatethe understanding by boards of directors of the role CSR principles play in the development of corporate social activity, although this figure alone does not testify tothe development of such activity as an integral system. Contrastingly, 12% of therespondent companies do not have any such documents at all, while detailed regula�tion integrated into managerial routines is, or is planned to be, in place only with a fewleader companies (see insertion 1.10).

Apart from the number and scope of the decisions made, another important sign ofthe board of directors' role is the presence of special committees and board mem�bers, usually independent, supervising CSR issues on an ongoing basis (see insertion1.11). As our research findings show, the respondent companies so far lack any designated CSR committees, with their agenda being addressed by strategic develop�ment, corporate governance or HR committees. This indicates a scattering of respon�sibility, a token of the relatively low degree of CSR integration into the corporate governance system. Yet, many companies have already started to think about settingup relevant committees. Leader companies are busy debating the possibility ofadding independent directors to their boards, prompted, inter alia, by the introductionof a special section ‘Corporate governance, liabilities and interaction with stakeholders’in a new generation of international sustainability reporting guidelines GRI – G3.


Insertion 1.10

‘Understanding of CSR as principles of activity is setout in our corporate code of conduct. Now we havecome to the point of stating the related approachesand positions in our corporate standards to be pro�moted by Renova as shareholder in its businesses’.



Chart 1.4Documents which enact a company’s corporate social

responsibility strategy, %

Insertion 1.11

Interviews with 31 FTSE 100 companies across 20sectors conducted by Ernst&Young, demonstrated a significant degree of engagement with CR in thecorporate governance system:

– An overwhelming 94% of companies had set up a structured process to identify and update theboard on the most relevant CR issues;

– 71% the companies interviewed had a boardmember with responsibility for championing CR.

Source: Corporate responsibility governance:Getting beyond the structures.

Ernst and Young (CIS) Ltd., 2008. P. 2�3.



Collective agreement

Corporate code of conduct

Ethical code

Specific document approved by CEO

No specific document

Other

58

29

22

21

12

12

21

And finally, senior management authorises the introduction of new forms of CSR andactions in 61% of the respondent companies. This corporate governance actor super�vises implementation of the approved CSR strategy, and in 21% of the companiescovered by this report, senior management enacts documents stating such a strate�gy. That said, as our research shows, everyday decisions relating to corporate socialperformance are delegated predominantly to specific functional departments. Thus,it is these departments that in fact bear most of the burden of organisational supportfor corporate social activity.

1.4. ORGANIZING CSR: THE MANAGERIAL PERSPECTIVE

Given the relatively underdeveloped corporate governance system in Russia, theclearest understanding of the organisational support for corporate social performanceis given by the analysis of exactly which departments of the surveyed companies aredirectly responsible for implementing CSR strategies (see chart 1.5). Echoing theglobal trend, provision of organisational resource for CSR is progressively takingon the characteristics of ‘organisational learning’. This can be seen in the consecutivedevelopment of the entire CSR management system in a company and accumulationof the relevant knowledge and competences. Referring to the popular model of S. Zadek, five stages of such ‘organisational learning’ can be singled out (seetable 1.3).

The companies covered in the report are vigorously maturing into the strategic stageof ‘organisational learning’: they are creating vice presidencies for their CSR and sus�tainable development agendas; they are setting up cross�functional steering groups;they are documenting and regulating corporate social activity and integrating it intotheir managerial routines; they are publishing corporate social reports.

C H A P T E R 1


Chart 1.5

Departments entrusted with implementing CSR strategy, %

HR department

All departments within their functions

PR department

Environmental department

Social development department

Special cross�functional workgroups

Marketing department

CSR department

IR department

Note: Data is given as a percentage of the respondents who answered the question. The total of responses exceeds100% as the respondents could choose as many answers as applicable.


59

39

38

14

12

7

6

5

3

22

Above all, the research reveals a material divergence in the designation of depart�ments with direct responsibility for CSR strategy implementation.

Firstly, the traditionally wide share of PR departments (38%) persists. This is a distinctcharacteristic of the first stages of CSR ‘organisational learning’: ‘Defensive’ and‘Compliance’.

Secondly, CSR is actively integrated into the performances of the main functionalservices. Definite leadership belongs to HR departments (59%). The sample surveyedalso points at marketing (6%) and IR departments (3%), which indirectly illustrates thepriority of building socially responsible relationship with specific stakeholders.

Thirdly, 39% (!) of the companies report their CSR strategy implementation to beaccounted for by every department within its functions. This can be construed as theprevalence of the ‘managerial’ stage in such companies. However, there is no infor�mation on departmental regulations to substantiate this.

Fourthly, there is a wide representation of companies with designated social develop�ment (12%) and environmental (14%) departments. Having these departments is asign, at least, of a strategic approach to fulfilling CSR, though interpreted in therespective ‘narrow’ way.

Fifthly, departments corresponding to the ‘strategic’ and ‘civil’ stages of ‘organisa�tional learning’ are scarce: a specific coordinating CSR department is to be found inas few as 5% of the companies, and specially created cross�functional groups in 7%.

A certain unsystematic note in the ‘organisational learning’ is also affirmed by thestudy of the link between the choice of departments in charge of implementing CSRstrategy and the declared goal of such strategy (see table 1.4).


Table 1.3

The Five Stages of CSR Organisational Learning

Source: Zadek S. The Path to Corporate Responsibility // Harvard Business Review. December 2004. P. 127.

Stage

Defensive

Compliance

Managerial

Strategic

Civil

What organisations do

Deny practices, outcomes, or responsibilities

Adopt a policy�based complianceapproach as a cost of doing business

Embed the societal issue in theircore management processes

Integrate the societal issue intotheir core business strategies

Promote broad industry participation in corporate responsibility

Why they do it

To defend against attacks on their reputation that in the short term could affect sales, recruitment, productivity and the brand

To mitigate the erosion of economic value in the medium term because of ongoing reputationand litigation risks

To mitigate the erosion of economic value in the medium term and to achieve longer�term gainsby integrating responsible business practices intotheir daily operations

To enhance economic value in the long term and togain first�mover advantage by aligning strategy andprocess innovations with the societal issue

To enhance long�term economic value by overcomingany first�mover disadvantages and to realise gainsthrough collective action

23

Firstly, in the vast majority of cases the choice of department entrusted with imple�menting CSR strategy is effectively independent of the declared goal of implementingsuch strategy. This can be attributed either to multitasking by the departments concerned, or to the lack of clear vision in setting strategic goals, which is likely where the CSR agenda is addressed by ‘all departments’ (26%, 19% and 20% by the specified goals respectively).

Secondly, gaining long�term competitive advantages is barely linked to the creation ofa single co�ordinating department (3%) and specially created cross�functionalgroups (4%), but is associated with HR departments in 30% of cases. This can beexplained by the prevalence of the functional approach to CSR assuming the possibilityof gaining long�term competitive advantages in HR, marketing, etc.

Thirdly, PR departments' positions are hardly affected by the variation of ‘goal�setting’in the CSR strategy. These departments hold 17% in the case of short�term risk miti�gation, 21% in the case of medium�term reputation care and 19% when reachingfor long�term competitive advantages.

As for the companies' pertinence to a particular sectoral cluster, this has a limited influence on the choice of departments entrusted with implementing CSR strategy (seetable 1.5). On the one hand, however, primary sector companies more often set up desig�nated social development (8 out of 12) and environmental (8 out of 13) departments andrarely lay the relevant functions on the marketing department. This matches theirgreater involvement in regional development and greater environmental impact, as wellas the nature of their output. On the other hand, there is very little sectoral differentiationin setting up CSR departments or special cross�functional groups and particularly inspreading this responsibility across all departments of a company.

C H A P T E R 1


Table 1.4

Choice of department entrusted with implementing CSR strategy as a function of the declared goal of such strategy, %

CSR department 1 4 3 0

HR department 26 27 30 19

Social development department 6 6 6 8

PR department 17 21 19 15

Marketing department 3 3 3 0

Environmental department 9 6 7 15

IR department 0 2 1 0

All departments within their functions 26 19 20 16

Special cross�functional workgroups 4 4 4 8

Other 8 8 7 19

Total 100 100 100 100

Note: Data is given as a percentage of the respondents who answered the question.Source: Russian Managers Association, 2008.

Mitigating risk of damage to stakehol�ders in the short term

Maintaining reputation in themedium term

Gaining long�term competi�tive advantages

Other

Department

Goal

24

Another facet of CSR ‘organisational learning’, as obvious as it is ambiguous, is therespondent companies' attitude to social (non�financial) reporting. True, representativesof many companies argue that making such reports can substantially enrich a company'sstrategy within the categories and ‘spirit’ of CSR. Yet it is often not the systemic andstrategic function that the social reports fulfil, but the PR one. Furthermore the report'sformat reflects or, at least, should reflect, the relevant company's understanding of CSR.Evidently, reports on charity programmes perfectly fit the understanding of CSR ascharity activity, but can hardly be deemed as a strategic management tool.

Non�financial reporting has been developing in Russia since 2000, but has only becomeaccepted by socially responsible companies in the last three or four years. These aremainly primary and processing sector corporations, with leaders distinctly being com�panies from the oil, gas and petrochemical industries, the power industry, and alsometallurgy and mining. At the time of this research, non�financial reports had beenpublished by 62% of the respondent companies. Prevailing forms are social andsustainable development reports. Characteristically, 22% plan to make non�financialreports in the near future and just 16% show no interest in them (see chart 1.6).


Table 1.5

Departments entrusted with implementing CSR strategy, by sector

CSR department 3 0 2

HR department 15 16 24

Social development department 8 3 1

PR department 12 7 17

Marketing department 0 2 4

Environmental department 8 2 3

IR department 1 0 2

All departments within their functions 14 14 10

Special cross�functional workgroups 3 1 3

Other 7 3 4

Note: The table shows absolute frequencies.


Primary Processing Servicessector sector sector

Department

Sector of economy

Chart 1.6Publication of periodic non�financial reports, %



Yes

No, but plan to start soon

No

62

22

16

25

Although apparently popular, non�financial reports are still treated dubiously. Thematter becomes particularly acute when the problem of applying the relevant stan�dards is considered (see chart 1.7).

On the one hand, 32% of the respondent companies definitely regard international stan�dards as an attribute of corporate social activity, particularly when entering internation�al markets (see insertion 1.12). For 82% of such companies, this is a logical extensionof their experience with international financial reporting standards (see table 1.6).However, as 89% of the companies surveyed may be categorised as large,social reporting based on international standards thus covers less than 1/3 of their totalnumber. This is certainly below the average ratio of 50�60% in the developedeconomies, but roughly matches the proportion of big corporate names which producesocial reports in Brazil, SAR, South Korea and Mexico, countries advanced in thisrespect. On the other hand, most companies (48%) make non�financial reporting ‘infree format’. Some of them feel ‘unready’ to comply with international standards, whileothers refuse to accept them in principle, regarding them as a kind of ‘Procrustean bed’which all too often ignores the realities of a particular business and furthermore involvessignificant expenditure (see insertion 1.13). It is plain to see, though, that the problemof using ‘expensive auditors’ can be resolved by engaging non�governmental expertorganisations trusted by the Russian business community.

C H A P T E R 1


Chart 1.7Standards and principles governing periodic

non�financial reporting, %



Free format

International standards (GRI – G3, AccountAbility 1000 SES and AS, etc.)

National standards

UN Global Compact principles

48

32

26

12

Insertion 1.12

‘In our opinion, Russian standards may be of interest for those companies that operate domestically and do not target international markets. We, however, are a global business and are thusobliged to abide first and foremost by global rulesand standards, at the same time paying due regardto Russian standards’.

Igor Beketov, Head of Corporate Communications,OJSC LUKOIL, General Director of the LUKOILCharity Fund


Table 1.6

Periodic non�financial reporting as a function of annual financial reporting in accordance with international standards, %

Annual financial reporting under international standardsPeriodic non�financial reporting

Yes No TotalNo, but plan to start soon

Yes 82 71 19 69

No 18 29 81 31

Total 100 100 100 100



Insertion 1.13

‘Any standard, unless developed by TNK�ВР, isunacceptable for us, because this is an alien stan�dard… These are formulae and models that otherpeople have devised in other circumstances. Wealways consider such standards, study them, butadopting and declaring them as our reporting stan�dards is not what we believe is good for us.Furthermore, once you start to follow those stan�dards, you become immersed in a multitude of rela�tionships with various expert, analytical and consult�ing firms, all of which ask for money’.



26

1.5. CORPORATE SOCIAL INVESTMENTS AS AN ELEMENT OF AN EFFICIENT CORPORATE STRATEGY

Different approaches to the integration of CSR into corporate strategy, togetherwith inconsistent CSR ‘organisational learning’ by the respondent companies,determine the specifics both of targeting corporate social investments and ofapproaches to appraising their efficiency. Typically, a company's overall orientationto ‘strategic CSR’, unless realised through appropriate organisational mechanisms, isnot in itself a sufficient condition for using ‘strategic’ criteria. As for ‘responsiveCSR’, not only does it persistently ‘force its way’, but it also exerts ‘ideological’influence upon the entire decision�making process. Accordingly, our analysisreveals a notable diversity in the selection criteria for targeting social investments(see chart 1.8).

‘Consistency with long�term strategy, inherent to the very notion of investment, wasmentioned as a selection criterion for targeting social programmes by 90% of therespondent companies. In parallel, 71% (!) of the responses pointed at the ‘acutenessof a specific social issue’, which was the main driving force behind charity and sponsorship projects. Furthermore, what has already been labelled in this report as an‘imaginary’ dilemma of choosing between CSR and efficient business performancelies implicitly behind the choice of ‘management's moral preferences’ (19%) assomething if not opposing long�term strategies, then at least disengaged from thecompany's quest for competitive advantages.

The study of the correlation between the choices of criteria and declared goals ofCSR strategies also reveals the lack of any clear approach on the part of most ofthe respondent companies (see table 1.7). For instance, achieving long�termcompetitive advantages was the most typical goal across all (!) the selection crite�ria, including ‘acuteness of a specific social issue’. This suggests that even charityprojects were often viewed from the perspective of achieving a long�term socialeffect, which, in turn, has a long�term impact on the company's reputation. Yet thevery treatment of charity programmes as ‘investments’ is still questionable (seeinsertion 1.14).


Chart 1.8Selection criteria for targeting corporate social investments

(programmes), %



Consistency with the long�term strategy

Acuteness of a specific social issue

High risks for the company

Management's moral preferences

90

71

23

19

Insertion 1.14

‘Take, for example, the Tchaikovsky SymphonyOrchestra. …We gave them charitable support andcontinue to do so, we are their general partner. Itwas thanks to us that they didn't fall apart and arenow up on their feet. So is that investment? I reallydon't know’.

Igor Beketov, Head of Corporate Communications,OJSC LUKOIL, General Director of the LUKOILCharity Fund


27

It is also clear that the investment approach to corporate social programmes requiresa corresponding efficiency appraisal. Despite the ‘strategies’ and ‘investments’ rhetoric, such appraisal was only carried out by 56% of the respondent companies(see chart 1.9), with 17% carrying out no efficiency appraisal at all despite regardingsocial programmes as investments.

This, however, is not as much indicative of the companies' reluctance to carry outsuch appraisals, as it is of the objective complexity of doing so. Furthermore, the lead�ing companies have a reasonable grasp of the problem at hand and the possible waysto tackle it. On the one hand, there is evidence of a shift from attempts to appraiseindividual projects to the formulation of integral indicators. On the other hand, the

C H A P T E R 1


Table 1.7

Selection criteria for targeting corporate social investments (programmes) as function of the goals of CSR strategies, %

Risk mitigation 20 23 27 28 17

Reputation care 30 30 25 33 30

Gaining long�term competitive 44 41 38 33 30

advantages

Other 6 6 10 6 23

Total 100 100 100 100 100



Consistencywith long�termstrategy

Selection criteria for targeting corporate social investments

Goal Acuteness of a specific social issue

High risksfor the company

Management'smoral preferences

Other

Chart 1.9Appraisal of corporate social investment efficiency, %

Note: Data is given as a percentage of the respondents surveyed.


Yes

No

56

17

28

return on social investments is increasingly seen as a sustainable and mutually bene�ficial relationship with the stakeholders, which, in turn, becomes a crucial and uniqueresource (see insertion 1.15).

And finally, 52% of the respondent companies used their own criteria to assess theefficiency of their social investments (see chart 1.10). Such criteria had been main�ly developed through a system of contests with strict control over the achievementsof entire projects and their intermediate stages (see insertion 1.16).


Chart 1.10

Criteria used by companies to appraise the efficiency of corporate social investment, %

Note: Data is given as percentage of the respondents who answered the question.


Both

In�house criteria

Criteria per international non�financial reporting

52

40

8

Insertion 1.15

‘We do not have any clear link between social investments and income, nor any special means of calculating their economic efficacy. What mat�ters for us are constructive relationships with our counterparties and stakeholders, i.e. the meaningful outcome of social investments. First priori�ty is given to actions which support the company's developmental goals, and which are aligned with our stakeholders' interests.

There are plenty of quantitative assessments of the efficacy of social investments, but they are unlikely to be reliable. I attach greater importanceto qualitative criteria, such as whether the company has had any strikes, and what kind of rapport the staff has with the administration. If the rap�port is bad, then why, if good, then thanks to what actions of the shareholders and management can this be attributed. Are the local communi�ties satisfied with the company's environmental performance? Of course, these and other qualitative criteria need to be determined and furtherwork is required to give them credibility and to develop a system for their application’.

Alexander Bim, Advisor to General Director, OJSC SUEK


29

***

In summary, a review of leading domestic company practices shows that the develop�ment of CSR in Russian businesses is generally in line with the global trend of CSRprinciples being integrated into corporate strategy, with a shift towards the ideology ofsocial investments matching the long�term interests of both society and the business.However:

The dissemination of ‘best practices’ and formulation of common approaches tothe promotion of corporate social investments are held back largely by the lack of auniversal understanding of the meaning of CSR and by the lack of a systemicapproach to implementing innovative corporate social performance.

The widely announced integration of CSR principles into corporate strategy is notalways backed up by systemic efforts to introduce CSR into the corporate gover�nance system and to build up the appropriate organisational support.

Social investments have not yet become a systemic, balanced activity which facili�tates the achievement of sustainable competitive advantages.

C H A P T E R 1


Insertion 1.16

‘…Where the company is active, we arrange social project ‘contests’ under multiple categories, such as health care, charity, sport. This yearwe have a new category dedicated to the Year of Family. A contest committee collects applications, appraises them, and the best onesreceive a grant to implement the project. Throughout the year they carry out the project, then report back to us. When the year ends, a newcontest begins’.

Igor Beketov, Head of Corporate Communications, OJSC LUKOIL, General Director of the LUKOIL Charity Fund


Strategy of Business'sInteraction withStakeholders

CH

AP

TE

R22.1. ‘Internal’ and ‘External’

Stakeholders: Means of Interaction

2.2. Impact of Shareholders andInvestors on the Formation of CSR Strategy

2.3. Business�Government Interaction

2.4. Employees in the Social InvestmentSystem

2.5. Educational and ScientificInstitutions in their Interaction with Business

2.6. Local Communities: Prospects for Partnership

2.7. Consumers as Recipients of Social Investments

32

Neither proper decision�making with regard to corporate social invest�ments nor the development of a balanced system of corporate socialinvestments as an element of an effective corporate strategy is possiblewithout interaction of the company with its stakeholders. It is throughthe stakeholders' ‘voices’ that society formulates its occasionally con�

tradictory expectations of corporate social performance. It is through ongoing dia�logue with stakeholders that decisions are coordinated with their recipients and theoutcomes of specific social programmes and projects gain comprehensive, multilateralappraisal. Importantly, not only does this dialogue result in social investments whichallow specific social issues to be tackled and business risks to be mitigated. It alsoserves as a basis for building a sustainable, mutually beneficial relationship which, ifgiven appropriate organisational support, becomes a unique resource in itself capa�ble of providing the company with both medium and long�term competitive advan�tages. As noted in a recent research paper by the European Academy of Business inSociety (EABIS), strategic stakeholder management is ‘a platform linking corporateresponsibility and strategic management’ enabling the company ‘to strengthen andenhance its resources, capabilities, knowledge and access, relationships, social capital and reputation’.3

In Russia, the history of such relations, which are built while implementing CSR prin�ciples, is quite recent, although some elements can be traced back to the pre�perestroika period of domestic economy development. Leading Russian companiesrecognise the significance of interaction with their stakeholders. They are willing tomake appropriate use of available theoretical findings as well as the opportunitiesprovided by adapting the best practices of foreign business to the reality of life inRussia. However, the very system of dialogue and coordination of interests are still inthe making.

2.1. ‘INTERNAL’ AND ‘EXTERNAL’ STAKEHOLDERS: MEANS OF INTERACTION

Each of the companies covered in this report interacts with a wide range of stakehold�ers (see major interacting parties outlined in fig. 2.1). Nevertheless, the full potential


Chapter 2. Strategy of Business's Interaction with Stakeholders

3. Lenssen G., Perrini F., Tencati A., Lacy P. Guest editorial // Corporate Governance: The international journal of business andsociety. 2007 Vol. 7. N 4. P. 352.

33

of this interaction so far remains ignored, with the key stakeholder positions beingheld by the government, company employees and local communities. The range ofactively interacting parties is gradually becoming more diverse; however, their CSRpositions are as yet barely defined. Leading Russian companies are gaining a sys�temic vision of the case for social investments oriented to the entire ‘spectrum’ of theparties involved with their business interests (see insertion 2.1). On the whole, how�ever, Russian business as represented by its management is normally concerned withidentifying priority parties’ interests and their relevance as significant competitivenessdrivers. This is particularly apparent in global markets or where a company has aheavy social burden due to the specific characteristics of its area of operation. Thatsaid, sustainable stakeholder interaction mechanisms in most companies are at anearly stage of development, the interaction itself being generally of a one�way donor�recipient kind.

The respondent companies show certain degrees of ‘attention’ to, and build certainsystems of communication with, particular stakeholders depending on many factors.First and foremost, this is the positioning of the very stakeholders as ‘external’ and‘internal’ with respect to the company. In addition, without being social investment tar�gets, shareholders and investors together with the government as represented by spe�cific regulatory bodies play an essential role in making decisions on the developmentof the entire system of relevant interactions. A company's choice of priority stakeholders

C H A P T E R 2


Insertion 2.1

‘Corporate social responsibility in a broad sense, as wesee it, is the fullest regard for stakeholders' interests aspermitted by the company's interests and objectives.What the company's sustainable performance hinges onare good and productive relations with its stakeholders.We believe dialogue should be carried on and additionalefforts made for our major counterparties to be aware ofthe current and long�term benefits the company's per�formance brings in the widest range of areas.’

Alexander Bim, Advisor to the General Director, OJSCSUEK.


Figure 2.1

Interaction of business with major stakeholders

Shareholders and investors

Suppliers, business partners

Employees(trade unions)

Department incharge of or

entrusted with CSR

Government (bodiesinteracting with

the business communityon CSR issues)

Specialised international

organisations and initiatives

(ILO, GRI, UN GC, etc.)

Educational and scientificinstitutions, religious, cultural

and sports organisations(social interest groups)

NGOs

Local communities:regional authorities, local authorities, population in areas of operation

Competitors

Consumers

The media

34

for the dialogue is also influenced by its sector, type of ownership and the specifics ofits area of operation. Primary sector companies attribute special importance to theirrelations with local authorities and environmental organisations (although the latterrelations are often conflict driven). Enterprises which form company towns do so withrespect to establishing effective interaction with the local community represented notonly by the authorities, but also by a wide spectrum of non�governmental organisations(NGOs) and social interest groups. Public companies, accordingly, build priority rela�tions with the government as their major shareholder.

Among the means of communication with ‘external’ stakeholders (see chart 2.1),business expressly prefers exchange of views by way of round tables and seminars,and also one�way communication through media publications and corporate web�sites. Various forms of multilateral interaction and joint initiatives are mentioned, onaverage, three times as rarely.

At the same time, the ‘other’ initiatives include dialogues with those affected by thecompany's activities, primarily as part of preparation of a new social report (seeinsertion 2.2). There are quite a few examples of establishing permanent ‘feedback’channels and meetings of management representatives with the parties interested indeveloping social investments.

The most common motivation by a large margin when choosing means of externalcommunication, regardless of which form of communication is chosen, is theprospect of ‘gaining long�term competitive advantages’. However, ‘reputation main�tenance’ and ‘risk mitigation’ are also seen by businesses as strong drivers for thedevelopment of various forms of external communication (see table 2.1).


Insertion 2.2

‘It is utterly important to recognise that the developmentprospects of business and the economy are currentlyshifting towards the knowledge economy. This, in turn,is nothing other than the economy of stakeholders, whopossess the intellectual capital. Social reporting is anessential step towards creating a system of non�financialreporting that allows stakeholder relations to be nor�malised and made transparent. It is not by chance thatthe latest western research data suggests that the quali�ty of social reporting influences the efficiency of corpo�rate management and is regarded as a new indicator ofinvestment appeal.’

Irina Ivashkovskaya, PhD in Economics, professor,the Head of Corporate Finance and Economics of theFirm Department and Corporate Finance Center of SU�HSE, expert of the World Bank Institute

Source: http://www.rsraward.ru/04arhiv.htm

Chart 2.1

Communication mechanisms for ‘external’ stakeholders, %

Participation in conferences, ‘round tables’ and seminars

Appearances and publications in the media

Corporate web site

Joint expert work

Involvement in civil examinations and public hearings

Cooperation with public chambers

Organising social project fairs

Other

90

88

84

30

29

27

12

12



35

A clear trend amongst the respondent companies towards improving and varying howthey implement dialogue can be seen, from renewable partnership agreements withregional and local authorities to the appraisal of social project performance as a con�dition of providing further financial support. These means of dialogue have a growingimpact on social investment decision�making (see insertion 2.3). That said, theresearch shows that the achievement of ‘long�term competitive advantages, the keyreason for promoting interaction with the stakeholders, is sought by businessesthrough ‘round tables’ (44%), public chambers (43%), social project fairs (38%), pub�lic hearings and civil investigations (38%). No lesser importance is attributed by therespondent companies to information resources, such as use of a corporate website(45%) and media publications (44%). For ‘reputation maintenance’, preferences arealmost equally divided between various forms of interaction, whilst for ‘risk miti�gation’, the means of external communication play a lesser role.

The respondent companies have either already declared their priorities with regard tostakeholder interaction and how they will implement it in their corporate strategiesand reflected this in their social reports, or they are vigorously discussing their socialinvestment options in the context of ‘risk mitigation’ and ‘reputation maintenance’. Itcan be stated that the leading Russian companies are starting to accept (or havealready accepted, at least by declaring intentions and individual initiatives) the con�cept of CSR in the broad sense as having the fullest regard for all stakeholders' interests as permitted by the company's interests and objectives. However, moststakeholders can be said to see only a distant prospect of their systemic involvementin the dialogue on the development of corporate social performance.

C H A P T E R 2


Insertion 2.3

‘A socially responsible company declares its positionpublicly in accordance with how it sees itself in society,which groups it identifies for interaction, and how it fore�sees this interaction taking place. The company formu�lates the basics, decides how it intends to deal with par�ticular groups of stakeholders, … and then in the courseof dialogue the needs of each party become apparent.

Consequently, the company makes commitments andfulfils them. We are not a charity which gives out money‘just for something that somebody happens to want’…Our social programmes have been developed andshaped by discussions in the form of public hearingswith stakeholders.’

Andrey Buzov, Deputy Director General for HumanResource Management, OJSC OGK�4


Table 2.1

Means of external communication for achieving various CSR goals, %

Risk mitigation 22 21 24 27 25 21 22 15

Reputation maintenance 26 28 27 30 29 27 27 28

Gaining long�term 43 44 38 30 38 45 44 38competitive advantages

Other 9 7 11 13 8 7 7 19

Total 100 100 100 100 100 100 100 100



Goal

Means of external communication

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ith

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Pa

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s’,

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Org

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36

2.2. IMPACT OF SHAREHOLDERS AND INVESTORS

ON THE FORMATION OF CSR STRATEGY

Shareholders' impact on the formation of CSR strategy is determined by their leadingrole in the corporate governance system. As for international corporate governancepractice, there is an increasing conviction that it is the regard for the interests of a widerange of stakeholders, together with a company's executive bodies' accountability toits shareholders, that ‘help improve the confidence of domestic investors, reduce thecost of capital, underpin the good functioning of financial markets, and ultimatelyinduce more stable sources of financing’ (see OECD Principles of CorporateGovernance4).

The impact of socially oriented initiatives and sustainable interaction with thosewho participate in the initiatives on the company's capitalisation is interpreted bythe respondent companies in various ways, both as the incurring of additionalexpenses and as additional opportunities for entering new markets, primarily foreign ones. There is an emerging recognition that although a company with anadvanced CSR practice is more expensive to acquire, this is an asset attractive forthe international investment community (see insertion 2.4). Conversely, the problems resulting from playing down corporate social investments (in personnel,the environment etc.) and the relevant interest co�ordination mechanisms‘descend’ to the new owner who would be better off acquiring a companyadvanced in corporate social activity.

Some companies are frank about their preference for the ‘European’ model,which addresses the interests of all stakeholders, to the ‘American’ model, whichputs emphasis on the interests of large shareholders. However, they admit thatpractice is largely shaped by the specifics of the region and relations with thelocal authorities. At first sight, the already mentioned pivotal role of leading‘blockholding’ owners gives this preference a certain paradoxical tinge.Nevertheless, it is the ‘responsible leadership’ of large shareholders thatbecomes key to promoting mutually beneficial interaction with stakeholders andwhich eventually ensures a company's sustainable development. However, theissue of protecting the rights and interests of minority shareholders and theirimpact on CSR strategy is beyond the scope of this discussion.

Anyway, it is the shareholders' position that is conclusive in selecting and approvingthe directions and scale of corporate social investments. Where acting as the owner,the government directly influences the corporate choice. At the same time, actingthrough specific regulators, the government shapes the entire system of relationsbetween business and society as represented by a complex and contradictory network of stakeholders.


Insertion 2.4

‘After all, all of us work towards increasing the compa�ny's capitalisation, so that the shareholders receivehigher dividends. Social reporting contributes to a com�pany's international rating, which makes it another toolto boost capitalisation. Everybody looks at it. Forinstance, having the relevant documents, officially certi�fied and audited, in place is a plus when seeking bigloans.’

Igor Beketov, Head of Corporate Communications,OJSC LUKOIL, General Director of the LUKOIL CharityFund


4. http://www.oecd.org/DATAOECD/32/18/31557724.pdf

37

2.3. BUSINESS�GOVERNMENT INTERACTION

The government has a special role among stakeholders. The mode and rules of buildinga company's relations with the government largely, and sometimes conclusively, affectboth the quantitative parameters of corporate social investments and the choice of theirpriority directions. Ultimately, it is the effectiveness of these relations that controls theextent to which corporate social investments conform to the demands of the businessitself and the interests of the country's development. Furthermore, the respondent com�panies' management representatives note the need for the government to formulatenational development priorities, so that not only business and the government itself, butalso the public understand that business works for the benefit of society.

Companies' keenness to have material and moral incentives for socially responsiblebusiness conduct is explicitly evidenced by the findings of the survey, with the governmentbeing called to provide material support for such conduct by representatives of 94%of the respondent companies and to provide moral support by 71% (see chart 2.2).Business is also very eager for the government to encourage corporate social invest�ments (see insertion 2.5). The need for such encouragement is overwhelmingly (92%)supported by the respondents and only opposed by 2% (see chart 2.3). Importantlyalso, the business demand for enhancing the role of the government is not at allunique to Russia but fully conforms to the global trend (see insertion 2.6).

C H A P T E R 2


Insertion 2.5

‘Companies should not appraise themselves. I wouldonly be happy if the government were to develop thetools for independent governmental appraisal, expertevaluation and relevant dialogue with companies, andencourage companies to open up more and demon�strate their results. And companies that do this shouldbe acknowledged.’

Peter Neev, Director for Social Investments, OJSC TNK�BP Management


Chart 2.2The most efficient governmental incentives for corporate

social investments, %

Note: Data is given as percentage of the respondents who answered the question. The total of responses exceeds 100% as the respondents could choose as many answers as applicable.


Material incentives

Moral incentives

94

71

Insertion 2.6

As noted in the report on the international survey con�ducted by Grant Thornton in 2008 on a sample of 7,800companies from 34 countries, whilst corporate responsi�bility principles are developed within companies andoften fostered by non�governmental organisations,national governments have a major role to play. Theycan set reference frameworks, encourage action andpromote dialogue but crucially can enforce actionthrough legislation. Governments can use taxation toencourage ‘green’ practices, set minimum wages andimpose restrictions on working hours. In many countriestargets are set on businesses to reduce green houseemissions. Yet many businesses stress that governmentincentives, rather than punitive taxes, would do more toencourage ethical behaviour, especially on ‘green’issues.

Source: Corporate Social Responsibility: a Necessity nota Choice. Grant Thornton IBR, 2008. P.2.

http://www.internationalbusinessreport.com/Reports/Focus_reports/Corporate_Social_Responsibility.asp

Chart 2.3Take�up of government incentives for corporate

social investments, %



UnsureNo

Yes

2 6

92

38

The respondent companies believe such incentives should not imply interference, butrather readiness of the government to share risk, with many rapidly developing com�panies stressing the need for national priority�focused and initiative�driven socialinvestments (see insertion 2.7). In the case of public�private social initiatives, thepartnership mechanism is to be formalised in specific agreements to ensure therequired transparency.

Most respondents (76%) feel that social investments by business partly substitutegovernmental social expenditures (see chart 2.4). Given the still unforgotten pre�perestroika role of the government, such a position is quite understandable.However, by far not all companies consider such substitution not even slightly legi�timate, even if taking account of the change in socio�economic realities. As wordedby one of the respondents: ‘Why should we do this while the government is floodedwith money? There are different businesses and different companies, and not all ofthem should be treated equally.’ In fact, the already traditional notion of the forciblenature of corporate social programmes as ‘substitutes’ for public expenditure conflicts with the popularisation of CSR as a source of long�term competitiveadvantages.

However, some respondents are less concerned with the forced character of CSRas they are with the government's lack of clearly formulated approaches. Thestrongest censure is roused by the practice of wringing money out of business forparticular plans and projects, and the ‘consumer attitude’ towards locally operat�ing companies. The respondents also stress significant differences in the beha�viour of regional and local authorities. Nevertheless, the respondent companiesgenerally have faith in the positive trends of public�private partnership (see insertion 2.8).

Multilateral dialogues and public hearings as practised by some companies haveevolved as a meaningful form of interaction facilitating discussion and resolutionof the many issues which arise out of a company's performance and which affect


Chart 2.4Corporate social programmes as a partial substitute

for public social expenditures, %

Insertion 2.7

‘The government should act transparently in establishingnational developmental priorities that a business canendorse or use as guidance when coming up with itsown initiatives. The government must share the risksrelated to new initiatives with the business. Such innova�tive activities by companies to be encouraged by thegovernment.’

Veronika Kabalina, Head of Social ProgrammesDepartment, OJSC MMC Norilsk Nickel




Unsure

No

Yes16

8

76

39

the interests both of the authorities and of the public. A widely used system ofcontractual relationships with regional and municipal authorities involves nearlyall large corporations. This is actually one of the major forms of public�privatepartnership.

As the forms of social investment and CSR related public�private interactionbecome more diverse, it is an increasingly pressing task to build well�orderedrelations between the parties and their systemic vision (see insertion 2.9).Delimitation of responsibility of the government and business is still an openissue. These tasks could be better addressed with help from the Public Chamberand its commissions and workgroups which have been uniting the efforts of busi�ness, trade unions, civil society organisations and also respective regional enti�ties for a number of years.

2.4. EMPLOYEES IN THE SOCIAL INVESTMENT SYSTEM

Company employees are the key stakeholders whose development receives thelion's share of social investments. According to the research data, the share ofexpenses for HR development and health & safety averages 46.7% and 15.6%respectively (see Appendix 3). Moreover, as already noted herein, it is HR departmentsthat are most often responsible for implementing CSR strategy. Seeing personnel asthe most important stakeholder is not, however, a purely Russian phenomenon either(see insertion 2.10).

There are a number of reasons for the particular importance attached by companiesto relations with their staff as the priority recipients of social investments. Thesereasons are ranked by the respondents in the following descending order of impor�tance:

1) increasing role of human capital and its quality for successful economic perform�ance and increasing competitiveness;

2) efforts by management and owners to prevent escalation of social tension andemergence of conflicts;

3) growing HR competition driven by a worsening demographic situation, a growingdeficit in qualified labour and shortfalls in the vocational training of young people.

The growing awareness of the role and importance of investment in HR spurscompanies' management to move from one�off actions to long�term interaction.Characteristically, 58% of the respondent companies consider collective agreementsas the main documents which state their CSR strategy. As a matter of bilateral rela�tions, drafting collective agreements involves trade unions which become engaged indeveloping and negotiating the CSR strategy and social investment priorities, at leastin terms of HR. In turn, staff often become the major target recipient of the socialreport as well (see insertion 2.11).

Nearly all of the companies covered by this report offer their employees a similarpackage of benefits and services. On top of that, ‘more advanced’ companies,

C H A P T E R 2


Insertion 2.8

‘The government's attitude to CSR and social invest�ments is now changing for the better, and this isencouraging. However, not only the attitude to corporatesocial responsibility but also the attitude to business ingeneral must change. If society and the governmentperceive business as the national economy cornerstoneworking for the benefit of the country and its develop�ment, then business will indeed feel quite confident.’

Igor Beketov, Head of Corporate Communications,OJSC LUKOIL, General Director of the LUKOIL CharityFund


Insertion 2.9

‘The government should first define its own socialresponsibility. We need a clearer understanding of whatwe are to cover with our efforts, where we are to be ofuse, and what is taken care of by the government itself.So far, the watershed in certain issues and positions isblurred and there is no clear understanding of thenational CSR platform.’

Peter Neev, Director for Social Investments, OJSC TNK�BP Management


Insertion 2.10

The results of the international research ‘CSR: aNecessity not a Choice’ by Grant Thornton show thatwhile ‘saving the planet’ is a concern, by far and awaythe main drivers for action on corporate social responsi�bility are issues of recruitment and retention.

Source: Corporate Social Responsibility: a Necessity nota Choice. Grant Thornton IBR, 2008. P.14.

http://www.internationalbusinessreport.com/Reports/Focus_reports/Corporate_Social_Responsibility.asp

40

particularly those which are multi�located, tend more to personalise the benefits so that each employee bears personal responsibility for the social investments providedand so that staff become more responsible for themselves. However, a more typicalsituation is where a company develops its corporate benefit programme inaccordance with its employees' wishes. This involves a period of consultation anddrawing up a list of costs based on the results. This way, enterprises succeed notonly in staying afloat by securing their business survival, but also in improving theirprofessional and technological base (see insertion 2.12). In other words, the issueof socially responsible behaviour towards staff is even more acute for the majorityof companies than for industry leaders. This acuteness, however, illustrates thecompanies' focus on short�term risk mitigation rather than on gaining long�termcompetitive advantages.

The respondent companies' efforts to ensure the general development of a CSR cul�ture as a key component of corporate culture are gaining increasing significance inthe companies' corporate social performance. Apart from the attention paid to health,leisure and sport, particular interest in volunteer charity work and the encouragementof individual giving to charity is shown. In some companies, such initiatives involve notonly office staff, but increasingly production workers. This includes patronage inorphanages and kindergartens, retirement homes and other areas of social work thatpalpably improve the quality of life of the needy. In fact, this is the beginning of anexpansion of the social investment field.


Insertion 2.12

All 11 enterprises of OJSC Motovilikha Plants providetheir employees with the services of a preventive health�care centre at 90% discount. The same applies to acamp for children. The company also owns 6 hostels.Both this company and Permskie Motory provide asocial package of a level comparable with that enjoyedby employees of more successful enterprises.

Source: S. P. Peregudov, I. S. Semenenko

Corporate citizenship: concepts, global practice andRussian realities. M, Progress – Tradition, 2008, pp.349�351.

Insertion 2.11

The role of social report in building relations with SIBUR stakeholders

The key problem faced by many domestic companies when making a social report is its elusive purpose. For this reason a social report isoften just a status symbol for a large and strong company rather than a working tool. To avoid this, SIBUR specialists intended the reportprimarily to tackle the problem of building effective internal communications. In other words, they used the report as a PR documentaddressed to the company's major target group, i.e. its staff: ‘… the authorities know us quite well, we regularly deal with journalists, andinvestors often just check if a social report is in place as part of the standard package’. Thus, readers from amongst the company's staffwere put in the limelight.’

The ranking of target groups by priority dictated the choice of format: interviews with the company's senior executives. Thus, the social reporttackled a number of tasks:

– informing employees of where the company is, where it is going, what they can count on and what is expected from them in return;

– aligning middle and lower management with the strategy and tactics of senior management;

– communicating senior management's vision of the global challenges to the company's development as a whole, thus explaining to staff thepurpose of the current objectives;

– encouraging dialogue at the top and other levels of management;

– familiarising the public at large, including investors and regional authorities, with various opinions and statements of senior managers resultingfrom private discourse with their employees.

Source: T. Dreyling. Mantra or Communication? Social Report: Quest for a New Format // HR Management. 2008. N6.

41

2.5. EDUCATIONAL AND SCIENTIFIC INSTITUTIONS

IN THEIR INTERACTION WITH BUSINESS

An integral part of corporate social investments in HR is investments in the education�al and professional training system. However, this activity is by its nature one part of awider interaction of business with educational and scientific institutions.

As for companies' educational programmes, as one of the respondents said, ‘ouragenda is now topped by issues of forming and developing professional capital’, andthat is with respect to all staff categories, from ordinary employees to executives. A very similar message recurs in many interviews, in which support for the mostdiverse kinds of educational programme is described: from professional developmentand retraining courses to special educational institutions, including those directly runby companies (such as technical vocational schools) as well as ‘patroned’ schools,technical schools and higher educational institutions.

A special place among such initiatives has been recently taken by corporate univer�sities intended to train and retrain middle and top professionals, and to ensure theybetter understand the prospects of the company's development (see insertion 2.13).So far such universities have been established by 64 large corporations; however, iftaken with other large corporate educational centres, this number is probably closerto 150.5

In recent years, the development of intercorporate cooperation has become animportant feature of the education policy of large Russian businesses. It covers suchkinds of educational social investment as supporting educational institutions whichprovide programmes for managers and multiskilled professionals. For example, awide group of leading Russian companies promotes the creation of two world�classbusiness schools: the St. Petersburg State University's Graduate School ofManagement and the SKOLKOVO Moscow School of Management. This is doneunder the Priority National Project ‘Education’. Endowments are increasingly seen asa promising form of funding.

Russian business is gradually joining the system of awarding grants to successfulRussian scientists. This is most notably exemplified by the national science pro�moting foundations set up by some of the top tier businessmen (such as theDynasty Foundation for non�commercial programmes of Dmitry Zimin, founderand Honorary President of VympelCom, and others). Basic Element hasannounced, jointly with the Russian Academy of Sciences, a project to establish ascientific and technical centre intended to parallel, in a way, the US MassachusettsInstitute of Technology. The main purpose of this centre is to introduce the latestscientific developments at more than 80 enterprises of the holding company andpromote its own venture projects.

In the light of the Russian economy's realignment towards innovative development,corporate investments in science and research assume greater importance. This

C H A P T E R 2


Insertion 2.13

‘The Corporate University's aim is to assist employees in studying and applying the latest managerial tech�niques for solving problems faced by the Company, and to ensure staff understand the Company's development prospects. Our HR training is intended to procure a ‘career lift’ and high professional mobility for the staff. A number of the Corporate University's programmesprovide for continuous development of employees who show a high potential and who are willing to play a productive role in the Company's key projects.’

Alexander Bim, Advisor to General Director, OJSC SUEK.


5. See M. Malykhin. Corporate University. Turning the Costs of Employees Training into BusinessInvestments. // Vedomosti. 2008. N 115.

42

can be illustrated by a machinery building engineer and designer training agree�ment signed by the State Corporation Rostehnologii on behalf of its 200 subsidiaryenterprises and companies with the Russian Rectors' Union which represents 900national higher educational institutions. Aid from the business community mainlytakes the form of grants to students by companies, plants and engineering consul�tancies.

Generally, however, while investment by Russian companies in staff education andtraining have shown an evidently positive trend in recent years, their investment ininnovation development remains restrained. This ‘innovation apathy’ is at least partlyattributed by some specialists to the immaturity of the public�private partnership(PPP) system. Hence, innovation development is mostly financed out of the nationalbudget. Many businessmen and analysts put this down to the persisting political risksand lack of solid guarantees of ownership rights.

2.6. LOCAL COMMUNITIES: PROSPECTS FOR PARTNERSHIP

Nearly all of the respondent companies note the importance of working with the localcommunity. Nevertheless, the research unveils significant divergence in the prioritiesfor the selection of partners. Where the interaction is confined to contact with regional(municipal or district) authorities, the local community becomes equated with thelocal authorities that act as its sole mouthpiece. Involving representatives of the socialinterest groups represented by NGOs in the dialogue expands not only awareness ofthe community's interests, but also the variety of methods for interaction; and newforms of multilateral dialogue emerge (see insertion 2.14). However, many companiesstill prefer to separate their dialogue with authorities from that with other stakeholderswhen dealing with specific issues.

Local communities are not equated with the regional and local authorities by acci�dent: their officials are key to the interaction, and annual agreements at theregional (town, district) level, joint work groups and joint local development pro�grammes become typical practice for many big companies (see insertion 2.15).Such agreements and programmes set out principal areas and volumes of socialfacilities funding as well as the means of monitoring and control. Priority targetsare chosen both through public hearings, discussions and informal arrange�ments. The practice of ‘compulsory social responsibility’ (a sort of ‘civilisedbribe’, as put by one of the respondents) is reported to be generally on the wane.As noted by business representatives, the practice of institutionalising relationspromotes the formation of a package approach to local development (withoutexcluding selectivity and personal preferences) and is more responsive to compa�ny interests. The latter factor plays a role in selecting corporate social investmenttargets: professional training centres, sports facilities, kindergartens, etc., mostof which however belong to the standard high�cost social infrastructure. Anexception is big business's integrated local development programmes, notably inthe case of socially burdened companies (monocities, primary sector), or pro�grammes targeting a wide audience (young people, education). The first volun�


Insertion 2.15

Since 2003 OJSC SUEK has been making annual socio�economic partnership agreements with regional andmunicipal authorities to provide support for varioussocial programmes and causes. SUEK To Regions, a non�commercial foundation for socio�economic support for the regions, has been running since 2007. Its projects include raising funds for housing constructionand social infrastructure, assistance for new job creation, introduction of means for motivating andretaining highly qualified employees and recruitingyoung specialists. The pilot projects are run in Kiselevsk(Kemerovo region), Borodino (Krasnoyarsk territory),Chernogorsk (Republic of Khakassia), Sagan�Nur (the Republic of Buryatia) and Chegdomyn (Khabarovskterritory).

Source: Corporate website of OJSC SUEK,http://www.suek.ru/page.php?id�70

Insertion 2.14

‘The task of involving as many stakeholders as possible is addressed by holding roundtables and public hearings.’

Pavel Pletnev, Head of the Corporate CultureDepartment, Rosneft Oil Company.


43

teer activity promotion programmes have been launched in the localities of par�ticipating companies with one initiative being related to supporting various formsof involvement by young people (such initiatives are promoted by UC RUSAL, forexample).

Large companies move from stand�alone projects to targeted infrastructure pro�grammes, while smaller companies opt for one�off investments in specific facilitiesand events.

The importance of interaction with the local community is reflected in the socialprogramme funding statistics. In 2007 companies spent on average 14.6% of theirsocial programme budget on supporting local communities (see Appendix 3). Thisyear these figures are expected to stay at approximately the same level (up to14.1%). As compared to 2003�2004 (9% and 11%, respectively), this sets anupward trend.

Businesses use diverse tools to communicate with their stakeholders in the area oftheir operation: from targeted programmes and social project fairs to local com�munity development funds. Stimulation of project thinking as a prerequisite forpromoting such initiatives can, according to representatives of the respondentcompanies, be considered as a tool for the development of a civil society: thisprompts people to realise that they can change something with their own handsand minds.

In the opinion of the respondent companies' representatives, NGO involvement isimpeded by a wide range of factors: their real or alleged weakness, unreadiness forconstructive discussion of problems, lack of experience with companies and oftenlack of information necessary for effective interaction. The media (local and corporatepress, TV and internet resources) are still key to forming public attitudes to businessinitiatives. However, many corporate CSR experts note that the media poorly covercompanies' CSR achievements citing the low sales potential of this usually non�scan�dalous and non�sensational material for the publication.

Remarkably, confrontational thinking is a factor hindering all potential participantsfrom leaving their controversies behind and moving towards responsibility sharing andco�operation. This is most noticeable in companies' relations with the environmentalorganisations that are most frequently mentioned among those NGOs which fall with�in the business community's field of vision.

However, the business community is also aware that the NGO sector is in need of allpossible support (see insertion 2.16). Business needs NGOs for simple pragmaticreasons (without them, social project implementation may lead to an increased pay�roll) and also because they solve many crucial problems, are well positioned to com�municate with everybody – the business community, the authorities and society – andthey have their own defined mission and capabilities.

In any case, business still has the important task of identifying potential partnersamongst civil society representatives, and pushing for more such partners in areas

C H A P T E R 2


Insertion 2.16

‘NGO sector support by the business can be viewed asa strategically reasoned and socially meaningful invest�ment. Having their own mission, position, strong organi�sation, competences and other resources, and interact�ing with the business community, authorities and socie�ty, non�governmental organisations can tackle a greatdeal of issues in the social sphere. All these make NGOsan advantageous partner for the business in implement�ing social programmes. The best effect is achievedthrough support and co�operation with well�established,professionally recognised and experienced entities. Inturn, such NGOs help the entire non�commercial sectorand civil society in general to establish and evolve.’



44

which are important for the business itself. In effect this means the need to reviewactivities in various types of social investment, and also expanding and intensifyingthe dialogue with local community stakeholders.

2.7. CONSUMERS AS RECIPIENTS OF SOCIAL INVESTMENTS

Funding of ethical business conduct towards consumers in 2007 drew on average10.3% of the corporate social programme budget of the committed companies (53)(see Appendix 3).

The significance of focused consumer relations occurs first and foremost to com�panies haunted by negative pollution�related image associations. They havealready learnt that Russian consumers also tend to choose (if given the choice)new, more environmentally friendly and cost�effective goods and services (newgrades of petrol, for instance). Socially responsible consumption is increasinglyrecognised as the not so remote future for significant segments of the Russian market, with ‘education’ of such consumers coinciding with long�term businessinterests. Russian consumers' preference for national brands in the food sector, forinstance, is known to be widely used in marketing strategies. Yet relations are stillbuilt in a one�way direction – from company to consumer. However, there are nowexamples of dialogue with a wide circle of stakeholders where feedback is supported.Such relations existed in Perm�based NOVOGOR�Prikamie (a public utilitiescompany) as reflected in its 2005 and 2006 social & environmental responsibilityreports.

Consumer rights protection is mentioned as one area of CSR in the context of high�quality production but the consumer community is still more of an abstract notion forbusiness rather than a specific recipient of social initiatives. For example, promotionof environmental consciousness, potentially good for business image, is still a one�way effort mainly confined to the popularisation of certain initiatives by a companythrough its non�financial reporting. Little use is made of the potential of environmen�tal awareness development, whether in marketing strategies, educational projects orlocal development programmes. Consumer organisations were not mentioned asdialogue parties in the expert interviews for this research. The prospects of promot�ing a socially responsible consumption strategy were put by the respondents into a broader context of desires for change in the perception of business by Russian soci�ety and the establishment of a more favourable and more friendly social environmentfor business.

As shown by the research, consumer relations are not generally considered by therespondent companies to be a priority for corporate social activity. Indeed innovationby companies and their development of new technologies and products are ousted to the margins of, if not fully removed from, the scope of their social responsibility.Even the now popular ‘socially responsible marketing’ is seen as a specific marketingtechnology rather than an element of the CSR system. In other words, despite the


45

growing interest in CSR and its strategic capacity, the leading Russian companiesusually fail to build their system of corporate social activity from the basis of ‘econom�ic responsibility’ which implies the satisfaction of consumers' needs for goods andservices as a fundamental source of profit.

***

As shown by the analysis, the formulation of a strategy for the sustainable interactionof the Russian business community with its stakeholders is at an early stage, althoughthe leading companies clearly demonstrate their understanding of the role and capa�bilities of such interaction as a vital resource for their sustainable development.However:

The key stakeholders for Russian companies are still the government, employeesand the local community; involving new stakeholders in the interaction is proceedingslowly.

Dialogue between the business community and the government is evolving vigorously, although the traditional notion of corporate social programmes as forcedand ‘substitutive’ strongly conflicts with the companies' desire to link CSR with gaining long�term competitive advantages.

A key problem is still that of generating the demand of a wide circle of stakeholderson corporate social investment issues as the basis for development of a systemic,balanced approach to socially responsible corporate strategy.

C H A P T E R 2


Evolution of CSR and Social Investmentsin Russia

CH

AP

TE

R33.1. Scale of Companies' Social Activity:

Quantitative Social Investment Index

3.2. Social Investments by Sector

3.3. Scope and Consistency of MakingSocial Investments

3.4. Forecast of Changes in SocialInvestments

3.5. Weaknesses in the OrganisationalSupport for Social Investments

48

Comprehensive analysis of corporate social investments covering bothquantitative and qualitative indicators of their deployment in Russia gives atrue picture of the general state of corporate social performance of Russiancompanies, while trends of the relevant social investment indicators helptrace the general evolution of CSR in the country. Certainly, any interpreta�

tion of the findings from the sample data should take into account that the data reflectsthe largest and most CSR active companies. Thus, the findings cannot be extended tocover the entire Russian business community. However, the analysis of a sample of the102 most successful companies in Russia allows us to trace how social investments aremade by the Russian business community in a concentrated fashion. The list of compa�nies covered by the survey is set out in Appendix 5 while Appendix 2 gives the sector,form of ownership and size of each survey participant. It is noteworthy that the researchwas as complex as it was unique: there are currently no official figures that could be usedto compare the research findings against (the latest ROSSTAT (Federal State StatisticsService) data on corporate social expenditures dates back to 2001�2002).

To meet the research objectives, quantitative and qualitative social investment indicesof business in Russia were calculated (see calculation methodology in Appendix 3).Neither index demonstrates a positive trend. However, consideration was given notonly to the indices used in the Report on Social Investments in Russia 2004, but alsoto other indicators which provide at least partial insight into the qualitative changes inbusiness conduct over the four years separating the first and second phases of thesurvey. Ultimately, with all its ambiguity, analysis of the situation shows not so muchstagnation as evidence of attempts to find the most rational and balanced ways oftransforming CSR principles into an effective corporate strategy.

3.1. SCALE OF COMPANIES' SOCIAL ACTIVITY: QUANTITATIVE SOCIAL INVESTMENT INDEX

Evaluation of the overall social investment situation in the Russian business communi�ty is provided by the quantitative index calculated from the aggregated indicators of allthe sampled companies (see table 3.1). In terms of social expenditure per employee(IL), the scale of the social investments did not change considerably in 2007 comparedto 2003, although the social investments to gross sales ratio (IS) increased from1.96% to 3.76% in the same period. Expenses for social programmes can be sup�


Chapter 3.Evolution of CSR and SocialInvestments in Russia

49

posed to change in the Russian business community in ‘proportion’ to business deve�lopment, both as the volume and value of goods produced or services rendered and asthe level of employment. In other words, the intensity of social investments in Russiancompanies is in direct relation to the level of business development when, as the company consolidates its market positions, its long�term development strategy, formulated with fundamental CSR principles in mind, is outlined and implemented.

This background highlights the negative trend in the social investments to pre�tax incomeratio (IP) that almost halved over the four years and averages 6.25% in the sample. Thiscan be attributed to the most successful Russian companies becoming more systemic intheir approach to choosing social investment targets and more thorough in monitoringperformance of this activity since the first phase of the research. Yet, in half of the surveyedcompanies IP did not exceed 12.5%. It is revealing that similar findings were obtainedby the Charities Aid Foundation whose data shows that Russian companies spend, onaverage, from 10% to 17% of their net income on external social programmes.6

As shown above, the industrial cluster to which a company belongs (primary, process�ing or services sector) largely predetermines the specifics of its social investments.This was also reflected in the quantitative indicators which behaved dissimilarly in dif�ferent sectors in 2003�2007 as well (see table 3.2).

C H A P T E R 3


Table 3.1

Quantitative social investment indices in 2003 and 2007

Social Investment Index by Types 2003 2007

Social investments per employee (IL)* 42807 rub. 54335 rub.

Ratio of social investments to gross sales (IS) 1,96% 3,76%

Ratio of social investments to pre�tax income (IP) 11,25% 6,25%

*Note: Value indices are given in 2007 prices.


6. N. Kashtan. Occupation for the Kind and Loyal // Vedomosti FORUM. Materials of the III AnnualConference of the Vedomosti newspaper. 2007 (April) p.4.

Table 3.2Quantitative Russian company social investment indices

by sector in 2003 and 2007

2003 г. 2007 г. 2003 г. 2007 г. 2003 г. 2007 г.

Primary sector 38908 83211 1,7 6,1 8,2 5,2

Processing sector 46055 27928 3,8 1,3 24,4 19,3

Services sector 85190 47403 1,2 2,1 30,6 24,2

*Note: Value indices are given in 2007 prices.


Social investments peremployee (IL), rub.*

Social investments to gross sales (IS), %

Social investments to pre�tax income (IP), %Sector

50

The most obvious growth of social expenditures over the period under considerationwas shown by the primary sector, which became the absolute leader in 2007 insocial investments per employee (IL) and by social investments to gross sales ratio(IS). The soaring of social investments driven by the fuel industry is likely to be theresult of market conditions: rising oil prices and the related growth of company revenues, as well as deeper integration into the global economy. The leading position of this industry is understandable since it is currently the largest contributorto the country's GNP.

The services sector, which had the highest IL in 2003, ranked halfway between theother sectors in 2007. Notably, the leading industry also changed: in quantitativeterms, 2003 was marked by the domination of the transport industry, while 2007 sawthe high�tech communications industry outdoing the others by far. This evidences agrowing commitment by these dynamically growing service industries to corporatesocial activity.

Finally, the processing sector showed a decline in all these indicators. The new leaderin the cluster is now the wood processing industry which in 2007 by far outstripped thechemical industry, the best performer in 2003 in terms of funding corporate socialprogrammes.

A more detailed sectoral analysis of the quantitative indicators reveals that in 2007the specifics of each sector still had a great impact on the social investment strate�gy of the largest Russian companies (see charts 3.1 and 3.2). The direct measuresof sectoral social investments changed dramatically in 2007 compared to 2003(however, due to the characteristics of the sample, these indicators are only compa�rable by rank).

It should be noted that despite the drastic differences in levels of investment madeamongst the industries within each of the three sectors, same sector industries dis�play a certain similarity of social investment ‘behaviour’. In 2007 this tendency wasmore apparent than in 2003. Thus, it is both specific industry factors and the widersectoral background that affect decision�making on the implementation of CSR prin�ciples.

3.2. SOCIAL INVESTMENTS BY SECTOR

The sectoral background of the respondent companies strongly affects not only thelevel of funding for corporate social programmes, but also the structure of socialinvestments (see table 3.3). That said, a principal pattern common for all companiesirrespective of their sector is the predominance of the two ‘internal’ investmentpaths, namely HR development and employee health & safety, over the four ‘exter�nal’ targets for investment, namely local community, consumers, business partnersand the environment.

It should be noted that ‘external’ targets for corporate social investments mostly con�cern the wood processing industry, the chemical industry and services (includingpublic utilities). In 2007 companies of these industries allocated from 2/3 to 3/4 oftheir total corporate social programme funding to the local community, building


51C H A P T E R 3


Chart 3.1

Social investments by Russian enterprises per employee by sector in 2003 and 2007, thousand roubles

Chart 3.2

Social investments by Russian enterprises as a percentage of gross sales by sector in 2003 and 2007, %

Fuel industry

Communications

Metallurgy

Power industry

Wood processing

Chemical industry

Service

Machinery construction

Consumer goods and services

Transport

Financial sector

Professional services

Fuel industry

Wood processing

Communications

Power industry

Metallurgy

Consumer goods and services

Service

Chemical industry

Professional services

Transport

Machinery construction

Financial sector

10,51,1

9,11,6

5,53,9

2,84,2

2,45,5

1,811,9

1,50,4

1,03,6

1,00,9

0,41,6

0,4

0,10,1

1,4

Note: Value indices are given in prices for 2007.Source: Russian Managers Association, 2008.

2007

2003

135,921,9

124,835,8

92,730,7

62,753,9

61,157,6

59,714,8

46,84,5

27,2138,3

23,718,1

21,9145,7

14,332,5

2,956,7

Note: Value indices are given in prices for 2007. Source: Russian Managers Association, 2008.

2007

2003

52

relations with consumers and partners, and environmental issues. More than half ofthe expenses in all these industries go to environmental management and resourceconservation, which is entirely justifiable given their specific sectoral characteristics.

The prevalence of the ‘internal’ targets over the ‘external’ ones is typical for the powerindustry, machinery construction and consumer goods production as well as for retailand transport companies. Enterprises in these industries care the most for theiremployees, whose development and motivation attract at least 2/3 of their social programme budget. Given the deficit of highly qualified staff, it is these sectors wherethe task of recruiting, ‘raising’ and retaining qualified employees ranks first.

As shown by the research, the structure of corporate social investments also dependson the respective industries' required level of labour, power and raw materials. Labourintensive industries are mainly found in the services sector. Unlike other sectors, enter�prises in the services sector usually have a high share of social investments allocatedfor building relations with counterparties: consumers (16.8%) and business partners(2.0%). At the same time, power and raw material intensive industries represented inthe primary and processing sectors draw a different picture. In the processing sector,much attention is paid to environmental issues and health & safety of employees


Table 3.3

Application of social investments by industry, % of the total social investments

Primary sector

Fuel industry 37,0 17,5 0,0 0,0 31,1 14,3

Metallurgy 51,0 7,6 2,8 0,2 17,8 20,5

Power industry 66,1 8,9 0,8 0,2 11,5 12,5

Total 54,8 9,7 1,6 0,2 17,4 16,3

Processing sector

Wood processing 24,2 7,4 0,0 0,4 10,8 57,1

Machinery construction 69,0 19,3 0,2 0,7 6,7 4,0

Consumer goods 71,5 2,4 0,1 2,0 23,0 1,1

Construction 34,2 14,5 3,9 2,3 7,3 37,8

Chemical industry 22,9 10,0 1,3 0,2 7,5 58,0

Total 44,9 12,5 1,3 1,0 9,4 30,9

Services sector

Financial sector 58,3 3,2 4,7 1,1 29,5 3,2

Professional services 27,2 23,7 3,7 4,3 25,9 15,2

Services, including public utilities 11,7 10,2 3,9 2,8 3,8 67,7

Communications 17,3 7,0 71,0 2,6 1,6 0,5

Retail 73,0 11,1 9,5 3,2 3,2 0,0

Transport 87,4 4,8 2,8 0,0 4,3 0,7

Total 46,3 8,5 16,8 2,0 15,3 11,0


Goal

HR deve�lopment

Health & safety

Ethical business conducttowards consumers

Ethical business conducttowards business partners

Localcommu�nity

Environ�mental managementand resource saving

53

(30.9% and 12.5%, respectively). In the primary sector, apart from environmentalmanagement and resource conservation, a sizable portion of social investments alsoserves to support the local community (16.3% and 17.4%, respectively).

Primary sector

Enterprises of the fuel industry commit a large part of their social expenditures to HRdevelopment (37.0%) and local community support (31.1%). The structure of invest�ments directed towards the development of human resources (54.5%) and thosedirected towards the formation of an environment which is favourable for the sustain�able development of the company (45.5%) suggests that enterprises in the fuelindustry pursue a balanced social policy. However, compared to the earlier researchdata, funding assigned to ensure ethical business conduct (towards consumers andpartners) dropped practically to zero since 2003. The financing of environmentalmanagement and resource conservation more than halved (from 35.5% to 14.3%)whilst investments in the local community nearly tripled (from 10.9% to 31.1%,respectively). The latter change may be linked, in particular, with the housing policy ofmost fuel companies: to improve the quality of life of their employees, companiesdevelop housing for them and improve the local social infrastructure.

The social investment policy in metallurgy is more staff�oriented (HR developmentand health & safety account for 58.6% of total social investments). Furthermore,much is spent on environmental management and resource conservation (20.5%) asmetallurgical enterprises have a huge technological impact on the environment with�in their area of operation. Traditionally metallurgical enterprises bear more socialcommitments also due to being enterprises which form company towns. As a result,local community support is another social investment priority for them (17.8%).

The power industry outdoes other industries of this sector on the count of invest�ments in HR development and health & safety (75.0%) but is the last to invest in thelocal community (11.5%), environmental management and resource conservation(12.5%). Contrasted to the previous research data, environmental issues andresource conservation lost two thirds of their financing to HR development. Thischange in social policy priorities may have been driven by the industry's restructuringin 2004�2008.

Processing sector

Wood processing enterprises devote most of their social investments to environ�mental management (57.1%). Compared to 2003, funding of environmental causesand resource conservation more than tripled; however, this coincided with a cutbackin spending on HR development and local community support.

In machinery construction the main item of expenditure both in 2007 and 2003 wasHR development (69.0%). The ‘internal’ flank of social investments generally pickedup over the four years. For example, health & safety expenditure almost tripled (from6.8% to 19.3%) whilst spending on ethical business conduct fell (from 15.5% to below1%). Such a considerable predominance of ‘internal’ social investments may beattributable to the machinery construction companies' keenness to promote the tran�sition to more effective, innovative technologies of ‘soft management tools’ byimproving the qualifications of staff.

C H A P T E R 3


54

In consumer goods production, the focus is on HR development, with its ‘weight’having increased 1.5 times (from 47.1% to 71.5%) over the four years. As in 2003,second after HR development comes local community support, whose investmentstake in 2007 was roughly the same, i.e. 23.0%. This fact reflects the attachment ofconsumer goods producers to areas which serve as markets for their goods.

In construction, HR development accounts for 34.2% of the total cost of corporatesocial programmes, with health & safety taking 14.5%. A sizable share of social expendi�tures goes on environmental management and resource conservation (37.8%).Enterprises of this particular industry invest in ethical business conduct towards consumers three times as much (3.9%) as is average for the processing sector, which isquite specific to construction where reputation is important for business development.

Contrastingly, chemical industry enterprises rank HR development (22.9%) after envi�ronmental management and resource conservation (58.0%). This may be due to theREACH regulation on chemicals adopted in 2006 and requiring environmental compli�ance of substances exported to the EU. It is of note that the funding was redistributednot within, but between the ‘internal’ and ‘external’ targets of social investment.

Services sector

Social investment structure in the financial sector changed dramatically in the fouryears. For example, HR development share shrank (from 75.9% to 58.3%) to the benefitof local communities (from 17.0 to 29.5%). This implies that, despite shortages of quali�fied staff, these companies are currently more worried about their market positioning.

Professional services are characterised by a relatively high aggregate level of ‘inter�nal’ investments which are split almost equally between HR development and health& safety (27.2% and 23.7%, respectively). Interestingly, as in the financial sector,‘external’ social investments were boosted in terms of local community support com�pared to 2003 (from 0 to 25.9%).

Much unlike other service industries, in service provision (including public utili�ties) more than half of the companies' allocations for social policy go to environmen�tal management and resource conservation (67.7%), while ‘internal’ social invest�ments represent less than one fifth of the overall budget.

Companies of the high�tech communications industry apply their social investmentsmainly to ethical business conduct towards consumers (71.0%), which is to beexpected for their highly client�oriented business.

The specifics of their business compel retail companies to earmark for HR develop�ment the lion's share (73.0%) of their social investments, of which the ‘internal’ stakeis 84.1%. Retail companies allocate 9.5% of their social investments to consumerrelations, ranking second after communications in their sector. This may be considereda positive development compared to 2003 when this industry barely invested inethical business conduct at all.

The social policy of transport companies also gives priority to ‘internal’ socialinvestments, with 92.2% of their total accounting for HR development and health &safety. No other industry surveyed matches this. It is of note that 2003 saw a similarsituation when this ratio stood at 91.4%.


55

3.3. SCOPE AND CONSISTENCY OF MAKING SOCIAL INVESTMENTS

Along with the above quantifications, a proper description of the state of corporatesocial investments in Russia also requires a qualitative perspective. The qualitative index(IK) is built on the basis of a similar index calculated in the Report on Social Investmentsin Russia 2004. Due to changes in the wording of questions and possible answers in2007, the qualitative index of social investments was also updated. Therefore, thefindings attained are of interest in their own right, even without direct comparison.Nevertheless, the general logic of building the index was preserved. Three sets of crite�ria were used: institutional set�up of companies' social policy, maturity of the socialactions reporting system and comprehensiveness of corporate social investments.

Conceptually, the quantitative index differs from the qualitative one in that it assessesthe scale of funds allocated for social investments. The qualitative index, on the otherhand, shows how the process of social investments is organised inside companiesand how deeply CSR principles are integrated into the business's strategy and operational activities.

The qualitative index of social investments was calculated on the basis of 13 simpleindicators reflecting the present state of Russian business.

Group 1 – Formalisation of CSR Strategy. This group covers the following three criteria:

whether a company has a specific document stating its CSR strategy (a separatedocument approved at executive level; a collective agreement; a code of ethics; acorporate code of conduct or any other document);

whether a company has a department responsible for the implementation of CSR strategy;

whether a company has selection criteria for corporate social investments.

Group 2 – Reporting System for Social Activity. This group covers the followingfour criteria:

whether a company has annual financial reports compliant with international standards;

whether a company prepares periodic non�financial (social, environmental or sustainable development) reports;

whether a company prepares non�financial reports in compliance with internation�al standards;

whether a company appraises the performance of its corporate social investments.

Group 3 – Scope and Consistency of Social Investments. This group covers thefollowing six targets for expenditure:

HR development;

health & safety of employees;

ethical business conduct towards consumers;

ethical business conduct towards suppliers and other business partners;

local community;

environmental management and resource conservation.

C H A P T E R 3


56

The overall integral qualitative social investment index (IK) is calculated (see Appendix 3)based on Yes/No values for each of the 13 indicators.

As shown by the research, the best situation is currently observed in formalisation ofsocial investments while the worst situation is that in accounting and appraising compa�nies' actions (see chart 3.3). As noted above, the qualitative index values calculated for2003 and 2007 are not directly comparable. Nevertheless, it should be noted that thehierarchy of the companies' ‘achievements’ in making corporate social investmentsremained the same: general documentary support for corporate social programmesoutstrips development of the system of accounting and evaluating the outcomes.

3.4. FORECAST OF CHANGES IN SOCIAL INVESTMENTS

The research enables identification of the main tendencies in setting social invest�ment priorities by the Russian business community. Of special interest is the respon�dent companies' expectations of social investing as well as comparison of the datafrom the first (2003) and second (2007) phases of research which reveal the develop�ment vector of the leading Russian companies.

Almost 3/4 of the respondent companies planned larger social investments in 2008 com�pared to 2007 while only 5% of them reported a possible reduction (see chart 3.4).

Importantly, half of the companies which foresee a rise in the financing of their corpo�rate social programme expect it to grow in 2008 by not more than 17%. Only 7% of thecompanies are planning to double or triple the volume of funding. Given the level ofinflation in 2008, the economy will not experience any palpable growth in socialinvestments. Judging by the expected structure of social investments in 2008 (seechart 3.5), the general priority of ‘internal’ investments is not just preserved butstrengthened (the top two positions in the 2008 expenditure ranking belong to HRdevelopment and employees' health & safety).

It is also useful to look at the comparative analysis of social investment distribution byprincipal target. To recap, ‘internal’ investment targets include such areas as HR development and health & safety, while ‘external’ targets include environmental


Chart 3.3Integral qualitative social investments index

and its components, %

Institutional base

Integral qualitative social

investments index

Comprehensiveness of the process

Accounting & analytical support


87

87

66

72

64

80

52

52 2007

2003

57

management and resource conservation, local community support and ethical businessconduct towards consumers and business partners. Whilst in 2003 the percentageratio of the aggregate ‘internal’ to ‘external’ social investments was 54.2/42.7, in2007 it is 58.9/41.1. Thus, the prevalence of ‘internal’ corporate social investmentsover ‘external’ ones has quite a long�lasting and steady tendency.

Since the first phase of the research (see chart 3.6), the share of investments in HRdevelopment has steadily topped the overall social investment structure, showing

C H A P T E R 3


Chart 3.4

Total planned allocations for corporate social programmes in 2008 compared to actual expenditures in 2007, %



Expenditures to fall

Expenditures to remain the

same

Other

Expenditures to rise

175 4

74

Chart 3.5

Breakdown of Russian corporate social investments, 2007 / 2008, %

Note: In the second phase of survey in 2007, the possible answers to the question on the breakdown of Russian corporatesocial investments were re�worded as compared to 2003. The position ‘ethical business conduct’ was studied not as a whole,

but with respect to customers and business partners separately to obtain more detailed information on this position.


HR development

Environmental management and

resource conservation

Local community development

Health and safety of employees

Ethical business conduct towards customers

Ethical business conduct towards business partners

43,6

48,7

14,1

19,0

8,8

14,1

14,5

10,2

7,8

6,9

0,9

1,1

2008

2007

58

some further growth and approaching 50% of the total investments in corporate socialprogrammes. Another interesting trend to emerge in the period in question was themuch widened focus on issues of employee health & safety. Their funding share near�ly doubled in 2007 compared to 2003. This testifies to established Russian compa�nies' preference for long�term business development strategies over short�termones, with heavy investment in maintaining their staff's working potential and health,and ensuring adequate safety conditions.

Another fact coming to light is that investments in environmental management andresource conservation retain second position on the priority list, their share havingbeen stable over the last four years and accounting for 1/5 of the total investments incorporate social programmes. This situation arouses some concern. Amid growingpublic attention to the issues of sustainable development, careful use of naturalresources, efficient waste disposal and recycling, Russian business displays relative�ly weak involvement in attempts to tackle these issues. The actions taken by therespondent companies are mostly ‘protective’ and intended to mitigate the relevantshort�term risks.

3.5. WEAKNESSES IN THE ORGANISATIONAL SUPPORT FOR SOCIAL INVESTMENTS

A serious shortcoming with regard to social investing by Russian companies is stillpoor informational transparency and the detail and structure of the disclosure. Forexample, the tracking of social expenditures by item hardly improved in 2003�2007. This is indirect evidence of the lack of clear selection criteria and follow�upperformance appraisal for corporate social projects in many large companies.


Chart 3.6

Forecast of changes in social investments by Russian companies 2003 / 2004, %


HR development

Environmental management and resource conservation

Local community development

Health and safety of employees

Ethical business conduct

43

44

23

21

119

79

45

2004

2003

59

Naturally, under these circumstances many companies also lack the range ofsocial investment best practices and their success is situational. In preparing thisreport, despite the abundance and diversity of social programmes, it was hard tofind, amongst the information provided by the companies specifically for thisresearch or publicly available through the companies' websites and in their socialreports, a detailed description of such a programme and its stated purpose (apartfrom the ‘general humanitarian’ one), actions required for its achievement and theresults.

Corporate social activity in Russian business is still often associated with PR andremains isolated in the relevant departments. Consequently, the public at large isonly fed limited, and favourable, information rather than the true picture of corpo�rate social activity with all its natural perplexities and problems. In general this situ�ation unfortunately reduces the CSR role in Russia to a ‘cosmetic’ rather than astrategic one.

It has to be emphasised that a similar situation was seen in 2003. Thus, the past fouryears provided no compelling incentives to boost CSR activity and crystallise bestpractices that would substantiate its Russian specificity. However, it is true that thelack of any serious progress on this count is largely due to the lack of a systemicunderstanding of corporate social activity and the narrow spread of the best globaland domestic practices. Institutionalising of corporate social investments in Russiacontinues with its inherent spontaneity.

In this situation business must do better in formalising the procedures for selectingcorporate social programmes with the ‘right’ questions to be asked internally: whichsocial investment areas have priority for the company and why? To answer thesequestions more appropriate feedback about the effectiveness of the spent resources,both organisational and financial, must be obtained.

***

Thus, the period from 2003 to 2008 can generally be depicted as a time when theleading Russian companies acquired and accumulated corporate social activity expe�rience, and identified appropriate targets for and optimal levels of social investments.However:

The quantitative index of social investments of Russian business did not display anypositive behaviour in 2003�2007; the structure of corporate social investments stilltends to have ‘internal’ targets prevailing over ‘external’ ones.

The qualitative index of social investments of Russian business does not reveal any meaningful progress; the system of reporting and appraisal of outcomes isdeveloping slowly; as in 2003, CSR practice is mainly the responsibility of HR andPR departments.

A still important issue is to improve informational transparency and completeness ofdisclosure, the low level of which often signals a perfunctory attitude towards cor�porate social investments and CSR in general.

C H A P T E R 3


APPENDICES

APPENDIX 1. Glossary

APPENDIX 2.Research Methodology

APPENDIX 3.Methodology Used for Calculating the Social Investment Index of RussianBusiness

APPENDIX 4.Best CSR and Social Investment Practiceof Russian Companies

APPENDIX 5.Organisations and Companies which Participated in the Social InvestmentIndex of Russian Business 2008

62

Corporate social responsibility (CSR) is a phi�losophy of conduct and a concept of the businesscommunity, companies and business representa�tives adapting their activities so as to meet stake�holders' expectations in the pursuit of sustainabledevelopment.

Corporate social performance is a system ofcorporate social responsibility principles, socialresponsiveness processes based on such princip�les, and their observable outcomes which resultfrom a company's societal interactions.

Sustainable development is comprehensive eco�nomic, social and environmental development thatmeets the needs of the present without jeopardis�ing future generations' opportunities and aspira�tions.

Stakeholders are organisations, communitiesand individuals that form a system of expectationsand, accordingly, affect, and are themselvesaffected by, companies' decision�making.Stakeholders can be internal (owners, emp�loyees) and external (consumers, suppliers andother business partners, competitors and localcommunities, including people in the area ofoperation and local authorities, state authorities,

non�commercial and non�governmental organi�sations, activists and the media).

Corporate governance is a system and processof interactions, and a complex of principles, rulesand procedures for interaction between a compa�ny's owners (shareholders), its board of directors,management and other stakeholders.

Corporate social programmes are a company'svoluntary economic, social and environmentalactivities intended to meet the relevant expecta�tions of its internal and external stakeholders.

Corporate social investments are material, tech�nological, managerial, financial and otherresources of a company utilised in the implementa�tion of corporate social programmes which in thestrategic sense are intended to bring about a finan�cial benefit for the company.

Corporate social report (non�financial report)is a public tool for informing shareholders, emp�loyees, partners and other stakeholders about howand at what rate a company is achieving its eco�nomic sustainability, social welfare and environ�mental stability goals as stated in its mission state�ment or strategic development plans.

Report on Social Investments in Russia 2008Integrating CSR Principles into Corporate Strategy APPENDIX 1

A P P E N D I X 1 .

GLOSSARY

63

The research behind the ‘Report on SocialInvestments in Russia 2008’ consisted of twostages: a questionnaire survey ‘Social InvestmentIndex of Russian Business 2008’ (quantitative data)and non�formalised interviews (qualitative data).

Quantitative information was gathered through astandardised remote questionnaire survey.

The 31�entry questionnaire was divided intothe following three sections:

1. General information on the company: sector,key economic performance indicators and busi�ness conduct standards.

2. Description of the company's corporate socialresponsibility strategy.

3. Quantified expenditures on corporate socialprogrammes.

The questionnaire included closed and semi�opensingle or multiple choice questions. Most of thequestions were laid out on a nominal scale.Answers to those questions were quantified intounivariate frequency distributions. The questionson financial performance were set out on an inter�

val scale, allowing the calculation not only ofabsolute and relative frequencies, but also themedian, a measure of central trend appropriate tothe level of the measurement.

Sample Principles. Participation in the survey forthe ‘Report on Social Investments in Russia 2008’was sought from approximately 2,000 companieswhich are industry leaders listed in the majornational rankings and which publicise their activityin the corporate social responsibility domain,including:

‘Social Investment Index of Russian Business2004’ survey participants;

companies featuring in the Russian ManagersAssociation ‘Russia's Top 1000 Managers’ ratingin 2007;

companies featuring in the Russian ManagersAssociation Depositary of Social Initiatives;

winners of VII All�Russia contest ‘RussianOrganisation of High Social Efficiency’ in variousnominations (2007);

companies rated in ‘EXPERT 400’ (2007);

industry leader companies presented on theircorporate web sites as socially responsible busi�nesses.

APPENDIX 2


A P P E N D I X 2 .

Research Methodology

64

Sample Description. The survey covered 102companies. The field stage took place in April�July2008. That said, the second phase of surveyinvolved 30% of the companies covered by the 2004survey, a fact not only important for interpretationof the findings but also enabling partial comparisonof the first and second phase data.

It is of note that 89% of the companies in thisresearch may be referred to as large businesses,each with 2007 gross sales exceeding 1 bln roub�les. Small and medium enterprises were far lessrepresented (4 and 7% respectively).

The companies' distribution by form of ownershipwas as follows:

private – 81%;

mixed – 11%;

public – 8%.

Sectoral distribution was as follows:

metallurgy – 14%;

financial sector – 12%;

power industry – 12%;

mechanical engineering – 11%;

transport – 7%;

professional services – 7%;

chemical industry – 7%;

fuel industry – 7%;

telecommunications – 6%;

construction – 5%;

retail – 4%;

consumer goods – 4%;

services, including public utilities – 3%;

timber industry – 2%.

All industries were grouped into three economicsectors, with the companies being distributed asfollows:

services sector – 38%;

primary sector – 33%;

processing sector – 29%.

To complement the quantitative research, theRussian Managers Association commissioned theInstitute of Sociology of the Russian Academy ofSciences, to carry out 10 non�formalised expertinterviews with senior managers who supervisethe implementation of corporate social responsibilitypolicy.

An important mechanism for the validation ofhypotheses and findings was four expert panelsheld at every stage of the compiling of this report.These expert panels focused on discussing thereport's subject matter and the conceptualframework of the research, formulation of thequantitative research questionnaire and thestructure for the qualitative interview questions,and verification of the research findings and keytheses of the report. The expert panels were rep�resentative of the business community, academ�ic circles and non�governmental and internation�al organisations.


65

Methodology used for calculating theQuantitative Social Investment Index

The second release of the ‘Report on SocialInvestments in Russia 2008’ uses, as did the firstreport for 2004, 3 types of quantitative social investment index:

Specific Social Investment Index – IL which repres�ents social investments per employee in the Russiancompanies covered in our report (shown in Russianroubles). This index has the following calculation for�mula:

where Ci is the amount of social investments ofcompany i (including voluntary and mandatoryexpenditures on social programmes); Li is theaverage number of employees of company i; and nis the sample number.

When comparing different periods, a relevant pricedeflator may be applied to adjust the IL indices; andwhen comparing different countries, exchange ratesor purchasing power parity ratios may be applied.

Social Investments to Gross Sales ratio – IS(shown as a percentage). The calculation formulafor this index is as follows:

where Si is the gross sales of company i.

Social Investments to Pre�tax Income ratio – IP

(shown as a percentage). The calculation of thisratio is similar to that of the IS index.

Since a survey cannot normally provide accuratefinancial performance indicators (amounts of socialinvestments, income and sales volumes) of Russiancompanies, the calculation method is adjusted torely on interval values, stated by the companies asthe lower and the upper limits thereof. To switchfrom interval values to punctual values, the methodaverages out the above limits. The formula for thesales volume indicator is as follows:

where Simin and Si

max are the lower and the upperlimits of each indicator of company i. Application ofthis formula leads to certain inaccuracies in the cal�culation of the social investment index. However,such measurement is as precise as possible inRussia at the present stage.

Methodology used for calculating theQualitative Social Investment Index

In contrast to the quantitative index, which outlines themagnitude of social investments, the qualitative indexmeasures the scope and consistency of CSR. Thereare both special and general qualitative indices:

The Special Qualitative Social Investment Indexfor a single attribute IK(j) shows to what degree thisqualitative attribute exists in the sample of compa�

APPENDIX 3


A P P E N D I X 3 .

Methodology Used for Calculating the SocialInvestment Index of Russian Business

66Report on Social Investments in Russia 2008Integrating CSR Principles into Corporate Strategy APPENDIX 3

Breakdown of financing by main target of corporate social programmes in 2007

Main targets Subsample Average Minimum Maximum volume value, % value, % value, %

HR development 79 46,7 2,00 100,00

Health and safety of employees 76 15,6 1,00 70,00

Ethical business conduct towards customers 53 10,3 0,06 85,40

Ethical business conduct towards suppliers

and other business partners 52 5,8 0,02 32,00

Local community 71 14,6 0,70 75,00

Environmental management and resource conservation 59 20,7 0,01 92,00

Other 7 14,6 2,40 50,00

Forecast of change in expenditures by main targets of corporate social programmes in 2008

Main targets Subsample Average Minimum Maximum volume value, % value, % value, %

HR development 70 46,9 1,50 93,70Health and safety of employees 63 16,2 0,60 63,00Ethical business conduct towards customers 38 10,5 0,04 92,00Ethical business conduct towards suppliersand other business partners 40 5,5 0,02 32,00Local community 61 14,1 0,01 77,00Environmental management and resource conservation 50 19,8 0,10 93,00Other 8 6,4 0,50 16,00


nies (as a percentage), and is calculated as fol�lows:

where n is the sample number, and j is one of theattributes which describe different aspects of CSRprinciples implementation.

The Overall Integral Qualitative Social InvestmentIndex IK indicates the level of comprehensivenessof social activity of the sample companies (as apercentage) and is calculated as follows:

where n is the sample number, j is one of the attri�

butes which describes different aspects of CSRimplementation, and m is the number of the attri�butes which describe different aspects of CSRimplementation.

All special qualitative social investment indices andthe general integral qualitative index are nor�malised and can range from 0 to 100%. The higherthe index, the more comprehensive the companies'social policy. By comparing indices for differentattributes, ‘bottlenecks’ or challenges can bedetected.

Breakdown of financing by main target of

corporate social programmes

The key descriptive characteristics of the break�down of the corporate social programme financingin 2007 and 2008 are set out in the tables below.

67

Corporate medical centre, UC RUSALTo enhance the efficiency of each employee, miti�gate industrial harm to health and reduce labourloss due to illness, UC RUSAL has adopted a long�term corporate healthcare programme. The firststep of this programme was the foundation of amedical service, the RUSAL Medical Centre(RMC), in 2005. RMC's main objective is to reducethe annual labour loss due to illness to the level of 600 days per 100 employees.

The company's general approach to corporatehealthcare is that the health of employees shouldbe ensured through a well�thought�out medicaltreatment system and, equally, the healthylifestyles of the employees themselves. Sinceearly treatment is more effective, RMC has intro�duced an occupational disease and accident pre�vention system that helps to increase productivityand give workers maximum protection from injuryand disability.

RMC employs methods of early detection of occu�pational diseases, regularly checks UC RUSALentities for compliance with health and safetystandards, keeps its equipment up to date andpromotes a healthy lifestyle.

First aid is fully financed by the company andinvolves on�site medical assistance for the factorystaff. Under this scheme, staff are classified intofour dispensary groups: virtually healthy, chroni�cally diseased with rare exacerbations, chronically

diseased with frequent exacerbations, andchecked daily for regulatory reasons. Here, theeffectiveness criterion of medical observation is the employee's transfer from a ‘problem’ to a ‘healthier’ group.

The underlying principles of RMC are as follows:

on�site location of medical units;

constant emergency readiness;

observance of a common corporate standard of medical care;

ensuring continuity at various stages of medicaltreatment;

comprehensive approach to health care;

continuous improvement of the quality of medicaltreatment quality.

As a part of this programme, UC RUSAL has estab�lished its own polyclinic complex which specialisesin diseases typical of aluminium industry workers.

Thus, RMC serves a dual purpose: it performs allmeasures required to reduce labour loss and fur�thers the corporate voluntary health insurance pro�gram.

RMC is unique by its scale, with branches in all ofthe company's regions of operation and offices tobe opened in all of the company's countries andcities of operation, of which there are severaldozen.

APPENDIX 4


A P P E N D I X 4 .

Best CSR and Social Investment Practice of Russian Companies

HR DEVELOPMENT

68

Up�to�date industrial healthcare regulation mecha�nisms help not only to enhance healthcare but alsoto ensure the efficiency of social policy, which willlead to improved life expectancy and assist labourforce retention when labour inflow lessens.

Staff Training Programme ‘Responsible

Alcohol Consumption’, SABMiller RUS

A responsible attitude towards conducting busi�ness is fundamental for the development of a suc�cessful and sustainable business. That is whySABMiller RUS's activities are based on theSustainable Development programme which is akey business strategy of SABMiller both globallyand locally. This programme stems from 10 sus�tainable business development principles encom�passing the social, environmental and economiccomponents of the company's activities.

Prevention of irresponsible drinking is the first pri�ority of the Sustainable Development programme.In its activities, SABMiller RUS is guided by a sys�tem of beliefs and principles which shape its entireirresponsible drinking prevention efforts.Information and educational programmes explain�ing the company's standpoint with regard toresponsible alcohol consumption are run bothinternally (for the staff) and for consumers.

SABMiller RUS has adopted an alcohol policy foremployees intended to set common standards ofresponsible alcohol consumption in various situa�tions, create and maintain a healthy and safe work�ing environment, uphold a high standard of behaviourby the employees, inform and educate staff onresponsible alcohol consumption and risks of alco�hol abuse. As prevention programmes are anessential element of staff training, SABMiller RUStogether with the Transatlantic Partners AgainstAIDS non�governmental organisation have deve�loped an educational seminar on alcohol abuseprevention. The key module of the programme is afour�hour training session which explains theextent of the alcohol abuse problem in society, thesocial problems for a person and his/her family andcolleagues caused by alcohol abuse, the causes ofalcohol dependence, its consequences and risk

factors. A key aspect of the seminars was that theywere run by medical professionals and alcoholabuse specialists. This is crucial for the effective�ness of the prevention programme in that emp�loyees could talk to specialists in this field.Throughout 2008 the company held about 60 ses�sions at the production facilities in Kaluga, in thecompany's regions of operation and in the Moscowoffice. SABMiller RUS plans to improve the existingprogramme and develop an interactive remote programme ‘Responsible Approach to AlcoholConsumption’. This multimodule tool of the trainingprogramme will enable coverage of the growingnumber of the company's employees, promotion ofresponsible drinking among its partners, and alsothe training and education of sellers and con�sumers of its products.

Corporate pension system, JSC RussianRailways

As one of the country's largest employers, JSCRussian Railways (RZD) sees social responsibilityto its employees as a priority.

Corporate pension provision for railway workers isgoverned by a regulation on non�governmentalpension provision pertaining to RZD's employeesthat reflects the following principles:

1. The employer and each employee contributeequal amounts to the employee's future corporatepension.

2. The monthly pension contribution depends onthe age of the employee.

3. The corporate pension payable depends on theemployee's salary level and seniority within RZD orthe pensionable continuity of contributions.

4. RZD guarantees payment of the assigned corpo�rate pensions.

5. Corporate pensions are for life.

Any RZD employee joining the non�state pensionprovision agreement may choose one of the follow�ing pension schemes: savings, savings�insurance,insurance�savings and insurance. These options


69

differ in the terms relating to contributions andinheritance. The programme also provides for agrace period for employees retiring within 15 yearswhose pension savings capability is very limited.During this period the company contributes morein order that the necessary pension provision levelis reached. The programme is open to any RZDemployee. It also allows for early retirement, i.e.RZD corporate pension provision already imple�ments certain principles of professional pensionsystems.

The corporate pension scheme for RZD and itssubsidiaries is run by the BLAGOSOSTOYANIE(=Welfare) non�state pension fund. The total num�ber of RZD employees saving for their non�statepension with BLAGOSOSTOYANIE was over410,000 by the end of 2007. As of January 1, 2008,over 150,000 ex�RZD employees were receiving acorporate pension.

The programme has proved successful. For exam�ple, the lost earnings replacement rate of RZD cor�porate pensioners exceeds 42%. This is in line withthe International Labour Organisation (ILO)'s re�commendations and much above the replacementrate for most Russian pensioners (23�27%).

The programme has been highly commended bypresent and former RZD employees. Furthermore,in 2006 the company won ‘The Best CorporatePension System’ award and won the ‘PensionOscar’ National Award for its contribution to thedevelopment of the Russian pension industry.

Corporate pension system, OJSC MMCNorilsk Nickel

In the last two to three years, Norilsk Nickel hasimproved its social programmes by focussing on thedevelopment of a corporate system of non�govern�mental pension provision. The company pursued thefollowing basic principles: availability of non�govern�mental pension provision to all the employees, andvoluntary and joint participation of employees andthe company in forming non�state pensions.

In 2006�2007 two co�financed pension programmeswere developed and launched: ‘Corporate Pension

Option Programme’ and ‘Shared Saving Pension’.The Corporate Pension Option Programme nowcovers about 60,000 employees of the company,its subsidiaries and affiliates, with an average coverage of about 90% of employees in each entity.It works as follows. The company facilitatesemployees' participation in the non�state pensionprovision (NSPP) and supports those who enterinto individual NSPP agreements with the non�statepension fund by transferring a certain amount (10�15,000 roubles) based on annual performanceresults to the employees' individual pensionaccounts with the fund.

A specific feature of the new long�term SharedSaving Pension programme is its availability toeach employee of any age and seniority. To makethe programme attractive for employees, represen�tatives of the labour collectives were involved in developing its terms. Older employees enjoypreferential terms with respect to their pensioncontributions. By its first anniversary, the pro�gramme launched in mid�2007 covered some28,000 employees of Norilsk Industrial Districtenterprises, Kola Mining & Metallurgical Companyand its subsidiaries.

The Joint Corporate Pension Programme launchedin December 2002 relies not only on the company'sfinancial contributions, but also on savings by theemployees over their term with the company. Thisprogramme is mainly intended to ensure a sustain�able and lasting ‘staff core’. The programme'sappeal for employees is the company's pensiondown�payment (the so�called start�up capital)which is proportionate to the employee's labourcontribution before joining the programme.Throughout its life, the Joint Corporate Pensionprogramme has been used by a total of more than3,300 people and over 500 people have becomecorporate pensioners.

Also, programmes dating back to the late 1990sand 2003�2005 survive as elements of the corpo�rate pension system. These are ‘Six Pensions’,‘Lifelong Professional Pension’, ‘AdditionalCorporate Pension’ etc. which were set up duringthe restructuring of the company to deal with cer�tain issues. For employees of pensionable age,

APPENDIX 4


70

they provide post�retirement social adaptation,while for the company they serve to regulate theretirement of employees, staff rotation and themaintenance of social stability in labour collectiveson site during structural reforms. The social adap�tation programmes mostly provide for a one�offadditional payment on retirement.

Youth programmes, OJSC Tatneft

The need for dynamic development in a competi�tive environment and the demographic situation inthe country has made youth support and develop�ment a priority task for OJSC Tatneft. Hence, in2000 Tatneft management initiated the creation ofone of the first corporate youth organisations in thecountry uniting all the company's employees agedunder 33.

The primary objective of the youth policy is todevelop the professional and creative potential ofyoung employees, and to involve them in solvingthe company's problems relating to research, pro�duction and finance.

An important aspect of this work is the profession�al adaptation of newly recruited young profession�als. Special programmes have been developed tofacilitate their induction into the working processand the collective. Support and development areprovided for young employees through a system ofcoaching, production management schools, work�shops, contests of ideas and proposals, seminarsand other events.

The company works with the young through theyouth committee of Tatneft, the Young SpecialistsPanel, non�governmental organisations, youngpro�active employees, the management of thecompany and its subdivisions.

The principles of Tatneft's youth policy are:

social partnership between the management andyoung employees in solving finance, production,technical and social problems;

balance of the company's interests with theneeds of its young employees for the benefit ofTatneft's dynamic development;

consolidation of organisational efforts and fund�ing of different youth policy groups;

balance of the rights and duties of youngemployees;

corporate and public control over the results of youth policy;

flexible mix of social security and social responsi�bility of young employees towards the company;

active professional and civil position of each youngemployee as the basis of corporate solidarity;

continuity of traditions.

This work is aimed at providing professional deve�lopment of young employees, social support, andenabling talented youth to realise their potential.The youth policy promotes interaction betweenyoung employees both inside and outside the com�pany, development of tolerance and civil stance,corporate patriotism and solidarity.

The Tatneft youth organisation won the republicancontest for ‘The Best Youth Organisation of theFederation of Trade Unions of the Republic ofTatarstan’.


Structure of Tatneft corporate youth organisation

Lead team of youthorganisation

Youth committee of Tatneft

Youth committees of departments and subsidiaries of the company

Youth organisations of the primary collective

Main team of youthorganisation

Base team of youthorganisation

71

Social and Cultural Projects Contest

Programme, LUKOIL

To support local community initiatives for solvingkey local issues and to make better use of its charitysupport, LUKOIL runs the Social and CulturalProjects Contest Programme.

The major objectives of the Programme include:

improving the well�being of the population in thecompany's areas of operation;

developing local communities;

preserving national cultural identity;

improving the environmental situation;

assisting non�governmental organisations supporting children's sports.

The programme works on a competitive basis andis about close interaction with regional authoritiesand local governments as well as the involvementof local residents and NGOs in resolving socialproblems.

The contest is held annually in each area of opera�tion and has the following categories: ‘Ecology’,‘Benevolence’, ‘Culture and Arts’, ‘PhysicalCulture, Sport and Tourism’ and ‘Native Land’. Thecontestants submit their project proposals to adesignated committee in which they explain howthe funds will be used and how the project will ulti�mately benefit the local community. To receive agrant, the applicant organisation must first con�tribute at least 30% of the requested amount. Theprojects are financed on a joint basis. The co�fund�ing arrangement motivates the contestants to raiseadditional funds by finding other organisations withan interest in the proposed results and willing tosupport the projects. Today this mechanism ofpartnership between business, society and autho�rities is increasingly attracting the involvement ofsmall and medium�sized businesses.

In recent years the contest has earned a firm placein the social life of the regions. Its scale grew from

143 projects in 2002 to over 2,000 in 2007. Thenumber of winning projects has also increasedconsiderably, from 37 in 2002 to 266 in 2007. Thetotal amount of grants awarded during the periodfor all the participating regions exceeded 150 mlnroubles.

‘Museums of the Russian North’

Programme of Support for Russian

Provincial Fine Arts Museums, OJSC

Severstal

To stimulate the activities of regional art museums,private and public, Severstal, together with CAFRussia its organisational partner, is running theMuseums of the Russian North programme.

No expansion of traditional museum activities in theregions can happen without stronger links withcentres of expertise, scientists and specialists oruse of new information technologies. To facilitatethis, the programme organisers award grants tomuseums following competitive selection of pro�posed culture development projects. The firstgrants were awarded in 2007�2008 in the followingproject domains:

renewing permanent expositions;

introducing state�of�the�art multimedia to inte�grate regional museum stock into the commoncultural space of Russia;

organising joint exhibitions with leading Russianand foreign museums;

identifying valuable pieces of art held by regionalmuseums;

research exhibitions devoted to the RussianNorth;

multilingual publications.

CAF Russia formed an independent expert panelfor the initial screening of applications. Based on itsrecommendations, the supervisory board made thefinal decision on the awarding of grants. The super�

APPENDIX 4


LOCAL COMMUNITY

72

visory board was formed of representatives ofNGOs, art associations and international organisa�tions, directors of the principal Russian museums,well�known curators and art critics and representa�tives of the art media.

The grant fund totalled 8,750,000 roubles. Themaximum funding for one project (grant) was1,200,000 roubles. The applicant organisation'scontribution and/or the funds raised from othersources for the project had to be at least 30% of thegrant.

The programme runs in most regions of theNorth�West Federal District of Russia: theArkhangelsk, Vologda, Kirov, Kostroma,Leningrad, Murmansk, Novgorod, Pskov andPerm regions, the Republic of Karelia, the KomiRepublic, and the Nenets Autonomous District.Six winning projects from the first series of grantapplications will have been implemented by theend of 2008: ‘Transonega Heavens’ (StateHistorical�Architectural and EthnographicMuseum ‘Kizhi’), ‘Space of Russian North’ (FineArts Museum of the Republic of Karelia), ‘Paintedand Printed Icon, Spiritual Wood Carving andCopper Art Castings of the XVII – Early XXCenturies from the Collection of the NationalGallery of the Komi Republic’, ‘Creation of theOfficial Website of Kirillo�Belozersky ReserveMuseum’, ‘Creation of the Museum of OldRussian Art’ (Velikiy Ustyug State Historical�Architectural and Art Reserve Museum), ‘ThreeCenturies of Russian Art’ (‘Art Culture of theRussian North’ State Museum Association).

The company also published a brochure about theMuseums of the Russian North programme featur�ing articles on each winning museum and adescription of the projects completed. A confer�ence was held in September 2008 that summarisedthe results of the first year of the programme andset out the main plans for its development in 2009�2010. The conference united representatives of themuseums that won the 2007�2008 tender, over fiftydelegates from the museums of the North�West ofRussia, and representatives of the art public ofMoscow.

Norilsk Physical Culture and Sport

Facilities Development Programme

2007�2010, OJSC MMC Norilsk Nickel

A vivid example of Norilsk Nickel's social invest�ments in local community development is thematerial, technological, managerial and otherresources allocated for the Norilsk Physical Cultureand Sport Facilities Development Programme2007�2010.

To care for its employees' health and support theirinvolvement in physical training and sports, the com�pany arranges annual sports days, tournaments andpublic sports events at its own or municipal facilities.Norilsk hosts corporate competitions such as theNorilsk Nickel Ski Track, Dudinka�Alykel�Norilsktrack�and�field race and other events involving notonly the company's workers but also local residents.

The programme was developed in line with theobjectives of the Federal Programme ‘Developmentof Physical Culture and Sports in the RussianFederation for 2006�2015’. It provides for equal co�financing of construction and modernisation ofsports facilities by the principal implementers of thephysical culture and sport policy in Norilsk: OJSCMMC Norilsk Nickel and the Norilsk municipalauthorities. A joint workgroup was created to pre�pare and run the programme.

After technical appraisal of 46 municipal sports faci�lities and those of the company, the cost of renova�tion works was estimated at over 400 mln roubles.

Since its launch, the programme has modernisedthe sports halls of all Norilsk schools, repaired 23sports facilities, including two swimming pools,sports halls of children's sports schools and anindoor skating rink, and has partially repaired theOlgul skiing centre, the Arctica sports centre andother sports facilities.

Social Investment Programmes in

Kamchatka Territory, UralPlatinumHolding

Sustainable business development is the basis forlocal socio�economic development. And local


73

business development requires a favourable envi�ronment with socially active residents, developedSMEs, balanced fiscal relations, professionalism ofgovernmental and municipal officials and businesspeople, and suitable conditions for constructivedialogue between the business community,authorities and society. These issues, along withensuring effective and safe working conditions andgood environmental conditions, are the key areasthe company focuses on and invests in.

UralPlatinumHolding's social investment pro�grammes are implemented in one of the most dis�tant and economically weak regions of Russia, theKamchatka Territory. Geographic isolation andeconomic detachment from the rest of Russia aswell as the natural and climatic conditions of theregion multiply the cost of any initiative and requireconstructive cooperation between the governmentand local business.

Having set up an ongoing dialogue between theregion's largest company, authorities and local com�munity leaders on the platform of ‘KGD SocialPartner’, a charity foundation created by the compa�ny especially for the purpose, UralPlatinumHoldinghas managed to redirect charitable objectives for thebenefit of the most urgent issues relating to thedevelopment of the territory. Since 2006 the compa�ny's social investment programmes have beenaimed at supporting and developing municipaladministrations and local representative authorities,promoting and supporting small businesses andcivic initiatives, and allaying the lack of qualifiedstaff. The company also helps to mitigate the conse�quences of natural disasters and provides materialhelp to the residents of areas affected.

The deployed practice of tripartite interactionbetween the company, the authorities in the compa�ny's areas of operation and local communities whichinfluence its main industrial activity, has proved itselfas an effective technique for reducing uncertaintyand maintaining loyalty to UralPlatinumHolding in theKamchatka Territory. These programmes exemplifya strategic approach to charitable activities, toorganising effective partnership of the businesscommunity, the authorities and the community in the

interests of the region's development, and are recommended by the Renova Group of Companiesfor future use by the group.

Tourism and Sports for At�Risk Children

and Teenagers, OJSC TGK�5

One of the charitable and sponsorship activities ofTGK�5 is the enhancement of the social environ�ment and development of civil society institutions inthe company's regions of operation. TGK�5's initia�tives supporting children and teenagers deprivedof parental care or with disabilities achieved a high�er profile in 2008, the Year of Family in Russia.

Direct participation of the company's employeesand their family members in the project is the mostvaluable kind of support for children and teenagersmissing parental love and care, as this is exactly thetype of communication that can make up for thelack of care from the older generation and help thechildren socialise.

The programme ‘Tourism and sports for at�riskchildren and teenagers’, which has been runningsince 2006, is aimed at preventing social deviancyat the Cheboksary orphanage and the RepublicanRehabilitation Centre for Disabled Children andTeenagers (Chuvash Republic) through tourismand sports events, as well as drawing the public'sattention to the problem of difficult children.Partners on the project are OJSC ‘Chuvash EnergySale Company’ and Hockey Sport Club ‘Sokol’.

The programme's events have become traditionaland motivate children and teenagers towards ahealthy lifestyle, aid the development of socialskills and provide environmental awareness andmoral upbringing for the future generation. Themost salient events organised for the RepublicanRehabilitation Centre for Disabled Children andTeenagers included the ‘Mini Olympics’ sports festival, the ‘September 1 Present to Children’charity event, events for New Year's Eve and theInternational Day for the Disabled etc. In 2008 thecompany financed a purchase of equipment for thegym in a new building of the rehabilitation centre

APPENDIX 4


74

which was built under a federal programme.Cheboksary orphans were treated to ‘Hot Ice’ and‘The Magnificent Five’ sports and entertainmentevents, camping activities and a hockey masterclass by professional hockey players at the ‘Sokol’Hockey Palace, and children's playgrounds wereequipped.

By running programmes in the interests of sociallyvulnerable groups of people, the company standsfor the principle of socially responsible businessconduct, and its employees fulfil their civil andhuman duty.

New Day Grant Programme,

OJSC JSCB ‘ROSBANK’

The New Day grant programme was set up by ROS�BANK in 1999. For Russian business it was one ofthe first initiatives for a nationwide open grant com�petition for socially oriented programmes of NGOshelping and supporting children in Russia. The pro�gramme is managed by the Russian Mission of theBritish Charities Aid Foundation (CAF Russia).

The programme aims to deliver comprehensive helpto children by supporting non�governmental, publicand municipal organisations and local authoritieswhich work towards the rehabilitation, support andbalanced development of children in Russia.

The New Day programme is intended to provide theconditions for a qualitative change in children's liv�ing standards and overall development, and also todraw society's attention to the problems faced byRussian youngsters.

From 1999 to 2005, 6 grant competitions were heldin more than 40 regions of Russia. In 2006 the pro�gramme became federal and was extended to thewhole of Russia. So far, the programme has sup�ported 470 projects costing a total of over US$1,600,000. New Day was highly praised and recog�nised not only in Russia, but also by foreign charityexperts.

For example, in 2002 the New York Institute forResearch of Charitable Activities named the New

Day as one of the most effective charity programmesin Russia. The expert opinion of the ‘Institute forUrban Economics’ foundation put the programmeamong the ‘Seven Best Practices of RussianBusiness’ in 2003. ROSBANK received ‘PublicRecognition 2006’, a National Socially ResponsibleBusiness Award initiated by the Russia�wide NGO‘Business Russia’, in the category ‘Children ofRussia’ for its New Day programme.

The support is provided on a competitive basis toprogrammes which:

use various arts for the rehabilitation of disabledchildren, the correction of difficult teenagers,and readapting children affected by stress, violence, or family disruption;

help gifted children;

provide sport rehabilitation for disabled childrenand support sports classes for difficultteenagers;

help orphans and children deprived of parentalcare and living in public or municipal institutions(orphanages, children's homes and boardingschools);

promote the rehabilitation and social integrationof homeless children.

Being highly relevant, the programme has extend�ed its geographical coverage to the whole ofRussia, so the programme really can be calledRussia�wide.

The Deloitte Foundation Extra Mile,

Deloitte CIS, Moscow

The Deloitte Extra Mile tournament is run byDeloitte CIS in Moscow with the purpose of raisingmoney for Downside Up, a non�commercial organi�sation whose aim is to change the life of Russianchildren with Down's syndrome for the better. Theprogramme also encourages teamwork and ulti�mately increases the employees' involvement in thebusiness.

The tournament takes place annually on the lastSaturday of July. In the summer of 2008 it was held


75

for the third time. During the contest teams of par�ticipants attempt such events as orienteering,cycling, rafting, climbing, shooting and the obstac�le race. The contesting teams of four are freelyformed, any office hierarchy being disregarded.

Initially, the Extra Mile programme was created onlyfor the company's employees. Over time a needarose to expand the target audience and so theparticipants were allowed to bring in their friends,and then teams from other companies, Deloitte'sclients or partners, were allowed to participate.

The programme is financed by raising moneythrough entry fees and personal sponsorship.Fundraising is comprehensive and includes:

team entry fee;

additional charitable gifts collected by theteams;

sponsorship from the companies.

During the first three years of the Extra Mile pro�gramme, the organisers have increased the numberof participants by the same magnitude as the moneyraised has increased. The percentage of participat�ing clients and partners has increased by 20%.

Thanks to the money raised by Extra Mile in 2007,Downside Up was able to extend the curator pro�gramme for Moscow children with Down's syn�drome by taking on additional specialists to super�vise 90 newborn babies with Down's syndromeenrolled in the programme during 2007. This homevisiting programme is crucial for the child's intellec�tual and physical development. Due to Deloitte'scontinued support, Downside Up is able to provideall of its services for free to Russian families.

In 2008 the money raised from Extra Mile exceeded850,000 roubles.

‘Back to the Future’ Post�Cancer

Rehabilitation Camp for Children,

OJSC Transaero Airlines

Transaero Airlines and the non�governmentalorganisation ‘Children’ have been running a post�

cancer rehabilitation programme for children called‘Back to the Future’ for three years (2006�2008).

Such a programme is highly relevant as Russialacks an efficient system of social and psychologi�cal rehabilitation for post�cancer children.

The ‘Back to the Future’ rehabilitation camp is abrand new way of providing post�cancer care forchildren. ‘Back to the Future’ is a family pro�gramme covering not only the disabled children,but also their healthy siblings.

The programme enjoys close co�operation withand methodical support from the Federal Scientificand Clinical Centre for Infantile Haematology,Oncology and Immunology of Roszdrav (theRussian Federal Healthcare Agency).

Children in the rehabilitation camp are cared forby a qualified professional team: oncologists,psychologists, role�play pedagogues, mentorsand social workers. The core of the camp pro�gramme is thematic role play based on creativeteamwork. Children can also do arts andengage in sport, recreational and culturalleisure events.

The closing phase of the programme (August –October) is about assessing the results of thecamp's activities and drawing up the project'sfinancial report. A follow�up ‘round table’ is orga�nised for specialists, regional social security,healthcare and education officials and NGO officers to share their experience.

The camp's success largely depends on the infor�mation strategy of the programme which involve,among other things, arranging workshops andinformation events for doctors and parents.

Transaero makes the programme known to its part�ners and customers, and also encourages itsemployees to volunteer for it.

Since its launch in 2006, the rehabilitation pro�gramme has helped over 200 children recoveringfrom oncological and haematologic diseases, andtheir parents and siblings.

APPENDIX 4


76

The programme's information and educationalactivities on child cancer prevention and childrehabilitation in Rostov�on�Don, Novosibirsk, St.Petersburg and Yakutsk involved 330 people. Theproject has become sustainable and gainedmomentum thanks to the united efforts of thebusiness community, the public and non�govern�mental organisations. The rehabilitation campprogramme was included in the disabled childrenintegration target programme of the SocialSecurity Department of Moscow for 2007�2009.Similar camp rehabilitation programmes haveemerged in other regions: Novosibirsk,Vladivostok, Khabarovsk, Yakutsk, Rostov�on�Don and the Kaluga Region. In 2008 the ‘Back tothe Future’ rehabilitation camp became a Year ofthe Family event.

The programme is planned to be extended toother cities with child oncological centres. Theproject will benefit from an anticipated exchangeof experience with foreign rehabilitation profes�sionals (Germany, USA, Ireland) expected to visitRussia for this purpose. Another promising acti�vity of the programme is working with inclusiveschools to bring children with oncological andhaematological diseases into the educationprocess.

‘Children of Russia’ Charity Fund, Ural

Mining and Metallurgical Company

The Fund actively fulfils the social objectives ofthe Ural Mining and Metallurgical Company, andalso develops and runs programmes whose goalsare fully in line with the government's social poli�cy and the national interest with regard to creat�ing favourable conditions for children's develop�ment. The programmes have been particularlysuccessful in the company's areas of operation,charitable activity having become part of the cor�porate culture.

With this aim in mind, ‘Children of Russia’ sets upand runs targeted programmes to support the

younger generation, such as ‘Gifted Children’, ‘Aidto Orphans and Children Deprived of Parental Care’and ‘From Heart to Heart’.

Each year the fund organises and supportsRussian and international children's tournamentsand contests in football, sailing, competitive danceand tennis, basketball, hockey, sambo (unarmedself�defence), judo, athletics and other sports invarious parts of Russia. It finances 6�7 tourna�ments per year.

The fund has its own TV company and financesthe production and release of children's pro�grammes such as ‘5+’, ‘Good News’ and‘Multicoloured Umbrella’ which are broadcast bysuch TV companies as ‘Oblastnoe Television’(Ekaterinburg) and ‘Telekon’ (Nizhniy Tagil,Sverdlovsk Region). The fund publishes its ownchildren's educational magazine called ‘QuietMinute’ which has a circulation of 20,000.

The total budget for the ‘Children of Russia’ CharityFund's programmes in 1999�2008 was 113.5 mlnroubles (of which 37.7 mln roubles are targeteddonations for the repair and reconstruction of theVerkhnepyshminsky orphanage).

The charity also promotes the company's strate�gic development objectives. By investing in thecare of the younger generation, raising the cultur�al level of children, promoting their sporting, artis�tic and intellectual abilities, discovering anddeveloping their talents, fighting infant mortalityand facilitating the social adaptation of orphans,the company is creating a sound environment andfavourable social climate in the cities where itoperates, at the same time bringing up its futurequalified workforce.

The social effect of charity is not always embodiedin specific results; it is not tangible. But, beyondany doubt, the effect exists, as testified by people'sresponses, gratitude and mail, as well asthe moralsatisfaction of the benefactors themselves.


77

University of Personal Finance,

OJSC URSA Bank

To raise the public awareness of banking services,URSA Bank has developed a personal financemanagement educational programme for retiredand soon�to�retire employees. The main objectiveof the University of Personal Finance is to fosterfinancial literacy, promote trust in commercialbanks and facilitate interaction between the bankand the users of its services. The programme offerslectures and seminars on banking products andtechnologies, as well as expert consultations onpension provision and other services across theregional network of URSA Bank.

Pensioners have greater difficulty dealing withfinancial issues because of their lack of experi�ence. With scant understanding of banking mat�ters, they miss out on safe and profitable ways togrow their capital. At the classes of the Universitybank employees explain the features of thosefinancial services which are of interest to senior citi�zens. They spell out the types of deposits and theinterest accrual procedure, how to receive theirpensions via the bank, how to transfer money, payfor services using ATMs or take out a loan. Thisknowledge enables senior citizens to manage theirpersonal finances efficiently and opens moreopportunities to live an active life.

Educational seminars on banking products and servi�ces were started in Novosibirsk in 2003 and arousedmuch interest among the elderly. Now the pro�gramme's geography has expanded. 2008 sawapproximately 5,000 people from Novosibirsk,Irkutsk, Novokuznetsk, Tomsk, Samara, Khabarovsk,Ekaterinburg, Tyumen, Chelyabinsk and other citiestaking part, the programme's budget being 1,643,000roubles. At the end of the classes, everyone receiveda certificate of achievement and instructional materi�als on banking products and services. The seminarsend with special evening sessions where pensionersshare their impressions and talk about the usefuladvice they received during their classes.

Today, improving financial literacy among the pub�lic is one of the foremost issues discussed at anational level. Therefore URSA Bank plans to con�tinue developing the programme. For 2009 theseminar structure will be revised and the number ofparticipants will grow substantially.

Supplier Relations, OJSC Vyksa Steel

Works (a Part of the United Metallurgical

Company (UMC))

Vyksa Steel Works (VSW) has developed a specialprogramme to improve relations with its suppliers.Suppliers are identified through a tender process.The company informs its suppliers about tenderson an arm's length basis.

VSW has developed a set of supplier selection cri�teria: terms of delivery, positive cooperationrecord, possession of international certificates ofquality, availability of product control and availabili�ty of sample shipments for assessment.

To optimise the relationship, the plant signs quar�terly agreements with suppliers to fix prices andshipments, and negotiates with them monthly 10�day delivery schedules. Every day the supplierselectronically provide a report on shipments to theworks. Twice a year coordination panels are heldwith the leading pipe metal suppliers to discuss theprogress of joint work, the quality of the shippedmetal�roll, and development of the production ofnew types of metal�roll.

Russian and foreign metal suppliers are subject toselective external audit in order to check whethertheir product quality and quality management sys�tems meet VSW requirements.

Such supplier relationship management enablesVSW to cut its costs and ensure its customersreceive products of the required quality at anaffordable price.

APPENDIX 4


ETHICAL BUSINESS CONDUCT

78

Ecological Safety and Environment

Protection, Renova Orgsintez

Renova Orgsintez takes systematic action toenable its chemical business subsidiaries to raisetheir health & safety and environmental (HSE) stan�dards, and to improve their products and produc�tion processes with regard to their impact on healthand the environment throughout the whole lifecycle.

The company focuses on the issues of resourceconservation and minimisation of waste. The bestinternational standards (ISO 14000) have alreadybeen or are soon to be implemented, and lesshazardous modern technologies are being intro�duced.

Renova Orgsintez analyses and controls how itsenterprises achieve their targets as part of itsmonitoring of key indicators specified by majorinternational HSE standards, and facilitates theadoption by its enterprises of official policies inthese areas.

Renova Orgsintez is currently planning to con�struct a new facility for the production of causticsoda and chlorine based on the most advancedand environmentally friendly electromembraneprocess. Thanks to this ecotechnology, Japanclosed down all of its mercury�cathode electro�lysis plants back in 1986. Russia currently hasonly one plant using this up�to�date processwhich is compliant with global environmentalstandards.

Being highly socially oriented, Renova Orgsintezcontinues to develop the production of polycrys�talline silicon, the key to the future of energy gene�ration – solar photo�energy. Using light and heatfrom the sun is a totally environmentally clean, sim�ple and natural, as well as being the most demo�cratic, way to obtain all forms of the energy weneed.

Renova Orgsintez and its subsidiary businesseshave proved their commitment to their declaredgoals by joining the Responsible Care globalchemical industry initiative. This internationalinitiative is certain to become a precondition forchemical enterprises to maintain their marketpositions. It is a management pattern and set ofguidelines which establish a production cultureand sense of responsibility for Russian manu�facturers towards current and future genera�tions. This project enables Renova Orgsintez towork, in close cooperation with governmentauthorities and business community represen�tatives, on the issues of technical regulation,development of HSE guidelines and standardsfor chemical enterprises, and harmonisingRussian standards with those of theResponsible Care initiative.

Ecological and industrial safety and HSE commit�ment is viewed as a pledge of competitiveness for the Renova Orgsintez group of companies. The company won the national ‘EnvironmentProtection Leader 2007’ award, which is a sign ofthe high appreciation of its efforts in this area.

Special Mining & Environmental Monitoring

Project, OJSC Siberian Coal Energy

Company

A special mining and environmental monitoringproject has been developed and is run by theSiberian Coal Energy Company to assess theimpact of the Borodinsky open�pit coal mine(Krasnoyarsk Territory) upon the environment – air,soil, water, plants and wildlife – and to plan thestages for a series of corresponding environmentalprogrammes.

Up to 70% of all research is carried out by specia�lists from the integrated industrial laboratory of theBorodinsky mine. They monitor the status of mine�ral resources by recording coal reserves, mining


ENVIRONMENTAL PROTECTION

79APPENDIX 4


volume and the extent and quality of the extraction.They also monitor the ground surface by surveyingthe slopes and high walls of the mines and internaland external dumps, and they monitor quarry andsurface water, as well as the state of the air.

The environmental project also requires types ofmonitoring which can only be carried out by spe�cialist organisations, for example monitoring plantand animal life. Thus, the fertility, quantity anddiversity of wildlife are studied by the V.N.Sukachev Institute of Forestry, a Siberian Branch ofthe Russian Academy of Sciences; bottom sedi�ments are studied by the ‘Solyanskaya Station ofthe Agrochemical Service’ Federal StateInstitution. In 2007 the status of ichthyofauna waschecked through ichthyological research of theRiver Barga and a pond near the Glubokovo settle�ment. This work was carried out by the Scientificand Research Institute of the Ecology of FisheryWater Bodies.

The sanitary protection zone is monitored both bythe Borodinsky coal mine's integrated sanitary andindustrial laboratory and by the sanitary and epi�demiological stations of Kansk and Krasnoyarsk.The radiological study of water is performed by theFSI Centre of Hygiene and Epidemiology for theKrasnoyarsk Territory.

All works which come under the project are costly,but the company considers such expenses neces�sary since protection of the environment and carefor the future of the host region is a first�prioritytask to be addressed today, not tomorrow.

‘Green Watch’, UC RUSAL

The main goal of the ‘Green Watch’ programme isto promote the environmental training of school�children, to bring them up to feel responsible fortheir native area, and to give them a better appreci�ation of nature.

The Public Chamber of the Russian Federationnoted in its 2007 Civil Society Progress Report that

the environment had only started to receive sup�port from the business community, ‘RUSAL beingthe pioneer’. The ‘Green Watch’ programme is aclear testimony to that.

In 2007 this environmental movement united morethan 18,000 people in eight cities of Russia andUkraine. They took part in 150 environmental activi�ties. Such activities are carried out in partnershipwith regional environmental NGOs and researchand educational institutions which organise thework of volunteers from schools.

The programme also focuses on ‘small�scale’ecology in a district, town or region, whereby resi�dents are encouraged to take part in environmentalactivities. Clearly, school children alone cannotkeep a whole town clean. So one of the tasksaddressed by the young environmentalists is toinform the local community of their findings inorder to unite environmental efforts and involvelocal residents in environmental activities.

The contest takes part in the following areas:Irkutsk region (Bratsk), Krasnoyarsk territory(Achinsk, Krasnoyarsk), Republic of Khakassia(Abakan, Sayanogorsk), Leningrad region(Bauxitogorsk), Kemerovo region (Novokuznetsk),and Ukraine (Mykolayiv).

The main contest categories are as follows:

education and raising awareness, involving thepublic in micro�ecology issues;

preservation of natural diversity (animals, plants,springs etc.);

organising ecological forums, activities, festivals and (photo�) exhibitions, disseminationof environmental knowledge and experience;

ecological expeditions and environmental exploration;

organising publicly beneficial volunteer activities with children and teenagers in theareas of ecology and environment protection.

In April 2008, RUSAL announced 30 winners of the

80Report on Social Investments in Russia 2008Integrating CSR Principles into Corporate Strategy APPENDIX 4

second ‘Green Watch’ contest. The total amount ofgrants awarded was 1.5 mln roubles.

Safe production, OJSC ‘TNK�ВР

Management’

One of the most important aspects of TNK�ВР'senvironmental activities is equipment integritymanagement which helps to prevent hydrocar�bon and other pollution caused by pipeline leak�age. Integrity management is a continuousprocess of testing the operability of equipmentduring design, use and maintenance. The keyaspect of the process is to maintain pipelineintegrity.

TNK�ВР has adopted a pipeline reconstructionprogramme to replace corroded pipelines and pro�tect at�risk pipelines from corrosion. The pipelineintegrity and surface operating reliability facilitiesprogramme has received US$ 1.7 bln, of whichUS$ 650 mln is for the replacement of 4,500 km ofthe most worn out pipelines.

To enhance pipeline system durability and safety,the company widely uses anticorrodant injectionswhich can reduce leakages by around 90%. Now atotal of over 7,500 km of pipelines are inhibitor�protected, but in 2009 the coverage will reach10,000 km. The company consistently and com�prehensively addresses external and internal cor�rosion threats and works to ensure the mechani�cal integrity of pipelines. As part of that, the next5�10 years will see a staged implementation of theCorporate Standard of Integrity Managementapproved in January 2007. This provides for thesystematic detection and continuous mitigation ofcurrent risks.

Significant funds are spent on tackling the prob�lem of storage and recycling of liquid and solidoily waste. All oil storage pits with perennial wastepools have been removed from the Saratov refinery. This has palpably improved the ecologi�cal situation at the refinery as there are now no

pollutants on the open surfaces of the storagefacilities. TNK�Nyagan has put into operation anoily industrial waste storage facility enabling thecollection, accumulation and recycling of liquidand solid oily waste and polluted snow. In 2007the facility returned 45,000 cubic metres of oilyliquid to the oil�gathering system.

TNK�ВР production facilities undergo compre�hensive improvements to prevent accidental pol�lution of water. Saratov Refinery was the firstindustrial entity in its region to deploy sewagewater UV decontamination technology makingthe water safe for the Volga basin. Furthermore, a3 km drain has been built at the refinery to inter�cept ground water streams to the east and southof the refinery and direct them to the sewagefacilities. Thanks to this the river gets back treat�ed and oxygen�enriched water. TNK�Nyagan runsa special programme for building oil removers onminor rivers, and each year at the time of snowmelt floods sets up absorbant slick booms onstreams and rivers.

81

A P P E N D I X 5 .

Organisations and companies which participatedin the Social Investment Index of RussianBusiness 20087

N Company Industry Position Name Region

1 Aeroflot�Don Transport General Director Kritskiy Mikhail Stepanovich Rostov�on�Don

2 ALCON Development Construction General Director Sorokin Alexander Ivanovich Moscow

3 ALROSA Metallurgy President Vybornov Sergey Alexandrovich Republic of Sakha (Yakutia)

4 Arkhangelsk P&PM Wood Processing General Director Beloglazov Vladimir Ivanovich Arkhangelsk Region

5 Arnest Consumer Goods General Director Karaulov Evgeniy Ivanovich Stavropol Territory

6 Audit�Delo Financial Sector General Director Akulova Anna Petrovna Irkutsk

7 Autoline Group Transport Chairman of the Board Muzyrya Nikita Igorevich Moscow

8 Baltika Breweries Consumer Goods President Artemiev Anton Olegovich St. Petersburg

9 Basic Element Financial Sector General Director Moldazhanova Gulzhan Talalovna Moscow

10 CB Solidarnost Financial Sector President Sinitsyn Oleg Yurievich Samara

11 Centre of Precision Mechanical Engineering Director Nesgovorov Alexey Vladimirovich TomskMechanical Processing

12 Chelyabenergo Power Industry Deputy General Director of Butakov Igor Vladimirovich ChelyabinskIDGC of Urals, JSC – Director of Chelyabenergo

13 Chelyabinsk Tractor Plant Mechanical Engineering General Director Platonov Valeriy Mikhailovich Chelyabinsk� URALTRAC

14 ChTPZ Group Metallurgy Director, Chelyabinsk Andryushchenko Andrey Nikolaevich ChelyabinskDivision

15 Commercial Port Transport General Director Pertsev Vyacheslav Mikhailovich Vladivostokof Vladivostok

16 Comstar United Telecommunications President Pridantsev Sergey Vladimirovich MoscowTelesystems

17 CONSORT Professional Services Chairman of the Board Bogdanov Mikhail Yurievich MoscowConsulting Group

18 Deloitte CIS Professional Services General Director David Pearson Moscow

19 EUROCEMENT Group Construction President Skorohod Mikhail Anatolievich Moscow

20 EuroChem MCC Chemical Industry General Director Strezhnev Dmitriy Stepanovich Moscow

21 FIA�BANK Financial Sector Chairman of the Board Voloshin Anatoliy Porfirievich Togliatti

22 Finance Academy under Professional Services Rector Eskindarov Mikhail Moscowthe Government of the AbdurakhmanovichRussian Federation

23 Flour Mill Consumer Goods General Director Potapov Sergey Stepanovich Tver

24 Gavrilov�Yam Mechanical Engineering General Director Korytov Vladimir Nikolaevich Yaroslavl RegionMachine�Building Plant AGAT

25 Globus Leasing Financial Sector General Director Kurtsman Boris Efimovich St. Petersburg

APPENDIX 5


7. Data is given as of 1 July 2008

82

26 GMR. Planet of Hospitality Services President and Chairman Elashvili Merab Isakovich Moscowof the Board

27 Gorodskoy Supermarket Retail General Director Sadovin Vladimir Albertovich Moscow

28 Gulidov Krasnoyarsk Metallurgy General Director Tikhov Igor Vladimirovich KrasnoyarskNon�Ferrous Metals Plant

29 Highland Gold Mining Metallurgy Managing Director Henry Horne Moscow

30 IES�EnergoStroyEngineering Construction General Director Suvorov Sergey Alexanderovich Moscow

31 Integrated Energy Systems Power Industry President Slobodin Mikhail Yurievich MoscowHolding Company

32 Interregional Volga Radio Telecommunications General Director Girev Andrey Vitalievich SamaraTelecommunication Company (SMARTS)

33 Izoplit Wood Processing General Director Kudinov Evgeniy Dmitrievich Kursk Region

34 Joint�Stock Insurance Financial Sector General Director Millerman Alexander Samuilovich MoscowCompany GEFEST

35 JSCB ROSBANK Financial Sector Chairman of the Board Popov Alexander Vladimirovich Moscow

36 JSFC Sistema Financial Sector Chairman of the Board Evtushenkov Vladimir Petrovich Moscow

37 KAMAZ Mechanical Engineering General Director Kogogin Sergey Anatolievich Tatarstan

38 Kamensk�Uralsky Metallurgy General Director Makhmutov Farit Gashimovich Sverdlovsk RegionNon�Ferrous Metal Processing Plant

39 KuibyshevAzot Chemical Industry General Director Gerasimenko Viktor Ivanovich Togliatti

40 Kursk Nuclear Power Plant Power Industry Deputy General Director Slepokon Yuriy Ivanovich Kursk Regionof Energoatom and Director of Kursk Nuclear Power Plant (branch of Energoatom)

41 Kuzbassenergo Power Industry General Director Mikhailov Sergey Nikolaevich Kemerovo

42 LUKOIL Fuel Industry President Alekperov Vagit Yusufovich Moscow

43 Magnezit Plant Metallurgy General Director Anikeevich Igor Gennadievich Chelyabinsk Region

44 Managing Company Fuel Industry General Director Grishko Alexander Ivanovich Sakhalin RegionSakhalinugol

45 MDM Bank Financial Sector Chairman of the Board Michel Perhirin Moscow

46 Military�Industrial Mechanical Engineering General Director and Leonov Alexander Georgievich Moscow RegionCorporation Chief DesignerNPO Mashinostroyenia

47 MMC Norilsk Nickel Metallurgy General Director Morozov Denis Stanislavovich Moscow

48 Mobile TeleSystems Telecommunications President Shamolin Mikhail Valerievich Moscow

49 Moscow Central Depository Financial Sector Chairman of the Board Agafonova Nataliya Viktorovna Moscow

50 Moscow River Transport General Director Anisimov Konstantin Olegovich MoscowShipping Company

51 Mospromostroy Construction General Director Guretskiy Boris Osherovich Moscow

52 Motovilikha Plants Mechanical Engineering General Director Kostin Ivan Mikhailovich Perm

53 North�Onega Bauxite Mine Metallurgy General Director Chernov Vladimir Valentinovich Arkhangelsk Region

54 North�West Telecom Telecommunications General Director Akulich Vladimir Alexandrovich St. Petersburg

55 Novgorodenergo Power Industry Director of Novgorodenergo, Chistyakov Vladimir Vladimirovich Veliky NovgorodJSC IDGC of the North�West

56 NOVOGOR�Prikamye Services Chief Managing Director Glazkov Vladimir Viktorovich Perm

57 NPO Saturn Mechanical Engineering General Director Lastochkin Yuriy Vasilievich Yaroslavl Region

58 OGK�4 Power Industry General Director Kitashev Andrey Vladimirovich Moscow

59 OGK�5 Power Industry General Director Kopsov Anatoliy Yakovlevich Moscow

60 Onezhsky Tractor Plant Mechanical Engineering Executive Director Kolesnikov Mikhail Viktorovich Karelia Republic

61 Pharmacy Chain 36.6 Retail President Jere Calmes Moscow


83

62 Polymetal Management Metallurgy General Director Nesis Vitaliy Natanovich St. PetersburgCompany

63 Renova Orgsintez Chemical Industry General Director Kuznetsov Yaroslav Evgenievich Moscow

64 Rosenergoatom Power Industry Acting General Director Lokshin Alexander Маrkovich Moscow

65 Rosneft Fuel Industry President Bogdanchikov Sergey Mikhailovich Moscow

66 Roszheldorproject Construction General Director Mekhov Viktor Borisovich Moscow

67 RTI Systems Mechanical Engineering General Director Lobuzko Vyacheslav Vladimirovich Moscow

68 RUSAL Global Metallurgy General Director Bulygin Alexander Stanislavovich MoscowManagement B.V.

69 RussNeft Fuel Industry Acting President Gordeev Oleg Georgievich Moscow

70 RZD (Russian Railways) Transport President Yakunin Vladimir Ivanovich Moscow

71 SABMiller RUS Consumer Goods General Director James Wilson Moscow

72 Sayanskchemplast Chemical Industry General Director Melnik Nikolay Viktorovich Irkutsk Region

73 SCALA (CIS) Ltd Professional Services Regional Director Sidorova Natalia Leonidovna Moscow

74 Severstal Metallurgy General Director Mordashov Alexey Alexandrovich Moscow

75 Shchekinoazot Chemical Industry President Sokol Boris Alexandrovich Tula Region

76 Siberian Coal Energy Fuel Industry General Director Rashevskiy Vladimir Valerievich MoscowCompany

77 Sibnefteavtomatika Mechanical Engineering General Director Abramov Genrikh Saakovich Tyumen

78 SIBUR Holding Chemical Industry President of SIBUR LLC Konov Dmitriy Vladimirovich Moscow

79 SOK Group Mechanical Engineering President Savchenkov Alexey Anatolievich Samara

80 Sportmaster Retail General Director Strakhov Leonid Borisovich Moscow

81 Staraya Ploschad Group Professional Services President Kolosova Svetlana Valentinovna Moscow

82 Tatneft Fuel Industry General Director Takhautdinov Shafagat Fakhrazovich Tatarstan

83 TGC�2 Power Industry General Director Vagner Andrey Alexandrovich Yaroslavl

84 TGC�5 Power Industry General Director Smelov Eduard Yurievich Kirov

85 TGC�6 Power Industry General Director Kramarenko Vyacheslav Mikhailovich Nizhni Novgorod

86 TGC�9 Power Industry General Director Makarov Andrey Yurievich Perm

87 The ROEL Group Professional Services General Director Dorokhin Vladimir Vasilievich Moscow

88 TNK�BP Fuel Industry President and Chief Robert Dudley MoscowManaging Director

89 Transaero Airlines Transport General Director Pleshakova Olga Alexandrovna Moscow

90 TRIZA Exclusive Executive Professional Services President Sedlenek Vladislav Arturovich MoscowSearch Group

91 UMMC�Holding Metallurgy General Director Kozitsyn Andrey Anatolievich Sverdlovsk Region

92 United Metallurgical Metallurgy President Markin Vladimir Stepanovich MoscowCompany

93 Uralchimplast Chemical Industry General Director, Gerdt Alexander Emmanuilovich Sverdlovsk RegionZAO Uralchimplast Management Company, Chairman of the Board, OJSC Uralchimplast

94 UralPlatinumHolding Metallurgy General Director Shutov Andrey Nikolaevich Moscow

95 Uralsvyazinform Telecommunications General Director Ufimkin Anatoliy Yakovlevich Ekaterinburg

96 URSA Bank Financial Sector General Director Brel Kirill Vladimirovich Novosibirsk

97 UTair Aviation Transport General Director Martirosov Andrey Zarmenovich Tyumen Region

98 Vnesheconombank Financial Sector Chairman Dmitriev Vladimir Alexandrovich Moscow

99 Vodokanal, St. Petersburg Services General Director Karmazinov Felix Vladimirovich St. Petersburg

100 VolgaTelecom Telecommunications General Director Omelchenko Sergey Valerievich Nizhni Novgorod

101 VSMPO�AVISMA Corporation Metallurgy General Director Tetyukhin Vladislav Valentinovich Sverdlovsk Region

102 Х5 Retail Group Retail Chief Executive Director Khasis Lev Aronovich Moscow

APPENDIX 5


84

The Committee is Russia's leading expert panel oncorporate responsibility. Its main objective is toachieve common understanding and commonapproaches in implementing various forms of dia�logue on CSR between the business community,government and society.

The Committee for Corporate Responsibility hasalways been chaired by Olga Yurievna Golodets,President of the All�Russia Cross�Industry Union ofEmployers – Producers of Nickel and PreciousMetals.

The Committee argues that the business commu�nity needs to achieve common CSR approaches:

based on the aims of stable socio�economicdevelopment of the country and sharing responsi�bility for this development;

taking into consideration the objective processesof modern business development and corporategovernance systems based on responsibility andquality;

recognising the need for the business communityto determine CSR priorities for setting up, in con�junction with the government and civil society insti�tutions, mechanisms for cooperation, tools andprocedures for resolving acute social problemswithin businesses and their areas of operation;

understanding the existing problems of globaland national development and taking into accountthe international community's initiatives which seekto develop partnerships between the governmentand the business community and between employers and employees.

The Committee works in the following areas:

forming and promoting a consolidated position ofthe business community on social responsibility;

studying global and Russian best practices

of CSR policy implementation;

exchange of advanced CSR strategy experience

within the senior manager community in Russia

and abroad;

developing strategic recommendations to the

government and private sector on addressing

social policy issues;

setting up dialogue between business, authori�

ties and society for efficient implementation of

social and national projects intended to develop

a civil society.

The Committee addresses the following tasks:

specifying the role business and government

play in the development of a civil society;

providing methodological support for CSR

projects and social reporting;

maintaining a database of initiatives and

projects requiring the joint efforts of business,

society and government;

promoting information support for the

Committee and managerial community;

promoting co�operation with the state authori�

ties.

For any queries on the activities of the Russian

Managers Association's Committee for Corporate

Responsibility, please contact Anita

Makedontseva, Director of the Strategic

Communications Department at +7 (499) 271�34�41/42

or [email protected],

or visit the Russian Managers Association's

website: www.amr.ru.


The Russian Managers' Association Committee for Corporate Responsibility

85

The UN Global Compact is the world's largest globalvoluntary initiative promoting responsible corporatecitizenship through companies' compliance with tenfundamental principles in the areas of human rights,labour, environment and anti�corruption. Since2000, when the UN first announced this initiative, ithas been joined by over 4,000 participants from over100 countries: companies, business communities,public agencies, NGOs and professional associa�tions, including Russian names.

The Global Compact promulgates the main prin�ciples of responsible corporate conduct in theareas of human rights, labour, environment andanti�corruption. The Global Compact is not ameans to control or monitor companies' activitiesor governance systems, but calls for public socialreporting and transparency. Joining the GlobalCompact means the company endorses the beliefthat responsible business practice promotes confi�dence and social capital contributing to compre�hensive development and sustainability of theglobal market and creation of prosperous and suc�cessful societies.

The Global Compact is a purely voluntary initiativeseeking to integrate the ten principles into businessactivities worldwide and encourage actions support�ing the broader development objectives of the UN.The UN Global Compact's ten principles enjoy uni�versal consensus and are derived from The UniversalDeclaration of Human Rights, The InternationalLabour Organisation's Declaration on FundamentalPrinciples and Rights at Work, The Rio Declarationon Environment and Development and The UnitedNations Convention Against Corruption:

Principle 1: Businesses should support and respect theprotection of internationally proclaimed human rights.

Principle 2: Businesses should make sure that theyare not complicit in human rights abuses.

Principle 3: Businesses should uphold the freedomof association and the effective recognition of theright to collective bargaining.

Principle 4: Businesses should uphold the elimina�tion of all forms of forced and compulsory labour.

Principle 5: Businesses should uphold the effectiveabolition of child labour.

Principle 6: Businesses should uphold the elimina�tion of discrimination in respect of employment andoccupation.

Principle 7: Businesses should support a precau�tionary approach to environmental challenges.

Principle 8: Businesses should undertake initiativesto promote greater environmental responsibility.

Principle 9: Businesses should encourage thedevelopment and diffusion of environmentallyfriendly technologies.

Principle 10: Businesses should work against cor�ruption in all its forms, including extortion andbribery.

More information on how to join the UN Global Compact and the list of the Russian national network companies can be found at www.unglobalcompact.org.For any queries related to participation in theGlobal Compact, please contact Evgeny Levkin on+7 495 787�21�76 or [email protected]


The Strategic Programme Fund is the main pro�

gramme budget of the Foreign & Commonwealth

Office. The fund's activities contribute towards

the British Government's International Priorities.

The Low Carbon, High Growth Programme is one

of the fund's activities in 22 countries of the

world. The Programme seeks to support a high

economic growth rate and avoid climate change.

In Russia, specifically, the Embassy runs projectsintended to improve and promote financial andbanking sector reforms, corporate social responsi�bility, corporate governance, anti�corruption, ener�gy security and trade policy.

Further information on programme activities andproject tenders may be found at the official websitefor the British Embassy in Russia: http://ukinrussia.fco.gov.uk.

86

The St. Petersburg State University's GraduateSchool of Management was established in 2007 onthe platform of the university's School ofManagement (est. 1993) under the PriorityNational Project ‘Education’ with a mission to cre�ate a world�class Russian business school. GSOMoffers a diverse portfolio of modern business edu�cational programmes: МВА, Master, Bachelor andPost�Graduate Degrees as well as corporate pro�grammes. GSOM SPbSU is the only Russian namein the major associations of the world's leadingbusiness schools: Community of EuropeanManagement Schools (CEMS) and Partnership inInternational Management (PIM); two degree pro�grammes (МВА and Bachelor) have prestigiousinternational accreditations.

GSOM SPbSU is a recognised Russian manage�ment research centre. It publishes two leading sci�

entific journals (The Russian Management Journaland SPbSU Bulletin. Management Series) and runsa number of international research centres. One of them is the Center for Corporate SocialResponsibility, which actively co�operates withsuch leading international professional associationsand research entities as the European Academy ofBusiness in Society (EABIS), Caux Round Table,the Globally Responsible Leadership Initiative(GRLI) and the European Business Ethics Network(EBEN). The centre focuses on research, knowledgedissemination in the business community, andteaching its core courses through the main pro�grammes of GSOM SPbSU.

More information on GSOM SPbSU and the Centerfor Corporate Social Responsibility can be found atwww.gsom.pu.ru/en/csr.


STRATEGIC PROGRAMME FUND OF THE BRITISH EMBASSY

British Embassy Moscow

FEEDBACK

You are kindly invited to discuss the conclusions and recom�

mendations of the ‘Report on Social Investments in Russia 2008’

interactively at the Russian Managers Association's website:

www.amr.ru.

We welcome your expert views, opinions and comments

on any of the statements, conclusions and recommendations

of the report, and also constructive proposals on the furtherance

of the CSR agenda in Russia.

For any further queries on this project please contact

Ekaterina Ivanova, Director of the Strategic Studies Department,

The Russian Managers Association at +7 (499) 271�34�41/42 or

[email protected].

Report on Social Investments in Russia 2008


Report on Social Investments

in Russia 2008


Russian Managers Association

Floor 15, Tower «B», Moscow�CityKrasnopresnenskaya naberezhnaya, 18123317, Moscow, Russian Federation

Tel: + 7 (499) 271�3441, 271�3442Fax: + 7 (499) 271�[email protected] www.amr.ru

United Nations Development Programme

9, Leontyevsky Lane, 125009,Moscow, Russian Federation

Tel: +7 (495) 787�2100Fax: +7 (495) 787�[email protected]

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