Business and Corporate Responsibility in Russia

Book coverThis post was contributed by Bill Bowring, Professor of Law in Birkbeck’s School of Law; and a practising barrister at Field Court Chambers, Gray’s Inn. His latest book is Law, Rights and Ideology in Russia: Landmarks in the Destiny of a Great Power (Routledge, 2013). This article was originally published on Who’s Who Legal.

 

“Despite privatisation policies and programmes since 1991, the Russian state still owns two-thirds of the market capitalisation in the Russian stock market.”

 

On 22 August 2012, after 18 years of negotiations, Russia became the 156th member of the World Trade Organization. As a BBC report pointed out, Russia is the EU’s third biggest trading partner, with member countries exporting €108 billion euros of goods to Russia, including €7 billion worth of cars and €6 billion of medicines. Russia also exports enormous quantities of oil and gas around the world. Despite complications arising from Russia’s actions in Ukraine – including EU and US sanctions on Russian financial and other interests, and Russian sanctions on imports from the EU – the Russian economy and its governance are of great importance to the rest of the world.

Does this important step mean that the Russian economy can be compared with those of Western Europe or North America?

There is one particularly striking difference. Despite privatisation policies and programmes since 1991, the Russian state still owns two-thirds of the market capitalisation in the Russian stock market. The state’s ownership is concentrated in four strategic sectors: energy (oil, gas and electricity), banks, defence industries and transport. There is little state ownership in most other sectors in the Russian economy, including consumer goods, non-defence manufacturing, agriculture, insurance and services. But it is precisely in the two-thirds of the economy which has remained in state hands, or been seized by the state (as in the expropriation of Yukos, according to the Hague Court of International Arbitration, and the arrest and imprisonment from 2003 to 2013 of its owner Mikhail Khodorkovsky) that the most senior government officials are in control. This includes Igor Sechin, head of the state oil company, Rosneft, which took over the former assets of Yukos. Many of these officials have become incredibly rich.

Accession to the WTO was not the first marker of Russia’s participation in the global economic order, especially where corporate social responsibility was concerned. On 10 April 2008 the UN Secretary General Ban Ki-moon spoke at a Moscow meeting of more than 30 Russian business leaders, preparing to establish the Russian network of the UN’s Global Compact. Kofi Annan launched the Compact, which carries ten principles, on 26 July 2000. With over 12,000 corporate participants and other stakeholders from over 145 countries, it is the largest voluntary corporate responsibility initiative in the world. On 17 December 2008 the Russian network adopted its statutes.

In 2009 a Report on Corporate Social Responsibility Practices in Russia was published by, the United Nations Development Programme (UNDP), together with the Russian Union of Industrialists and Entrepreneurs (RSPP) and the UN Global Compact Network in Russia. It highlighted the corporate social responsibility commitments of some of the largest Russian enterprises: Viktor Vekselberg’s Renova Group of Companies, employing more than 100,000 people in Russia; Oleg Deripaska’s UC Rusal, the world’s largest aluminium manufacturer; and Vladimir Yevtushenkov’s Sistema investment group. Ironically, Sistema has recently lost its investment in the oil producer Bashneft through court proceedings that have been seen by many as part of the Russian state’s strategy to consolidate its dominance of oil production. Mr Yevtushenkov himself was arrested.

The RSPP is headed by Vladimir Shokhin, formerly Russia’s deputy prime minister and minister of economics. It was founded in 1991 following the collapse of the former USSR, and is based on the foundations of the Scientific and Industrial Union (which launched in 1990). It has a membership base of over 120 regional alliances and industry associations representing key industries, including the fuel and energy, machine-building, investment banking, military industrial, construction, chemical and food industries. It has more than 328,000 members representing industrial, scientific, financial and commercial organisations and individual members in all Russian regions.

The RSPP is itself responsible for a series of initiatives in the field of social responsibility, including the Global Compact. It has its own Charter of Corporate and Business Ethics, established in 2002, and a Social Charter of Russian Business, adopted at its Congress in 2004 and amended in 2008. It covers 254 businesses and NGOs, and more than 6 million workers. On 20 September 2012, in Sochi, the RSPP promulgated its Anti-Corruption Charter of Russian Business in the presence of the current prime minister Dmitry Medvedev.

Some highly influential Western companies promote corporate responsibility in Russia. For example, the Russian website of PricewaterhouseCoopers (PwC) includes glossy report on the firm’s corporate responsibility programme. It is the market leader in professional services in Russia, with eight offices and over 2,000 staff. Its client base of 2,000 companies includes: every single on of the 10 largest financial services companies and banks; nine of the 10 largest oil and gas companies; seven of the 10 largest power industry companies; six of the 10 largest retail companies; five of the six largest telecommunications companies; four of the 10 largest mining companies; and five of the 10 largest ferrous metallurgy companies. The report states that PwC is a signatory to the UN Global Compact, and in 2009 signed the RSPP’s Social Charter of Russian Business: “a set of principles for businesses to follow that are the foundations of responsible business practices”.

PwC’s competitor Ernst & Young also publishes a report on corporate responsibility. It began work in Russia in 1989 and employs 3,000 staff in eight offices. Since 2012 it has had a corporate responsibility expert panel, which brings clients together with representatives of the educational and ecological sectors.

Baker & McKenzie was the first international law firm to open an office in Moscow in 1989, and employs more than 120 qualified lawyers in Moscow and St Petersburg combined, including 27 partners. This year it was voted Law Firm of the Year in Russia. Its report, “Doing Business in Russia (2014)”, describes the country’s legal and judicial systems in detail and presents a picture of a properly and normally functioning rule of law.

Yet a different perspective comes from Medvedev’s initiative, announced on 27 April 2012: the creation of a new business ombudsman. Mr Medvedev’s last day in office as Russia’s president was 7 May 2012 (he was sworn in as prime minister the following day). 7 May also marked the introduction by Vladimir Putin (who had just been elected president, after serving as prime minister for four years) of a national business ombudsman’s office by December 2012.

On 21 June 2012, in advance of the law, Putin appointed business lobby leader Boris Titov as the Ombudsman for Entrepreneurs’ Rights. According to a BBC report published in July 2012, Mr Titov claimed that in the last 10 years Russia has imprisoned nearly 3 million entrepreneurs, many unjustly. He added, “It is hard to find another social group persecuted on such a large scale.” How has this come about?

The answer is to be found in two of the most insidious problems of doing business in Russia. These are “criminal prosecutions to order” and “criminal corporate raiding”. In short, there have been complaints for many years that private and state businesses, and powerful individuals, have been able to frame commercial rivals by paying corrupt police officers and prosecutors to plant evidence and make arrests to order. The judicial system itself has been a willing participant in such activities.

Another reason for creation of the Ombudsman was the $84 billion in capital that left Russia in 2011: a record amount. Russians were investing overseas because they feared for the safety of their businesses at home. Indeed, many Russian entrepreneurs have fled the country for their own safety. London has even been dubbed “Londongrad” because of the many Russians who have taken up residence and carried out business in the city.

The author of this article, who first travelled to Russia in 1983 in the days of the USSR, has since 2003 been employed as an expert witness on Russian law and politics in several cases in the London and Cyprus courts. The cases fall into three categories.

First, there have been requests by the Russian Federation for the extradition of Russian citizens resident in the UK, on the basis of criminal charges. Many of these were activities connected with Yukos and Mr Khodorkovsky. In almost all of these cases the English judge found that the requests were politically motivated. In none of these cases has Russia been successful. Second, expert evidence has been given in appeals against refusal of refuge status. Third, there have been commercial disputes in which an important preliminary issue has been the potential for a fair trial in Russian courts, given the continued prevalence of “telephone justice” and the possibility of political interference or pressure from highly placed and wealthy individuals and interests.

In fact, prior to his arrest in late 2003 and the destruction of Yukos, Mr Khodorkovsky was the leading Russian exponent of good corporate governance and corporate social responsibility. After two trials and 10 years in prison (he was released in December 2013), he now leads a global campaign to transform Russia into a democracy with an independent judiciary, a viable opposition and free and fair elections.

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World Bank watch out, the BRICS Bank is a game-changer

Ali Burak GuvenThis post was written by Dr Ali Burak Güven, Lecturer in International Relations & International Political Economy in Birkbeck’s Department of Politics. It was originally published on The Conversation.

The top news from this year’s BRICS summit was the announcement of a New Development Bank. Headquartered in Shanghai, the bank will become operational in 2016 with an initial capital of US$50 billion. Its core mandate is to finance infrastructure projects in the developing world.

The bank, announced at the summit in Fortaleza, Brazil, will also have a monetary twin to provide short-term emergency loans, the Contingency Reserve Arrangement. While the bank will be open to all UN members, the reserve will lend only to the contributing BRICS countries in times of crisis.

This combination of timing, actors, and institutions is noteworthy. It was in July 1944 that the Allied nations gathered at Bretton Woods to form two of the most vital institutions of the post-war era: the International Monetary Fund and what would become the World Bank. Now, 70 years later and only a few years on from the global financial crisis, the leading developing nations of our time have joined forces to forge new institutions of international economic cooperation with mandates identical to the World Bank and the IMF.

This move is born out of a belief that the Bretton Woods twins, despite numerous governance reform initiatives over the past decade, remain set to reflect the policy preferences of their original creators. In creating complementary institutions, the BRICS will be hoping to use these alternative platforms of international economic governance and as leverage to accelerate the reform of existing arrangements.

Game-changing potential

The New Development Bank is currently the more interesting of the “Fortaleza twins”, for it is designed as a freestanding organisation that’s open to all. Yet it has not received a warm welcome in business columns. While the political symbolism of the new institution is widely acknowledged, its immediate economic utility has been challenged – why do the BRICS need a development bank of their own when infrastructure projects are already easily financed through private as well as official channels, especially through the World Bank?

This is a narrow criticism. In the long run, the New Development Bank has the potential to become a game-changer in development financing. In fact, if its evolution even remotely parallels that of the World Bank, it might end up having a formative impact on economic policy-making and overall development strategy in the Global South.

To begin, while there is no shortage of national and regional development banks as well as private financiers of infrastructure projects, there is still a massive gap in development finance, estimated to be as high as US$1 trillion per year. Many developing countries encountered significant financing problems during the global crisis of the late 2000s. This shortfall necessitated a surge in World Bank commitments, from an annual US$25 billion in 2007 to about US$60 billion in 2010.

But commitments declined just as swiftly over the past few years, and as of 2013 stood at about $30 billion. Given these figures, the New Development Bank’s readily available $10 billion in paid-up capital and the extra $40 billion available upon request are not exactly pocket money for development financing.

Yet just as the World Bank was never simply a money lender, so too will the new bank represent far more than a mere pool of funds. The existing geostrategic and policy inclinations of its founding stakeholders imply a bigger role to play for the institution. In the process, it is bound to offer a formidable challenge to the World Bank’s financial prominence and so influence policy in the developing world.

Client-side

The new bank has been long in the making. It is the culmination of nearly two decades of intense South-South cooperation and engagement. In recent years especially, the BRICS and other emerging nations have become donors and investors in both their immediate regions and in less developed areas of the world – with Chinese and Brazilian involvement in sub-Saharan Africa and parts of Latin America representing the prime examples.

They have made an effort to establish more equal relationships with their lower-income developing peers and emphasised an attractive narrative of partnership, non-intervention and knowledge transfer, instead of smug, superior Western notions of top-down aid and restrictive conditionality. To the extent that it could keep its rates competitive, the New Development Bank is unlikely to suffer from a dearth of clients from among its fellow developing nations.

Paradoxically, BRICS and other large middle-income countries still remain the most valuable clients of the World Bank. Since the financial crisis, India has been the largest borrower of the World Bank, and has been closely followed by Brazil, China and a few other near-BRICS such as Indonesia, Turkey and Mexico. But, once the new bank fully kicks off, it is possible the World Bank will lose a lot more business from this traditionally lucrative market of large middle-income borrowers who now have a serious alternative.

Political implications

A reduced loan portfolio will ultimately translate into declining policy influence for the World Bank, which has held near-monopoly of development wisdom over the past 70 years. Perhaps in recognition of their waning power, there has already been a slight but steady decline in World Bank loans that emphasise policy and institutional reforms.

Also, a larger portion of the Bank’s resources have been allocated to conventional development projects, such as environment and natural resource management, private sector development, human development, and social protection. These are precisely the types of projects the Bank will encounter fierce competition from the new BRICS-led bank.

Knowledge and power

Consider also that the World Bank has labelled itself as a “knowledge bank” in recent years. Employing thousands of policy specialists, it doubles as one of the biggest think tanks in the world. Yet if it loses considerable financial ground to initiatives such as the New Development Bank, this threatens a decline in the power it has through knowledge.

Crucially, none of the BRICS adhere to the Bank’s standard policy prescriptions, nor do they advocate a different common strategy either. Brazil’s social democratic neo-developmentalism is quite different from China’s state neoliberalism, which in turn differs from established policy paths in others in the group. The only common denominator is a substantially broader role given to the state. But beyond this there is much flexibility and experimentation and little in the way of templates and blueprints like there is with the Western institutions. This policy diversity itself dismisses any idea of superiority of knowledge and expertise.

None of this suggests that the World Bank, as the dominant, Northern-led development agency, is now on an ineluctable path of decline. Cumbersome as they may appear, large organisations often accumulate considerable resilience and adaptive capacity over generations. Yet the World Bank does have a serious contender in the New Development Bank.

While it may not overtake the World Bank in financial prowess and policy influence any time soon, at a minimum it should be able to exert significant pressure over the World Bank to respond more sincerely and effectively to the new balance of power in the global economy.

The Conversation

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Who can control the post-superpower capitalist world order?

This post was written by Slavoj Žižek, Director of the Birkbeck Institute for the Humanities. It was originally published on the Guardian’s Comment is Free site.

To know a society is not only to know its explicit rules. One must also know how to apply them: when to use them, when to violate them, when to turn down a choice that is offered, and when we are effectively obliged to do something but have to pretend we are doing it as a free choice. Consider the paradox, for instance, of offers-meant-to-be-refused. When I am invited to a restaurant by a rich uncle, we both know he will cover the bill, but I nonetheless have to lightly insist we share it – imagine my surprise if my uncle were simply to say: “OK, then, you pay it!”

There was a similar problem during the chaotic post-Soviet years of Yeltsin’s rule in Russia. Although the legal rules were known, and were largely the same as under the Soviet Union, the complex network of implicit, unwritten rules, which sustained the entire social edifice, disintegrated. In the Soviet Union, if you wanted better hospital treatment, say, or a new apartment, if you had a complaint against the authorities, were summoned to court or wanted your child to be accepted at a top school, you knew the implicit rules. You understood whom to address or bribe, and what you could or couldn’t do. After the collapse of Soviet power, one of the most frustrating aspects of daily life for ordinary people was that these unwritten rules became seriously blurred. People simply did not know how to react, how to relate to explicit legal regulations, what could be ignored, and where bribery worked. (One of the functions of organised crime was to provide a kind of ersatz legality. If you owned a small business and a customer owed you money, you turned to your mafia protector, who dealt with the problem, since the state legal system was inefficient.) The stabilisation of society under the Putin reign is largely because of the newly established transparency of these unwritten rules. Now, once again, people mostly understand the complex cobweb of social interactions.

In international politics, we have not yet reached this stage. Back in the 1990s, a silent pact regulated the relationship between the great western powers and Russia. Western states treated Russia as a great power on the condition that Russia didn’t act as one. But what if the person to whom the offer-to-be-rejected is made actually accepts it? What if Russia starts to act as a great power? A situation like this is properly catastrophic, threatening the entire existing fabric of relations – as happened five years ago in Georgia. Tired of only being treated as a superpower, Russia actually acted as one.

How did it come to this? The “American century” is over, and we have entered a period in which multiple centres of global capitalism have been forming. In the US, Europe, China and maybe Latin America, too, capitalist systems have developed with specific twists: the US stands for neoliberal capitalism, Europe for what remains of the welfare state, China for authoritarian capitalism, Latin America for populist capitalism. After the attempt by the US to impose itself as the sole superpower – the universal policeman – failed, there is now the need to establish the rules of interaction between these local centres as regards their conflicting interests.

This is why our times are potentially more dangerous than they may appear. During the cold war, the rules of international behaviour were clear, guaranteed by the Mad-ness – mutually assured destruction – of the superpowers. When the Soviet Union violated these unwritten rules by invading Afghanistan, it paid dearly for this infringement. The war in Afghanistan was the beginning of its end. Today, the old and new superpowers are testing each other, trying to impose their own version of global rules, experimenting with them through proxies – which are, of course, other, small nations and states.

Karl Popper once praised the scientific testing of hypotheses, saying that, in this way, we allow our hypotheses to die instead of us. In today’s testing, small nations get hurt and wounded instead of the big ones – first Georgia, now Ukraine. Although the official arguments are highly moral, revolving around human rights and freedoms, the nature of the game is clear. The events in Ukraine seem something like the crisis in Georgia, part two – the next stage of a geopolitical struggle for control in a nonregulated, multicentred world.

It is definitely time to teach the superpowers, old and new, some manners, but who will do it? Obviously, only a transnational entity can manage it – more than 200 years ago, Immanuel Kant saw the need for a transnational legal order grounded in the rise of the global society. In his project for perpetual peace, he wrote: “Since the narrower or wider community of the peoples of the earth has developed so far that a violation of rights in one place is felt throughout the world, the idea of a law of world citizenship is no high-flown or exaggerated notion.”

This, however, brings us to what is arguably the “principal contradiction” of the new world order (if we may use this old Maoist term): the impossibility of creating a global political order that would correspond to the global capitalist economy.

What if, for structural reasons, and not only due to empirical limitations, there cannot be a worldwide democracy or a representative world government? What if the global market economy cannot be directly organised as a global liberal democracy with worldwide elections?

Today, in our era of globalisation, we are paying the price for this “principal contradiction.” In politics, age-old fixations, and particular, substantial ethnic, religious and cultural identities, have returned with a vengeance. Our predicament today is defined by this tension: the global free circulation of commodities is accompanied by growing separations in the social sphere. Since the fall of the Berlin Wall and the rise of the global market, new walls have begun emerging everywhere, separating peoples and their cultures. Perhaps the very survival of humanity depends on resolving this tension.

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Putin needs to show more restraint than hero to avoid a new Crimean war

This post was written by Professor Orlando Figes of Birkbeck’s Department of History, Classics and Archaeology. He is the author of Crimea: The Last Crusade (Penguin). This article originally appeared on The Guardian on 28 February 2014.Crimea: The Last Crusade, by Orlando FigesThe signs are ominous: Crimea’s parliament has been stormed by pro-Russian gunmen; its airports seized by soldiers in Russian uniforms; and Russian military trucks and helicopters are on the move. It looks like we are heading for a new Crimean war.

Its course is predictable. Russia‘s forces, or – more likely – their Crimean proxies, would carry out a coup to defend the interests of the Russian-speaking majority in the peninsula and hold a referendum to secure autonomy from Ukraine.

Perhaps Crimea would rejoin Russia, despite the objections of the Crimean Tatars and Ukrainians. The pro-Russian movement might then spread into south-east Ukraine, whose industries are heavily dependent on Russia. Ukraine loses, Russia wins.

Crimea was bound to be the focus of the Russian backlash against the Ukrainian revolution. The Black Sea peninsula is the only part of Ukraine with a clear Russian majority. For more than 20 years, ever since the collapse of the Soviet Union, its rule by Kiev has been a major source of Russian resentment – inside and outside Crimea – and a major thorn in Ukraine’s relations with Russia.

The Treaty of Friendship and Co-operation – by which Russia rents its naval base at Sevastopol from the Ukrainian government – is so far-reaching in the rights it gives the Russians to exercise their military powers that it is seen by many in Ukraine to undermine the country’s independence. In 2008 the Ukrainians said they would not renew the lease when it expired in 2017. But they buckled under the pressure of a gas-price hike and, in 2010, extended the Russian navy’s lease until 2042. What will happen to it now is anybody’s guess.

From the Russian point of view, it is all the more annoying that Crimea was part of Russia until 1954. Exactly 60 years ago, on 27 February 1954, it was casually gifted to Ukraine by Nikita Khrushchev (after only 15 minutes of discussion in the Supreme Soviet Presidium), supposedly to mark the 300th anniversary of the 1654 treaty unifying Ukraine with Russia.

In those days of the “fraternity of peoples” in the USSR there were no real borders between the Soviet republics, whose territories were drawn up by largely artificial and even arbitrary means.

But the Soviet collapse brought real national feelings back. Russians in Ukraine felt they had been orphaned by the breaking of their ties to Moscow; they latched on to Crimea as a symbol of their nationalist resentments.

Crimea is vitally important to the Russians. According to medieval chronicles, it was in Khersonesos – the ancient Greek colonial city on the south-western coast of Crimea, just outside Sevastopol – that Vladimir, the Grand Prince of Kiev, was baptised in 988, thereby bringing Christianity to Kievan Rus’, the kingdom from which Russia derives its religious and national identity.

Ruled by the Turks and Tatar tribes for five hundred years, Crimea was annexed by the Russians in 1783. It was the fault line separating Russia from the Muslim world, the religious division on which the Russian empire grew.

Catherine the Great liked to call the peninsula by its Greek name, Taurida, in preference to Crimea (Krym), its Tatar name. She thought that it connected Russia to the Hellenic civilisation of Byzantium. She gave land to Russia’s nobles to build magnificent palaces along the mountainous southern coast, a coastline to rival the Amalfi in beauty; their classical buildings, Mediterranean gardens and vineyards were supposed to be the bearers of a new Christian civilisation in this previously heathen land.

The Tatar population was gradually forced out and replaced by Russian settlers and other Eastern Christians: Greeks, Armenians, Bulgarians.

Ancient Tatar towns such as Bakhchiserai were downgraded, while new towns like Sevastopol were built entirely in the neoclassical style. Russian churches replaced mosques. And there was an intense focus on the discovery of ancient Christian archaeological remains, Byzantine ruins, ascetic cave-churches and monasteries, to make a claims for Crimea as a sacred site, the cradle of Russian Christianity.

In the 19th century, the Black Sea fleet was the key to Russia’s imperial might. From Sevastopol it bullied the Ottomans into submission to Russia – a policy that led to the Crimean war after Tsar Nicholas I overplayed his hand in defence of the sultan’s Orthodox subjects and the British and their French allies sent their troops to Crimea to destroy his naval base.

For 11 months, the Russian sailors held out in the siege of Sevastopol – a struggle immortalised by Leo Tolstoy’s Sebastopol Sketches – before finally abandoning the town to the vastly superior allied forces. Their heroic sacrifice became a powerful emotive symbol of Russian defiance in the nationalist imagination.

The Russian character of Sevastopol is still defined by this siege mentality.

Memories of the Crimean war continue to stir profound feelings of Russian pride and resentment towards the west. Although it ended in defeat, the war has always been presented by the Russians as a moral victory. Nicholas I is one of Putin’s heroes because he fought for Russia’s interests against all the Great Powers. His portrait hangs in the antechamber of the presidential office in the Kremlin.

If a new Crimean war is to be avoided, Putin must show more restraint than his Tsarist hero. Nationalist emotions must be calmed. There are political remedies for the deep divisions in Ukraine. If peace can hold until the elections on 25 May, a new Ukrainian government might do well to consider options for the country’s federalisation to grant Crimea more autonomy.

But with deposed president Viktor Yanukovych now saying that the elections are “unlawful” there is much uncertainty and, if he speaks with Russia’s backing, little hope that those divisions can be peacefully resolved.

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