Bringing Trust Into Russia's Business Culture

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The idea that business ethics can be combined with maximum quarterly profits is an amusing concept to many businesspeople in Russia. If you were to ask a businessman what aspect of business life has seen the greatest amount of stress and "structural fatigue" since the Soviet collapse -- or even since the Revolution -- he would no doubt reply, "Trust."

This is what makes the government's recent backing of business ethics so remarkable. Last week, First Deputy Prime Minister Igor Shuvalov told an investors conference in Moscow that higher standards of corporate governance at both state-owned and private companies would be vital as the country embarks on a trillion-dollar investment program to develop infrastructure and diversify the economy.

Deputy Prime Minister Alexander Zhukov told the same gathering that state-controlled corporations should lead by example in terms of disclosure and transparency. "We want to be seen as a country with a good deal of responsibility in business ... and a country with which you can deal effectively and comfortably," he said.

Over the past five years, I have had the privilege of being elected to several boards in Russian companies, both as director as well as independent director. When I joined, none of these boards was legally required to include an independent director. There were various reasons why they asked me to join, yet all shared a common trait -- they were serious about long-term growth and saw their future development and capabilities on par with those of multinational players already on the world market.

These companies had the political will to take the voluntary -- and at times self-limiting -- steps needed to set out corporate governance guidelines that had real teeth, made use of applicable best practices and took the issue of internal ethics seriously.

By following these steps, the companies started to grow and earn bigger profits. More important, employees developed a sense of mission and pride, both of which are noticeably lacking in many businesses in Russia. Employees began to think of their careers in these companies in terms of the next two to three years, rather than just the next 30 days. I believe that this is a product of the culture of trust that was developed between management and employees.

I have also been involved in discussions on whether a company should take actions that are technically legal but ethically questionable. The most successful companies take the higher moral ground.

Companies that have implemented best governance practices tend to define not only their business plans but their business missions as well. The word "mission," now an accepted term in business jargon worldwide, has acquired a religious, almost spiritual, meaning. The zeal and focus with which successful businesses have pursued their missions is not unlike the single-minded passion of a religious zealot. And we deliberately include both words in our business lexicon: zeal and focus. Success requires both unrelenting focus and driven energy. Too often, business strategists concentrate on the focus but not the human energy that creates business velocity. A zealous mission does more than anything else to enhance both energy and focus.

Carefully crafted business missions articulate the purpose of an organization. They also spell out how the company can provide meaningful or "heroic" work for its employees -- something that is more than just accumulating wealth for themselves and shareholders. It is this mission, this sense of purpose, that not only focuses strategy but also generates human energy and creativity. It provides an opportunity to establish new role models -- ethical businessmen -- as successful pioneers and heroes rather than fall guys.

An additional benefit of adopting and practicing a mission is called grass-roots patriotism. The baseline from which such a working ethical symbiosis can grow is in a culture of trust.

Shifting from a culture of greed to a culture of ambition is the most important step in establishing a culture of trust, where success is built around respect for ambition but distaste for greed. Ambition is the passion to succeed; greed is the desire only for the fruits of success. Ambitious people earn recognition; greedy people demand reward. Ambition propels people to contribute; greed drives people to take credit. Ambitious people are able to celebrate the success of others; greedy people celebrate no successes but their own.

Trust is surprisingly one of the most powerful drivers of efficiency. Societies or markets permeated with high levels of trust are more efficient than those tangled in webs of bureaucracy, which are seemingly intended to protect innocent parties from unscrupulous practices. Business cultures that have high levels of trust between employees and management save enormous costs and gain productivity. Cost savings are reflected in staff retention, lower medical claims, sick leave and claims for workers compensation. Productivity gains result from far higher levels of commitment, engagement, innovation and operational efficiencies.

But the development of a culture of trust cannot be a function of government. On the contrary, as the United States, Britain and other leading Western countries have shown, government's role is to protect society from untrustworthy businesses and individuals. Russian businesses need to seize the initiative if they wish to limit legislative bureaucracy. They need to become more trustworthy and cultivate a culture of trust. Companies need to be motivated to practice and inculcate trust not only to improve efficiency, but also because it is simply the right thing to do.

Treating unethical practices with new, government-imposed rules, however, creates a double disincentive for businesses. First, it adds layers of bureaucracy and expense. Second, it creates a greater reliance on systems and less reliance on trust. By depending more on a legal system and less on the development of true trustworthiness, business loses an excellent opportunity to enhance efficiency and grow value for its own market interests.

Steps toward developing trust and good corporate governance have already begun, and this must be supported by both the government and businesses operating in the country. The common interest and mission is clear -- to optimize investment conditions while helping Russia meet and exceed the basic needs of its citizens.

Ideally, the same accountabilities and demands placed on business can also be applied to the government and its bureaucrats. Statements made recently by President Dmitry Medvedev are encouraging because they seem to support this view. This may be the key to helping Russia fulfill its ambitious, but achievable, goals.

Paul Goncharoff is a member of the supervisory board and chairman of the ethics committee for the Independent Directors Association in Russia.