Vertical Power Structure May Prove A Weak Point For Russian Companies


The vertical power structure of many Russian companies is preventing them from hiring the best managers, adopting new skills and modernizing their industrial model.

The country's top recruitment consultants told The Moscow Times that the Soviet legacy of a single, dominating boss who makes almost every decision may suit smaller firms but may be a handicap as companies expand. The chief problem they highlight is miscommunication and a lack of feedback, due to the gap in rank between decision makers and producers, and a middle management that lacks the authority to ensure productive conditions.

"The Russian nationals that are working within the companies are very talented, knowledgeable and quick learners but when you look at the whole corporate structure, well, there is a Russian saying that one warrior in the field is not a warrior: you need an army," said Felix Kugel, Vice President & Managing Director, ManpowerGroup Russia & CIS. Even if the troops respond to commands, there can be miscommunication, aggravated by a hierarchical gap. "The top management does not necessarily directly or indirectly influence the mid management enough so there is a lot of disparity which in turn creates a lot of malfunctions," said Kugel. "One of the business notions that I find very important is that the higher the position you occupy the more of a slave you are to those who report to you. This notion is completely foreign to a lot of nationals here."

"There is a Russian saying that one warrior in the field is not a warrior. You need an army."

Denied real authority, Russian middle managers sometimes shy away from taking any initiative. "I am not paid to think. I am paid to take orders," is a real quote, from a middle manager in a Russian company.

The vertical structure is found not only in owner-operated firms but also in privatized enterprises and state corporations. Olga Golyshenkova, General Director of MAKO, the International Association of Corporate Education, said in some cases chief executives had a tenuous relationship with their mangers.

Level of Trust

"These people who are the top management in Russia especially — and I can compare with other companies and cultures but in Russia this is very characteristic — people at the top, especially in state corporations belong to another organization but not the organization which they manage: this organization is the administration of the Russian Federation and this is where they play, this is where their interests lie, this is where their bosses are, this is where their peers are and this is where the decisions are made," Golyshenkova said.

Russian company culture is the result of several influences, said Alexander Maslyuk, Manager Sales & Marketing Department, for Michael Page. "First, Russia historically is a country with overall low level of trust, where superiors rarely trust their subordinates before they achieve anything, and vice versa. Second, the business culture in Russia is only 20 years old, and it's hardly feasible to expect anything advanced at this stage. Third, the publicly traded company model that heavily influences the business culture in the West is not widespread here."

Companies with a strong single manager are not a purely Russian phenomenon. In western companies a shareholder can exert control with as little as 20 percent of voting rights. However Russian companies that list on foreign stock exchanges, such as London, have been required to give more protection to the rights of minority shareholders. The most high profile was Kazakh mining company ENRC that a departing director described as "Soviet". Polyus Gold faced resistance when it tried to list on the London Stock Exchange because only 10 percent of its shares were, at the time, free floating with most of the company owned by two wealthy shareholders.

Many Russian monopolies control not 30 or 40 percent of their market as in the west but sometimes closer to 100 percent so there is no rival against which to compare the quality of decision making, benchmark performance or provide incentive for better management.

Change Managers

Strongly hierarchical companies can be more difficult to work for, leaving little room for initiative. They more often lose their best managers and have a higher turnover of staff than companies with western or Asian cultures. Yet the business climate has increased the need for a strong middle management with skills that go beyond simple cost cutting, to improving and adapting services in changing markets.

Manpower's latest talent survey suggests that 34 percent of companies in Russia cannot find the right talent to fill roles, close to the global average of 35 percent. In contrast, 81 percent of Japanese companies struggle to find the right talent to fill roles. This includes not just industrial, office workers and sales people but micromanagers and change managers in every industry.

"Change managers are any sort of manager that can implement change and drive change through, without an organization losing its focus," Kugel said. Any company that faces uncertainty or increased competition needs to examine the performance of every task and individual in order to increase productivity. "That requires a person who is able to mitigate the risk of an operation losing its motivational touch while driving this sort of change, which a lot of times is quite difficult for any individual to comprehend." Such people were hard to find, Kugel said. "It is really tough. There are not so many skilled people around with enough life-experience baggage as well as professional skills that are honed to deal with these types of situations."

For a lot of people, working for a Russian-run enterprise is a difficult decision to make.

This makes recruitment and retention all the more important for companies that give middle managers little authority or initiative, according to Andrey Chulakhvarov, Head of General Staffing at Coleman Services. "In vertically-structured companies responsibility is very clearly attributed. Sometimes it leads to micromanagement so it is not always a comfortable place to work. There is a lot of hierarchy and not enough autonomy for people who need to evince their own initiative because their initiative is not appreciated. The initiative of only one person in the company is appreciated. That is why the turnover rate is much bigger in those vertical structured companies than in western giants."

Circle of Friends

Russian companies are historically used to decisions coming from the top, said Alexey Mironov, director of the strategic development, at ANCOR. "However if such a style is acceptable and it facilitates business results, it is not necessary to transform it from the bottom up. I do think that middle managers should be given more freedom in taking decisions and realizing their authority. If the director does not allow his employees to develop professionally and grow, they will eventually leave the company."

Yury Dorfman, Partner at Cornerstone, said companies should not suddenly change their structure, as it was difficult to find strong managers quickly. "In Russia there are already middle managers who are qualified and ready to take on more managerial responsiblity but such specialists are usually successfully employed and are  not ready to consider recruitment offers."

Alexander Maslyuk of Michael Page said the western style of management has a reputation for flexibility but people running smaller companies should think twice before delegating responsibility. When a company grows bigger than a circle of friends, it must nurture a generation of managers who can manage change.

It is not simply a clash of Russian and western corporate structures. Many Russian executives have studied Japanese corporate models, and national corporate cultures differ in their level of trust and delegation of powers said Maslyuk. "If we compare management styles around the world, French management style is thought to be more autocratic than Anglo-Saxon, whereas some Asian cultures are believed to be more power-centric as compared to Russian companies."

Driving Change

Two factors threaten to soften, if not topple the Russian vertical structure: the growing number of Russian managers with international experience and the unavoidable consequences of scale. "Especially in privately-owned companies the decision making tends to be towards the owners who in most cases in Russia still run the company themselves. But the larger the organization the harder it is to make all the decisions so the nature of business and the size of it inevitably influences the decision-making process, said Hays Russia Managing Director, Alex Shteingardt.

Not only do new recruits often bring western company experience but also new networks and influences, particularly in industries like financial services where a thick book of contacts can help clinch a new job. "It is important for Russian banks because it immediately raises their credibility in terms of how they are perceived by customers," said Shteingardt.

Olga Golyshenkova of MAKO, said the initiative to strengthen the management of Russian companies must come from the middle managers themselves. She works with Russian state corporations, smaller Russian enterprises and multinationals. The organization runs project management initiatives that bring together rival companies, along with federal and local authorities, universities, institutions and colleges to drive change in the workforce and the labor market.

"Mostly they are vice presidents or line managers or the directors of departments but not the CEOs. In only rare cases are the CEOs involved. We believe we can remove the barriers of the professional and sectoral cultures that still remain from the industrial values of Soviet times. When you work with the representatives of this culture they can become tremendous agents of change and when the company is already changed the CEO just needs to take it."

ManpowerGroup's Felix Kugel says Russian directors need to educate themselves in motivational tactics, "a sort of a glue with which a leader will really be able to lead those who are motivated to be led." Bosses would no longer be mired in mundane decisions and the advantages could extend to a more predictable environment, which in turn would boost productivity and make the company more nimble and flexible.

Candidate's Market

Russian companies are slowly projecting where they want to be in 10 years' time and that is driving them to open up the ranks. Skilled managers are on the market, Kugel said. "One of the big problems we see is that when people working for multinationals are looking to change job, they look for another multinational. For a lot of people, working for a Russian-run enterprise is a difficult decision to make."

Andrey Chulakhvarov of Coleman Services says larger Russian companies use recruiters for top positions but tend to rely on  personal contacts for other grades. Statistics for Russian companies are not readily available but western companies, such as FMCG companies operating in Russia, use recruiters for about about half their hires.

As the economy struggles to recover, more Russian companies are using recruiters not because they see a core advantage, he says, but because they have trouble finding the right staff.