A Foreign Company’s Code of Conduct in Russia

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Table of Contents

Introduction
Realities of Russian Business
Challenges of Foreign Company Operation in Russia
Conclusion

Introduction

The perspective of doing business in the Russian Federation may yield significant benefits. Many western companies like Nestle, Apple, Ikea, Renault, BMW, McDonald’s, and many others have been successfully operating in this country for a considerable period. However, the complexity of mentality, poor corporate culture, and corruption in many spheres of life might become an obstacle for the other companies, who try to access the Russian domestic market. Therefore, an adaptation of the philosophy and operational models to the Russian context might be in order.

Realities of Russian Business

The concept of private business in Russia has begun to form relatively recently. For more than 70 years the communist rule, isolation from the global market, and strictly hierarchical structure of state-owned companies undermined the development of entrepreneurship and corporate culture. Twenty years later there is still little change. Many Russian companies continue to operate through nepotism, power abuse, and violation of labor legislation. The current regime has not done much to cultivate proper private business culture. The legal aspects and taxation are overly complicated, which inspires illegal manipulations and the proliferation of the informal economy. The overall harsh and unsupportive business climate deters people from running small to medium enterprises, while the sphere of large business often appears to be corrupted and its senior management connected to the authorities. Moreover, large government-owned corporations operating in the spheres of oil extraction, railroad transportation, and mail delivery seem to be highly corrupt and ineffective setting a bad example of business structure and conduct.

On the other hand, there is room for global standards implementation. Several Russian companies like the social network, Vkontakte, and one of the largest state-owned Russian banks, Sberbank, have already started a transition towards international management policies and ethical codes. They set an example of transparency, teamwork approach, and reliability upholding the internationally-approved codes of conduct. That gives a reason to believe that Russian corporate traditions are getting closer to those of Western counterparts and outlines prospects for cooperation with foreign international companies.

Challenges of Foreign Company Operation in Russia

External corporations, who are willing to conduct business on Russian soil, might find it useful to know a few peculiarities about the national corporate character. Firstly, the labor legislation in Russia may differ significantly from the one used in the company’s homeland, so corresponding adjustments to corporate policies may be needed. For example, there are a lot of national holidays. Secondly, local managers tend to develop overconfidence bias that leads to the bureaucratization of decision-making, disregard for good initiatives, and competent professionals’ opinions. They also often see the personnel as expendable and generally need fewer reasons to fire an employee. These practices contradict the global respect for human capital. Thus, the company might need to introduce some additional control over managerial decisions or establish a more cautious hiring policy. Thirdly, Russian human resources policy often favors nepotism. It is a common practice in many organizations to hire and promote people because of their kinship with someone of higher standing in the company rather than their professional qualities.

When office parties on corporate occasions, banquets, and informal partner meetings are concerned, Russian people generally but not always prefer consuming alcoholic beverages. For companies propagating a healthy lifestyle among their employees, this might also be a concern. One more important thing to notice is the often-superficial knowledge of foreign languages among the adult population while the younger generation demonstrates the opposite. That being said, the labor market demand for professionals with at least an intermediate level of English language proficiency is relatively high.

The establishment of a local branch is accompanied by the registration in the corresponding authority branches with many bureaucratic procedures, which may sometimes involve bribery in higher circles. The same tendency may be noticed in government contract competitions, where the winner is often already defined by a small number of corrupt businesspersons and officials. Partnership establishment quite often involves informal meetings dedicated to the celebration of the new connections, where the partners get to know each other better. This is not prohibited by global ethics, though it might implicate bribery concerns among adversely interested parties. The issues of the national security policy may also be relevant to corporate standards as the former strictly oversees the political involvement of companies and agencies, tackling a possible conspiracy against the regime. The financing of anti-government political activists or affiliation with such might be regarded as a threat to security and therefore punished accordingly.

Conclusion

It cannot be said categorically whether the Russian business traditions are homogenous in terms of good or bad practices. On the one hand, there are some exemplary companies with high levels of corporate culture and a large pool of highly skilled young professionals. On the other, there are corrupt businesspersons and officials, poor managerial culture, and bureaucracy. A foreign company, which is willing to be successful in Russia, may need to consider adopting its code of conduct according to the peculiarities of Russian labor legislation, working, management, and partnership culture.

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A Foreign Company’s Code of Conduct in Russia

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