CEOs Shed Light on a Dark Subject

Most chief executives of major Russian companies think "Russian business" has a bad reputation -- and rightly so.

Unethical and often illegal business practices and "black" PR campaigns continue to thrive while good corporate governance remains elusive, a survey of some of the most influential business leaders in the country has found.

Unfortunately, according to the organizers of the survey, 80 percent of the 148 CEOs of large Russian companies said the negative image of Russian business at home and abroad did not apply to their firm.

"It's time for a reality check," said Peter Necarsulmer, chairman and CEO of the PBN consulting firm, which conducted the poll with Interactive Research Group. "People in glass houses should not throw stones," he said at a presentation of the survey Wednesday.

The survey, which included local leaders of 27 multinationals, found that aside from "negative operational results," the biggest threat to a Russian company's reputation is biased media coverage, followed by conflicts with government officials and the relentless legal assault on the oil giant Yukos.

"Given the existing tension [between business and government], this is an expected result," said Yulia Kochetygova, head of corporate governance for Russia at international ratings agency Standard and Poor's. "In the current environment, even a small spark or a tiny amount of bad press can have an immense effect," she said.

In a case widely viewed as a high-profile sparring match between rival tycoons, Mikhail Fridman's Alfa Bank, the nation's largest private lender, successfully sued Boris Berezovsky's newspaper Kommersant for reporting "serious problems" at Alfa during this summer's mini banking crisis. A Moscow court ordered Kommersant to pay the bank $11 million in damages.

"Business understands the media game, which really only has one rule -- anything is possible for money," said Alexei Pankin, editor of Sreda, a magazine for media professionals.

It is well known that zakazukha, or bought stories in the media, are commonplace in Russia, but the practice presents a polarized threat, since it is not always clear who is behind each press attack, or which media channel will be the next to attack, Pankin said.

"This may give businesspeople reason to fear the state slightly less than the media," since the state constitutes a single player, Pankin said.

Foreign media outlets, too, are often accused of tarnishing Russia's image for their perceived bias. But as the survey found, most CEOs say other Russian businesses -- but not their own -- are mainly to blame. Nearly all the executives polled said "Russian business" has a negative image both at home and abroad, and more than half, or 54 percent, said that image is "very close" to reality.

A large part of the reason for this is that so much of business is conducted in the shadows, S&P's Kochetygova said. "When transparency is lacking, companies don't trust each other," she said.

The majority of chief executives said they had either already undertaken image-enhancing initiatives or plan to in the next two years. But relatively few plan to adopt internationally accepted practices widely regarded as reputation-enhancing. Just over a third of executives said they plan to implement international accounting standards, and only 30 percent said they plan to recruit independent directors for their boards.

"The largest companies ... have clear programs for improving their reputations that are being implemented successfully," said Oleg Rumyantsev, vice director of the Russian Association for the Protection of Investor Rights.

Only two in 10 of the companies surveyed are publicly traded, which may explain their reluctance to adopt international corporate standards. "Private companies are less interested in increasing transparency because unlike public companies, they are not focused on attracting financing on the stock market," Kochetygova said.

Another thing most CEOs agree on is that the crackdown on Yukos and its jailed founder, Mikhail Khodorkovsky, is hitting everyone hard. It has soured Russia's business climate and made managers fearful of coming into conflict with the government, the survey found.

"The Yukos affair is Sept. 11 for Russian business," said Oleg Kiselyov, president and chairman of Renaissance Capital, which co-sponsored the survey with Taylor Rafferty, an investor relations firm. "All the ramifications are still unclear," he said.

Oddly, while more than two-thirds of executives said the "demonization" of Khodorkovsky is hindering the development of the economy, nearly as many said Russia's richest businessmen "fairly deserve much of the criticism from the state and population."

Nonetheless, two-thirds of CEOs agreed to the statement, "Things in Russia are generally heading in the right direction."

The 175 companies that participated in the survey had combined revenues in Russia last year of more than $100 billion. Foreign firms included Coca-Cola, Microsoft and IKEA. Domestic firms include such giants as Alfa, Basic Element, Gazprom, Norilsk Nickel, Sistema, Wimm-Bill-Dann and Yukos.

PBN and IRG, the authors of the survey, said they plan to do another poll next year.

"[We want to make this] an annual benchmark against which to measure the progress of corporate reputation management practices in Russia," they said in a statement.

(From The Moscow Times, 28.10.2004)