Introduction

The private sector is often in the best position to effect change around the issues of traditional business ethics and compliance, transparency and anti-corruption, rule of law and good governance. Corporations have greater risks, greater motivations and more flexibility to implement strategies to foster ethical behavior. These factors, combined with a proven set of business ethics “best practices,” increase the chances of success for private sector initiatives. While public sector corruption is widely addressed by leading international multilateral and nongovernmental organizations, ours is one of the only efforts to effectively engage the private sector. Successes in this area have the ability to change the public’s perception of what is possible.

We undertake each of our international projects with an open-mind, looking for new and innovative strategies to support the fostering of ethical behavior through building local capacity. To be successful these initiatives must begin by legitimizing the dialogue around issues which are often considered taboo. In order to effect change they must truly be part of the fabric of society as substantive cultural change must come from within the culture. They must have the flexibility to develop unique strategies with a local vocabulary. Local strategies avoid the perception or reality of foreign imperialism, and are necessary to empower people to act in keeping with their own values.

Cultural change is a long-term process. A sustainable independent organization dedicated exclusively to the breadth of the challenges inherent to this goal allows for adaptation and pursuit of new strategies driven by experience, local research, challenges and opportunities as they arise.

The Ethics Resource Center (ERC) has assisted in the development of local ethics centers to foster ethical behavior in developing and transitioning societies as disparate as Hong Kong, the United Arab Emirates, South Africa, Colombia and now Russia and Turkey. We provide a forum to link these organizations through strategies such as the ERC International Fellows Program and the Integrity Alliance.

Sovereign Ventures, Inc. (SVI) is an investment management firm dedicated to developing small business upon a foundation of the rule of law, operating in Russia since 1991. In addition to leading the creation of the Declaration of Integrity in Business Conduct, Sovereign Ventures helped establish the Governor of St. Petersburg's Council on Investment, an institution which promotes transparent dialogue between the private sector and local government.

Return to Top

Summary

The Ethics Resource Center (ERC) and its partner Sovereign Ventures, Inc. (SVI) are pleased to submit this following proposal for the establishment of the St. Petersburg Center for Business Ethics (SPEC). This project builds upon the important and successful work of SVI, funded by USAID through the Eurasia Foundation, to create a Declaration of Integrity in Business Conduct in St. Petersburg (Declaration). In March 2000 the Eurasia Foundation awarded SVI/ERC a second grant to partially fund the establishment of SPEC. Work on this project is underway.

The objectives of this project are to increase public awareness of corruption and business ethics, support the implementation of business ethics programs in companies and to build new learning no these issues in Russia.

We are working with the St. Petersburg business community, specifically the Signatories to the Declaration, as they begin to implement the Declaration in their individual companies and throughout the community. Our project plan for the first year includes a conference and seminar series, coalition building toward the establishment of an independent ethics center, and SPEC and staff training to build local capacity.

In subsequent years we will work with the new center to develop appropriate programs and partner with stakeholders to replicate this model in other regions of Russia and the Newly Independent States (NIS).

Return to Top

Background

The Russian Federation's significant effort to establish a free market economy based on the rule of law has been derailed by endemic corruption. In 1999, the Corruption Perceptions Index, an international standard of the level of transparency in a nation's economy produced by Transparency International (TI), ranked Russia 82nd out of 100 countries surveyed, with a ranking of 2.4 on a 10-point scale.

Corruption pervades government institutions at the federal, krai, oblast and local levels, undermining the legitimacy of government and overriding the rule of law. Multinational and local businesses feed into and are equally plagued by this illegal and inefficient system. Widespread corruption and lack of transparency have undermined privatization and other market reforms by distorting competition, inflating transaction costs, spurring capital flight and asset-stripping, diverting public spending and deterring capital investment in production and infrastructure. Corruption impedes Russia's political and economic transition, limits the role that international financial institutions and foreign investors play in helping Russia and stands in the way of all development efforts, from poverty alleviation to civil society and democracy building efforts to peace and security programs.

Despite repeated efforts, the Russian government has failed to counter the tide of corruption and graft. An unrealistic government pay scale encourages rent-seeking behavior on the part of officials. Due to a lack of resources and political will, the government has been unable to enforce existing laws or adopt new legislation. The lack of strong political institutions and an independent judiciary makes it very difficult to hold public officials accountable. In addition to these immediate concerns, this situation distorts public perception of how a proper market economy works, undermining democratic values and thereby the long-term chances of success.

Anti-corruption efforts in other countries show that successful reform occurs when the private sector agrees to make transparency and anti-corruption a priority. Corrupt practices, in particular bribery, are a two-way street; the briber is as responsible as the bribed. The position and priorities of corporations often make them most likely to be interested in and committed to fighting corruption. US-based multinationals, for example, need to comply with the US Federal Sentencing Guidelines, the Foreign Corrupt Practices Act, the OECD Convention, the OAS Convention and Russian law. On a purely economic level, corruption – paying bribes – is expensive for companies of all sizes. Beyond reducing risk and the costs of corruption, ethical business practices help companies recruit and retain the best workforce, foster positive, long-term relationships with vendors and customers, help them avoid activist and media pressure, and can provide positive press and a good reputation.

Private sector successes will serve to advance public dialogue on the costs of corruption and raise expectations of ethical conduct in all organizations. The media, citizens groups and the political opposition will put greater pressure on government to follow the private sector example. Private sector experiences, new learning and best practices will be quite applicable as organizational ethics initiatives for application in government agencies. All of these factors will combine to increase the chances for sustainable success fighting corruption in the public sector.

In Russia, given the minimal effectiveness of government efforts towards reform, it is particularly important that the private sector establishes and observes corporate governance practices that are on par with the highest international standards. This entails a voluntary commitment by individual companies to refrain from bribery and to promote ethical and transparent business practices. Such a commitment to long-term stability and ethics is a prerequisite to completing Russia’s transition to a democratic and free market society.

Return to Top

The Declaration of Integrity in Business Conduct

In September 1998, the St. Petersburg business community, led by SVI, created the Declaration of Integrity in Business Conduct in St. Petersburg (Declaration), a voluntary statement of commitment to international business principles and practices.

By adopting the Declaration, a company promises to repudiate corruption and to implement a code of business ethics as part of its policy of corporate governance. For companies that do not have a corporate code, SVI developed a Model Code of Business Conduct (Code) under the Declaration project, incorporating the best corporate governance practices of leading international companies.

There are now more than 120 voluntary signatories to the Declaration. These companies, the majority of which are Russian owned, represent a cross section of the St. Petersburg economy, including small, medium and large firms in the service, manufacturing and retail sectors. The Association of St. Petersburg Contractors, the St. Petersburg Chamber of Commerce and Industry, the St. Petersburg International Business Association, the American Chamber of Commerce and the St. Petersburg Rotary Club, which together represent more than 1,200 companies, have endorsed the Declaration and presented it to their memberships for signature.

Prior to the Declaration, the reduction of corruption in St. Petersburg was generally treated as the responsibility of government. The growing support for the Declaration shows that the private sector is prepared to accept responsibility to eliminate bribery on the supply-side. This project has exacted a stronger, more unified commitment to legal and ethical business practices by Russian businesses, business associations and foreign investors operating in St. Petersburg.

Return to Top

Program Description

The Declaration is a product of a local, grassroots, apolitical commitment and dedication to changing the way business is done in St. Petersburg and throughout Russia. While there is innate understanding and great desire among the St. Petersburg business community to embrace business ethics, there is little local expertise or experience around these issues. The public is not fully aware of the staggering costs of corruption or that businesses, industries and even economies have had great success around these issues – success which often reaches far beyond the organization and its bottom line to the larger economy and society. The community does not have a rhetoric in which to discuss these issues, much less a forum.

Nevertheless, the businessmen of St. Petersburg, those who have signed the Declaration as well as many who may have not, are committed to effecting change on these issues in their organizations and beyond. The local and national press have expressed interest and support of this initiative both as an idea, and as an initiative which has great potential. With the right kind of technical expertise and development of local capacity, this commitment and dedication can be harnessed into a self-sustaining business ethics initiative throughout Russia. The purpose of this project is to facilitate the achievement of this objective.

Return to Top

Outputs and Activities

Building upon the alliance of integrity in St. Petersburg and informed by our experience, we have begun the development of an independent nongovernmental organization (NGO), the St. Petersburg Center for Business Ethics (SPEC). The organization will be to help cultivate the social capital and core values that tie this alliance together. SPEC will act as a focal point to further the alliance and expand it into other regions of Russia.

SVI/ERC will incubate the NGO, allowing it time to build a broad coalition of political support; identify the proper legal form; refine its mission and goals; identify board members; prepare the foundation documents and register the new entity; and recruit and train staff.

SPEC will create the institutional framework to ensure sustainability of business ethics initiatives in the city. It will locally develop and retain important skills and capacities. The organization will serve as the legal framework to coordinate these programs. It will become a resource for the community at large and the champion of the ethics dialogue in St. Petersburg and throughout Russia.

SPEC will serve as a mechanism for positive public action against corruption. Repudiation of corrupt practices in a group will allow members to take political and practical action against the corrupt nature of government authorities. It will also help to implement a policy for long-term stability, transparent management and image-making for individual companies at a low-cost level.

Specifically, SPEC will undertake a variety of proactive business ethics and anti-corruption approaches such as:

• SPEC will continue to promote the Declaration, seek to increase the number of signatories and most importantly to assist the signatories to integrate the provisions of the Declaration into their actual business practices. It will broaden the range of stakeholders committed to both the Declaration and to the wider notion of ethical conduct.

  One of the critical challenges for SPEC will be to create a sense of community and identity around the issue of ethical business conduct. The organization will provide mechanisms to foster and reinforce this identity and to provide for the exchange of best practices.

• Conduct research and generate new learning

  SPEC will bring together the leading thinkers in the field of business ethics in the region to define the challenges facing them, conduct research to provide the necessary data to understand these issues and develop strategies to meet these challenges. The new learning generated through these activities will inform the work of SPEC through the creation of culturally relevant approaches and strategies for the other programs of the organization.

• Foster dialogue about ethics education at the university and professional levels

  SPEC will work with academics from business and professional training institutions to foster a discussion about the ethics education curriculum offered to the next generation of St. Petersburg’s professionals and business leaders.

• Provide training, education and technical assistance

  SPEC will support the development and implementation codes of conduct and comprehensive ethics initiatives by corporations, associations and government agencies by providing training, education and technical assistance. SPEC will design and execute a variety of programs that will help such organizations implement ethics initiatives into the culture of their organizations. It is through this critical implementation phase that organizations move from rhetoric to creating real and sustainable behavior change.

• Assist professional and trade associations to develop codes of conduct, ethics programs and enforcement infrastructure for their membership

  The critical role of enforcing ethical standards is best managed at the level of peers. Therefore, SPEC will assist professional and industry associations to develop codes to govern the conduct of their members, design the communications and training strategies to disseminate them among the membership and put in place the necessary infrastructure to oversee compliance and enforcement.

• Increase awareness about corruption and the strategies to fight it

  The Declaration and the conferences, seminars and website designed to implement it are key vehicles for advancing the dialogue on these issues. SPEC will work as a focal point for the dissemination of information and as a major public advocate for ethical standards and the fight against corruption. Through collaborations with media and academia, the center hopes to create social expectations of higher standards of business conduct in the minds of St. Petersburg’s consumers and citizens.

• Identify concrete steps to encourage public-sector reform

  SPEC will collaborate with local government officials and organizations as well as international partners to identify, promote and implement appropriate reforms in the public arena. Such reforms may include working with the local government to develop and implement transparent procurement and licensing procedures. Currently we are beginning planning for the development of an Island of Integrity, or a transparent bid process, between government and the construction industry.

Return to Top

Project Components and Inputs

Program Start-Up: Year 1

Beginning in March of 2000, SVI/ERC are undertaking the following tasks, all of which will lead up to the establishment of SPEC:

• Representatives of the signatory companies came together on 18 and 19 May 2000 at an inaugural meeting entitled Business Ethics in St. Petersburg. The purpose of the meeting was to begin the work of creating a group identity and of implementing the various provisions of the Declaration.

  The conference began with an overview by representatives of multinational corporations, local entrepreneurs and leading academic experts on the issues of integrity in global commerce, international standards and expectations, the historical context and cost of corrupt and unethical business conduct and global best practices in the field. This made the case for further commitment to higher business standards and the on-going implementation of the Declaration. The conference also featured interactive workshops led by ERC Director of Training and Senior Consultant, Frank Navran, on developing and implementing codes of conduct and comprehensive ethics initiatives, developing the necessary administrative infrastructure, designing communications campaigns, preparing training strategies and materials, etc.

  A series of three follow-up seminars are planned for July, September and October. During these sessions, the signatories will continue the work begun during the inaugural conference, initiate specific code projects with individual companies and work with local associations to establish Integrity Pacts to ensure fair competition in individual industries.

• Recruit and train staff for SPEC

  Professional staff members of the new ethics center are currently participating in a three month training program at the ERC, along with those of several other ethics centers from around the world. Anton Andreev, an attorney with his own law practice, has been advising ERC/SVI on the Russian legal aspects of the Declaration for over 18 months. Elena Fedyushina is also an attorney who works for a former state enterprise and as a trial lawyer. These Visiting Consultants are studying the theoretical and academic aspects of business ethics, experiencing the hands-on practical work of ethics consulting and are benefiting from the unique experience of the day-to-day operations of a leading-edge ethics center.

  SVI/ERC will help develop job descriptions and requirements for additional members of the center’s staff as necessary, working with the steering committee, and eventually SPEC’s Board of Directors,. We will assist SPEC’s leadership to identify and recruit appropriate candidates. Successful candidates will then be invited to participate in this comprehensive training program designed and managed by the ERC.

• Broaden the coalition of supporters to include a variety of other key stakeholders

  The response to the Declaration from the entrepreneurial and multinational community in St. Petersburg has been enthusiastic. In addition, other constituents, including academics from leading local educational institutions, civic and social leaders, the NGO community and representatives from trade and professional associations have indicated support for the Declaration. In order to give these groups a common stake in a more transparent business environment, they need to participate in a tight coalition. This coalition will bolster the sustainability of this initiative.

• Establish a steering committee to guide the formation of the NGO

  Drawing from the coalition of supporters engaged in this process, we will identify a steering committee to guide the incorporation, planning and management of SPEC. This committee will also identify the future leadership of the center.

Return to Top

Monitoring and Evaluation Plan

The goal of this project is to foster ethical behavior in St. Petersburg and throughout Russia. This can be measured through the following results:

• Public awareness and advancement of the dialogue is quantifiable through the forums in which these issues are addressed. Already we have seen press coverage of this issue jump dramatically, both in news coverage of our project and in opinion pieces, columns and editorials. We will look for trade and professional associations to address these issues in a meaningful way. Invitations for members of the project team and leaders in our coalition to speak on these issues as well as requests for information are further evidence of awareness and dialogue. We will be most impressed if and when these requests come from audiences beyond those currently addressing these issues.

• Implementation of business ethics initiatives in individual organizations.

  The baseline data for this result is the current list of Signatories to the Declaration and status of their organizational ethics initiatives. Approximately 30 of the 120 Signatory Companies currently have a code of conduct. Few, if any, have additional components of a comprehensive ethics program. To quantify results in this area we will develop a grading scale measuring adoption of the Declaration and implementation of corporate best practices such as Ethical Leadership, Vision Statement, Values Statement, Corporate Code of Ethics, Ethics Office/Officer, Ethics Taskforce/Committee, Ethics Communications Strategy, Ethics Training, Ethics Help-Line, Measurements and Rewards, Comprehensive System to Monitor and Track Data, and Periodic Evaluation.

• Development of a unique vocabulary and other new learning to advance the state of the art of Russian business ethics.

  Our experience working with local groups around the world shows that the first challenge is for the members of the community to develop a language in which it is appropriate to discuss these issues in the context of their unique culture. After this first hurdle, the challenge is to continue to build new knowledge and advance the state of the art in that environment. We will quantify this result with reports, publications, articles, management tools and programs.

Return to Top

The Project Team

Matthew Murray, President of SVI and chief U.S. legal adviser, and legal assistants, are responsible for supervising the administration of the project and helping to implement the full range of legal and professional tasks required by the grant’s missions, particularly Russian and international coalition building and day-to-day oversight.

Anna Ossipova, Project Administrator, is responsible for all day-to-day aspects of grant administration in Russia, including conference, seminar and training organization, signature and model code collection, coordination of project activities with signatories to Declaration of Integrity, business associations and government agencies, and all other related tasks.

Anton Andreev, chief Russian legal adviser, and a Russian legal assistant assist with the full range of legal and professional tasks required by the grant’s missions. He and Elena Fedyushina, as SPEC Consultants, will work directly with individual companies to support the development and implementation of their ethics initiatives, including codes of ethics, training, communication and ethics office strategies. They are continuing their duties as appropriate while attending training in the U.S. Other project team members in Russia are also assisting them as necessary.

Jerry O'Brien, ERC Director of International Programs, is responsible for supervising the administration of the project and helping to implement the full range of professional tasks required by the grant’s missions, particularly the development, planning and execution of the Conference, Seminars and Staff Training Program as well as U.S. and international coalition building.

Cherie Raven, ERC International Project Manger, is responsible for all day-to-day aspects of grant administration in America, including conference, seminar and training organization, U.S. and international external relations efforts, and all other related tasks.

Santiago Zorzopulos, ERC Training Coordinator, is responsible for the coordination of the staff training program.

As necessary the team also draws upon the resources of the entire ERC staff, particularly the expertise of the ERC President, Directors and Senior Consultants. Frank Navran, ERC Director of Training and Senior Consultant, is particularly involved in Conference, Seminar and Training development and delivery.

Return to Top