Human Resource Management in Russia

Michel E. Domsch, Tatjana Lidokhover

• Publisher: Routledge
• Year: 2017
• Print ISBN:
  9780815389552
• eBook ISBN:
  9781351156226
• Topic: Business
• Subtopic: Business General
• Index: Business

Investigating Human Resource Management issues in Russia, this volume looks at the current state of Human Resource practice within Russian enterprises; its various problems and possible solutions. Following a detailed introduction into the current economic developments taking place in Russia, the book examines the new role of the HR department in Russian enterprises, and the influence of national politics on HR practice. The book also discusses key HRM issues such as recruitment and selection, training and development, payment and compensation, before surveying the various HR problems encountered by multinational companies working in Russia.

Part I
Human Resource Management Issues

Chapter 1
One Step Forward, Two Steps Back: Negative Consequences of National Policy on Human Resource Management Practices in Russia

Ruth C. May and Donna E. Ledgerwood

Russia’s journey toward a free-market system began with the dissolution of the Soviet Union in August, 1991. Almost overnight, Russians looked to Boris Yeltsin, then President of the Russian Federation, to usher in a new era of freedom and economic growth using aggressive market reforms. History tells us that this was naïve optimism. Rather than a fast track to prosperity, Russia’s efforts to adopt democratic principles and market-based economics have been marked by frenetic bursts of progress followed by periods of regression, or in the words of Vladimir Lenin, ‘one step forward, two steps back’ (Lenin 1904). More recently, the administrative maneuvering of Vladimir Putin has drawn criticism from global observers who claim that once again Russia is headed in a reverse direction, perhaps two steps back toward a dictatorship.

Based on our experiences as researchers and consultants inside Russian companies for more than a decade, we too are concerned with Russia’s backtracking on business and political reforms. Through the insider view we are afforded in our consulting work, we can see the negative, trickle-down effect of recent national policy on human resource management (HRM) practices in Russian organizations. This effect is disheartening after seeing so much passion for progress in reforming Russian management from 2000 to 2003.

In this chapter we will discuss specific examples of the negative consequences of recent national policy on HRM practices in Russia within our client firms, and how these firms are coping (or not coping) with the unpredictability of Vladimir Putin’s new authoritarian agenda. The tip of the political iceberg may be in the epicenter of Moscow, but the chilling effect of its influence stretches far and wide beneath the surface of the Russian economy, affecting regional governments and businesses across the entire country. At the organizational level, HR initiatives have regressed and achieving organizational performance has become a mosaic of inverted and subverted efforts.

Table 1.1 Russian client organizations

Organization	Industry/Sector	Location	Ownership Status
Avtovaz	Automobile	Togliatti	OJS*
Bank24.ru	Banking	Yekaterinburg	Private
BFK	Building materials	Novosibirsk	Private
Birusa	Refrigerator manufacturing	Krasnoyarsk	OJS
City of Togliatti	Municipal	Togliatti	State
Fosfor-Ateks	Chemical	Togliatti	OJS
Frutos	Wholesale Produce	Novosibirsk	Private
Gazprom	Gas	Moscow	OJS*
Inmarka	Dairy	Novosibirsk	Private
Joint Commercial Bank Stolichny	Banking	Moscow	OJS
Krasnoyarsk Stroitel	Construction	Krasnoyarsk	Private
Medtechnika	Medical Equipment	Novosibirsk	OJS
Mosbusiness Bank	Banking	Moscow	OJS
National Trade Bank	Banking	Togliatti	OJS
Oldam	Power Equipment	Moscow	Private
Promstroy Bank	Banking	St Petersburg	OJS
Richel	Conglomerate	Chelyabinsk	Private
Riten	Wholesale Paper	Novosibirsk	Private
Rosinka	Alcohol	Togliatti	Private
Rossibpharmatsya	Wholesale Drugs	Novosibirsk	Private
Rostselmash	Machinery	Rostov-on-Don	OJS
Russian Commercial and Industrial Bank	Banking	St Petersburg	OJS*
Severnaya Kazna Bank	Banking	Yekaterinburg	Private
Sibgigant	Supermarket Chain	Novosibirsk	Private
Smak	Fast Food	Krasnoyarsk	Private
Ural Bank of Reconstruction and Development	Banking	Yekaterinburg	OJS
Uraltransbank	Banking	Yekaterinburg	OJS
Vneshtorg Bank	Banking	Moscow	OJS*

OJS = Open Joint Stock Company

* Listed on the Russian (RTS) Stock Exchange ck Company

The Rayter Group

Our training and consulting work with Russian companies began in 1992 as a result of a partnership formed with Gregory Rachmilevich Rayter, founder of the Russian Personnel Management Association (RPMA) in Moscow. Mr Rayter was one of the first Soviet citizens allowed to travel outside the Soviet Union to receive training in Western methods of human resource management during Gorbachev’s period of perestroika in the late 1980s. By 1990, Mr Rayter and member organizations of the RPMA were seeking to form cooperative partnerships with academicians and practitioners from the West who could assist them in importing contemporary HRM practices into Russia while drawing on their own expertise to tailor these new practices to fit the emerging business environment.

More than a dozen years have passed since our initial partnership was created with our Russian colleagues and it has been a phenomenal journey of sharing and learning on both sides. We now work together as a cross-cultural consortium under the auspices of the Rayter Group, a comprehensive consulting practice with client firms located across geographical regions and industries of Russia. For a sample list of Rayter Group clients, please see Table 1.1. All examples provided in this chapter are drawn from the companies listed in Table 1.1, but firms will not be specifically identified in most examples due to the sensitive nature of the information.

The Rayter Group’s projects with Russian firms include on-site training and coaching in strategic planning and human resource management. Direct contact with a firm’s executives typically spans six to nine months and includes four to six visits to the firm’s principle location. Each visit lasts approximately two weeks and includes hands-on training designed to assist managers in developing strategies that capitalize on emerging opportunities in the organization’s environment. Over a period of months, executives create the firm’s strategies and the action plans necessary to implement the strategies. From these action plans, and their corresponding goals, job analyses (job descriptions and job specifications) are created that link the firm’s overall strategy directly to its HRM practices, including recruitment and selection, training and development, performance appraisals, and compensation and benefits.

During the early to mid 1990s most of the executives in our client firms were either (1) in denial about the need to make significant changes in their operating models or (2) they had so much money that they were more interested in buying solutions than doing the hard work of creating their own. This was a period of frustration for us in our research and practice as we doubted whether there would ever be genuine reform in Russian management. Then came the economic crash of 1998 and everything changed. For nearly two years, the Russian economy teetered on the brink of implosion. After 18 months of economic stagnation, managers finally seemed willing to accept the fact that their attempts to buy pre-packaged Western plans would not work in the long run. Having failed to find simple answers to their complex problems, managers were then ready to create their own solutions that would fit the unique circumstances of the emerging free market in Russia.

Enter Putin

On New Year’s Eve 2000, Boris Yeltsin handed over the presidential reigns to his handpicked successor, Vladimir Putin. Putin had entered the ‘Kremlin family’ in the late 1990s and served as Chief Deputy to Pavel Borodin, the Director of all the Kremlin’s real estate holdings who was subsequently indicted by the Swiss government for money laundering and had a warrant issued for his arrest. Despite Borodin’s difficulties, Putin advanced quickly as a Kremlin insider, building on his former career successes in St Petersburg as the mayor’s liaison to Western firms’ operating ventures in that region of Russia. During his days in St Petersburg, Putin earned a reputation of being ‘heavy handed,’ but was also known to deliver the stability and order that global investors wanted in exchange for investing in Russia. Despite his earlier career as a decorated KGB hardliner in East Germany, Putin was regarded as a savvy business player and was a welcomed improvement over Boris Yeltsin whose ill health and penchant for firing and rehiring members of his cabinet on a weekly basis had colored his last days in office. Thus, Putin easily won his first election to office in March of 2000.

As a token of gratitude for Boris Yeltsin’s handing him the presidency, one of Putin’s first official actions as President of Russia was to sign an executive order protecting Yeltsin and his family members from ever being prosecuted for any actions they took while Yeltsin was president. Apparently, Putin does not forget a favor and rewards those who reward him.

Putin’s first presidential administration was a prosperous time for Russia as global oil prices climbed and the political climate calmed in comparison to the turbulent Yeltsin years. Although Putin raised eyebrows in 2001 when the state renationalized Russia’s only independent television network, NTV, the cries of critics were outweighed by the accolades Putin received for his leadership in cutting corporate taxes and signing into law legislation which allowed for private ownership of commercial and residential property. Other key legislation supported by Putin during his first term included guaranteeing the rights of defendants and judicial control over arrests and detention which had formerly been controlled by state-appointed prosecutors. Under Putin’s direction the Duma also approved legislation allowing the private sale of farmland after more than eight decades of state ownership. As a sign of support for creating a more competitive business environment, Putin also signed into law a plan for breaking up UES, the state-owned electric monopoly.

In our consulting practice during 2000 to 2003, we were encouraged by the enthusiastic commitment of Russian executives to reform their organizations. Their heightened interest was driven primarily by a growing sense of intense competition bearing down on them from domestic as well as international competitors. The business environment was becoming more legitimate and Russian companies were becoming more determined to modernize and improve their business practices, especially in the area of human resource management. Then Putin was re-elected to a second term and the rules changed again.

Putin’s New Agenda

While the political and economic advances during Putin’s first term gave global investors many reasons to feel optimistic about Russia’s future, the president’s policies during his second term have prompted a global re-examination of Russia’s prospects. Growing concerns over increased political risk in the second half of 2004 led to a significant decline in economic growth in Russia despite record high oil prices. Specifically, for all of 2004 the overall deterioration in Russia’s business climate cost the country 1.7 percentage points in economic growth or US $10 Billion in lost production (EIU 2005a). Moreover, worries over Putin’s drift back towards authoritarianism caused domestic capital flight, which had been falling, to quadruple to $9.4 billion in 2004 from $1.9 billion in 2003 (Buckley and Gorst 2005; Weir 2005). Not surprisingly, it was mid-2004 when our consulting group began to notice a measured decline in requests for new consulting proposals from Russian companies. This is not unusual in periods of economic decline, as we well remember from 1998–99, but what makes this slowdown unique is that the primary cause of the slowdown is undeniably linked to the policies of a president who supposedly is determined to move Russia forward, not backward. So what is Putin up to and what are the implications for HRM practices in Russian firms?

The Yukos Affair – Reversal of Privatization With a March 2004 deadline for reelection looming before him, Putin’s shift in priorities became apparent to all who were watching in late 2003, beginning with the arrest of Mikhail Khodorkovsky, CEO of Yukos Oil Company. Mr Putin insisted that the arrest of one of his most outspoken critics rested purely on the charges of tax evasion and criminal activity, but the world could not help but notice that Khodorkovsky had a record of ‘buying’ parliamentary votes on oil legislation, funding parties in opposition to Putin, and publicly criticizing government decisions. Early in his first term, Putin had reached a bargain with Russia’s oligarchs that if they would stay out of politics and pay their taxes, Putin would look the other way at their sometimes questionable ways of building their business empires (Buckley and Gorst 2005). Apparently, Khordorkovsky was not very committed to that quid pro quo or he underestimated the lengths to which Putin would go to silence his critics.

Putin was soundly re-elected in March 2004, but even more importantly, his United Russia Party won a solid majority in the state Duma in December 2003 giving him full control over the executive and legislative branches of government. With control of the Duma, he could begin to reconfigure national policies according to his own agenda and he wasted no time in getting about the business of implementing repressive change.

By December 2004 Mikhail Khodorkovsky was still in jail and the bill for Yukos’ back taxes had risen to US $25 billion from the original estimate of US $3.4 billion. On 15 December, Yukos’ officials applied for bankruptcy protection from a US bankruptcy court in Houston, Texas with international jurisdiction and were granted a temporary suspension...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• Preface
• Introduction: The Broader Historical, Social and Economic Context of the Current Situation in Russia
• PART I GENERAL HRM ISSUES
• PART II KEY HRM ISSUES
• PART III HRM PRACTICES IN MULTINATIONAL COMPANIES
• Index
• The Contributors