Russian Ideas About the Best Way to Run a Business Go Back Further Than You Think

A widely accepted manual from 1881 set out best business practices in Russia before the revolution

Fri, Jan 6, 2017 | 1879 Comments

Paul Goncharoff is Chairman, Disciplinary Committee, National Association of Corporate Directors, Russia


Good corporate governance, and the nuances attached to this simple business concept have been increasingly codified worldwide since the 1970’s. Few recognize the tremendous strides achieved in Russia this past decade in establishing remarkably high implemented standards. 

It is worth noting that the governance of early U.S. corporations, of which over 20,000 existed by the Civil War of 1861-1865, was arguably better than corporations in the late 19th and early 20th centuries as they governed themselves like "republics" with "checks and balances" against fraud and against usurpation of power by managers or by large shareholders. The term "robber baron" became particularly associated with US corporate figures in the late 19th century and early 20th.

Just after the Wall Street Crash of 1929, legal scholars focused on the changing role of the modern corporation in society. US economic expansion via emerging multinational corporations after World War II (1939-1945) saw the establishment of the managerial class and the consequent issues of having dominant control over business affairs without sufficient accountability or monitoring by their board of directors.

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In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable press attention due to a rash of CEO dismissals by their boards. By the early 2000s, with the massive bankruptcies of Enron and WorldCom, as well as lesser scandals led to increased political interest in corporate governance. This gave birth to the Sarbanes-Oxley Act of 2002. Other triggers for continued interest in the corporate governance of organizations included the financial crisis of 2008/9, the TBTF’s and the levels of management reimbursement.

This preamble I thought worth setting out as the topic is Good Corporate Governance in Russia. As in the United States during the period of 1776 to years following the Civil War, the priorities of business were basic survival and expansion. There are some business similarities between America and Russia up until their respective Civil Wars.

The principles and ethics of business Governance were even set out in Russia in 1881 in the widely accepted manual by N.E. Zegimelya "The essential rules for merchants, bankers, commission agents and every person engaged in any business" which also formulated the accepted "code of honor", or rules of behavior of Russian businessmen of the 19th century.

While we might smile at the thought, social conventions, trade guilds and the church served to influence adherence to higher ethical standards more effectively than any legal writ. It even guided affairs on the then powerful Russian Stock Exchange which had a global reach.

This work by Zegimelya crystallized into a user-friendly format distilling many centuries of Russian best business practices. Today more than 130 years later, these rules have not lost their relevance, although from a legal perspective they seem quaint, especially when compared to the increasingly complex laws insinuating themselves today onto business life globally.

Some excerpt examples: 

Business qualities: common sense, speedy thought processes, determination and fairness in the performance of all affairs. Every decent person can and must develop these qualities given unwavering determination and willpower.

Courtesy and politeness: You will often hear undeserved insolence; it is extremely important not to lose your evenhandedness, accepting such events with complete composure and tact.

Observe order in everything, even in the least of your deeds. Assign everything its place, so that when essentials are needed you can find them without time-consuming difficulty. This is an extremely important condition for every businessperson. Do not go to bed until all your affairs are in order. Cherish the kopek, for it is as valuable as a ruble.

Be systematic and regular; you will not work properly and successfully, if you do not have a stable character and set principles. You must comply not only in your work but also in the conditions of your home with this aspect.

Always keep your word. Better not to promise, if not sure that you are able to fulfill your promise, but, once having given your word, you must without fail faithfully execute it.

The power of focused concentration; this is one of the main conditions for success. Engage in only one business case at a time. Comprehensively study both its favorable and bad sides, and do not give up unless and until you are certain of the impossibility of success.

Treat your business with total zeal, whatever it is you are doing. Work to make it happen: early or late, in good times or bad times, in short, do not miss a single instance which could, albeit slowly, serve the success of your activities.

Speak clearly, honestly and accurately to your customers. 

Never be bored. 

Record everything and never relegate to your memory that which can be written down today. 

Every business is based on trust. You will make every effort to earn for yourself the full confidence of those with whom you have to deal. This can be achieved in different ways, the most important of which are – your honesty and integrity.

Follow your business finances like your personal savings, and be sensitive to cost. Better to live below your means, than above them. 

Know how to do the work yourself. Do not rely blindly on your assistants or employees. What you can do yourself, you should. If you wish to delegate the work, you can at least watch and guide it competently.

Do not run after business promising big profits when linked with unusually high risk. It is better to deal in business with smaller but certain profits.

Be sober and consistent. Do not go into the details of other people's affairs, do not ask about them, either directly or indirectly or you will have the reputation of a busybody.

Stay calm and cool in discussions between both the buyers and the sellers. No matter how lively your dispute, never get hot and do not gesticulate, do not give reasons for outsiders to eavesdrop on your conversation or to make judgements based on the expression on your face and hand gestures.

In skimming through the manual I was struck by the thought that this was a marriage of common folksy sense and Dale Carnegie, but it held sway and influence during the years prior to the 1917 revolution. It also served to define what was known as the sacrosanct “Kupecheskoye Slovo”, or the businessman’s word of honor.

In the years following the revolution, there was no reason for any culture of business, or rules that govern business conduct as any business was redefined through the monocle of the communist party. Nonetheless, even though the communist party effectively eradicated the business class, the “Kupecheskoye Slovo” remains to this day ingrained in the Russian cultural lexicon. 

Today, more than a century later, significant strides have been made in a concentrated time period to align Russian corporate governance practices with internationally accepted norms. One of the defining efforts, which have formed the foundation of this rebirth in Russia, can be found at http://www.ita.doc.gov/goodgovernance/CorpGovManual.asp and I recommend it to any who wish to learn more of what has evolved and continues to develop in this field. There are also two organizations in Russia who are working tirelessly to enhance best business practices in Russia which can be accessed through their websites as follows: www.corpdir.ru and www.nand.ru.

Much has been made in the press about the risks of business with and in Russia, there is some truth to it as there is truth in the very same, but even higher valued risks occurring in the USA, Asia and Europe constantly. Little is mentioned or credited about the efforts continually being made in Russia to achieve levels of transparency and good governance, which if viewed on a comparative timeline are happening faster and more profoundly than most.

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