Globalaffairs

Issue 3/June-July 2007
By Evgeny Lykov

Russia is a federal state that consists of 49 oblasts (districts), 21 republics, 10 autonomous okrugs (areas), 6 krays (territories), 2 federal cities and 1 autonomous oblast (region). Russian government consists of executive; legislative and judicial branches. The executive branch is comprised of president (head of the state) and cabinet of ministers. Legislative branch includes bicameral Federal Assembly or Federalnoye Sobraniye that consists of the Federation Council or Sovet Federatsii (178 seats; as of July 2000, members appointed by the top executive and legislative officials in each of the 89 federal administrative units - oblasts, krays, republics, autonomous okrugs and oblasts, and the federal cities of Moscow and Saint Petersburg) and the State Duma or Gosudarstvennaya Duma (450 seats; currently 225 seats elected by proportional representation from party lists winning at least 5% of the vote, and 225 seats from single-member constituencies; members are elected by direct, popular vote). Finally, judicial branch is comprised of Constitutional Court; Supreme Court and Superior Court of Arbitration. Judges for all courts are appointed for life by the Federation Council on the recommendation of the president (http://www.cia.gov/cia/publications/factbook/geos/rs.html ).

Presidency and the cabinet

Russian constitution of 1993 upholds basic principles of democratic state-building. These include separation of powers, defining the rights and duties of various levels of government. Russia’s semi-presidential system was modeled on that of France, although with some important differences. The constitution grants the presidency extensive powers in naming governments, introducing legislation and making policy. The government is responsible to and is appointed by the president and, formally, does not have to represent the majority party or coalition in parliament. The constitution also grants the president control over 4 key areas: security, defense, home and foreign affairs. As a result Russia’s presidency acts as a duplicate government, with the functions of ministers often carried out by agencies under presidency (Sakwa, 2002, pp. 103-104). It is also worth noting that unlike common practice in the West, Russian ministers themselves are unable to make national decisions but have to prepare the appropriate documentation, which is then adopted as an act of the government as a whole. Executive power in Russia is exercised by the president and the government, a dual executive system with an unclear relationship between the two (Sakwa, 2002, p. 110).

Russian federalism

Federalism in its broad sense is traditionally viewed as a spectrum of possible ways to divide jurisdiction over the same population between different levels of government. Federalism can, therefore, be defined as “… the method of dividing powers so that the general and regional governments are each, within a sphere, co-ordinate and independent” (Brown, 2001, p. 375). Like all other federal states Russian federal system is based on a constitution (written, formal document), which incorporates the supreme law of land that overrides all other legislation or executive acts. Therefore in Russia (as a federal system) executive; legislative and judiciary branches are subordinated to a written constitution (Brown, 2001, p. 375).

Federal and regional governments

Despite the fact federal government is the main determinant of political and economic stability in any given region in Russia, the strength and influence of regional governments is an indisputable fact. As a result of the existence of such power balance the interaction of the regions with the federal centre is a complex system. On the center’s side, the main players are the president of the Russian Federation, the presidential administration, and the head of the cabinet of ministers, whereas on the regional side, they are the heads of executive power in the regions (presidents of the republics and the governors of the territories (krai) and regions (oblast) (Brown, 2001, p. 386).

Local government

Local governments in Russia are accorded with a significant political role that involves control over substantial resources crucial for influencing the local social processes and levels of political mobilization. One type of such resources derives from the local governments’ formal jurisdictions over public life. Second type comes from continued prevalence of the public sphere over the private one and the material reliance of the social agencies on the state and its institutions (Brown, 2001, p. 402).

The discussion of the branches of the government in Russia indicates that Russian system is of extremely complex nature. On one hand it is characterised as presidential and parliamentary, which means that a lot of power is concentrated in Moscow. More specifically, a lot of power is shared by the president and his administration; cabinet of ministers; and Duma (national parliament). On the other hand Russia is a large federal state where considerable authority and power it delegated not only to the regional governments but also to the local ones. Therefore it is evident that HRM practices of Russian companies may be significantly influenced by all of the above levels of the government.

Economic environment in Russia

Since the financial crisis of 1998 Russia had six straight years of growth, averaging 6.5% annually. Recovery brought some real benefits to ordinary Russians, but not straight away. Average real wages fell by 10% in 1998 and a further 17% in 1999, despite the existence of economic growth. In 2000, however, household incomes began to rise, with real wages rising by almost 64% in 2000-2002 inclusive, and the broader measure of real disposable incomes rising by 50% (Ross, 2004, pp. 117-118).

The GDP rose in January–December 2000 by 7.7%, while industrial production rose by 9.6% and investment rose by 17.7% over the previous year. Russia enjoyed a massive trade surplus of over US$60 billion. (Gurkov, 2002, p. 137).

Some of the most important factors behind economic growth in Russia are high oil prices and a relatively cheap ruble. Another reason for the growth is that since 2000 investment and consumer-driven demand have played a significantly increasing role. Real fixed capital investments have increased by over 10% over the last five years, and real personal incomes increased by over 12%. International financial position of Russia has also improved since the 1998 financial crisis (foreign debt declining from 90% of GDP to around 28%). Strong oil export earnings have allowed Russia to increase its foreign reserves from only $12 billion to some $120 billion by the end of 2004. A combination of the above improvements and renewed government effort to advance structural reforms, have raised business and investor confidence in Russia’s economic prospects (Shleifer and Treisman, 2004). Another important factor in the recovery of Russian economy was the replacement of a fairly steep graduated income tax with a flat 13% rate in 2001. That has apparently encouraged Russians to declare more of their total earnings to the authorities. According to the State Statistics Committee, the amount of unreported wages and salaries fell from around 35% in 2000 to about 27-28% in 2002 (Ross, 2004, p. 117).

Despite all the improvements Russian economy faces a range of serious problems. Putin’s liberal economic advisor, Andrei Illarionov, pointed out in 2001 that Russia would need to grow at 8% per year for 15 years only to reach the level of per capita GDP recorded by Portugal in 2000. There are many reasons for doubting whether Russia is really capable of maintaining such sustained, rapid growth (Ross, 2004, p. 118). One of such reasons is that economic growth slowed down in the second half of 2004 and the Russian government forecasts growth of only 4.5% to 6.2% for 2005. Also Russian economy is extremely vulnerable to world prices on natural resources. At the same time oil, natural gas, metals, and timber account for more than 80% of exports. Russia’s manufacturing base must be replaced or modernized in order to contribute to economic growth (Shleifer Treisman, 2004). Other problems include a weak banking system, a poor business climate discouraging both domestic and foreign investors, corruption, high levels of government consumption, weak legal regulation and enforcement, institutions that favour rent seeking over entrepreneurship, a recent history of high inflation and relatively large income differentials etc (Ross, 2004, p. 119).

Moreover Russia’s demographic profile combines the worst characteristics of developed countries (an ageing population, low birth-rates, a declining total population and rising dependency ratios) and developing states (epidemic diseases, high levels of infant mortality and low/falling life-expectancy). Skill level of the workforce has been rapidly eroded since 1991 but is still relatively high by international standards, whereas R&D base has virtually disappeared. State funding for science, which was never below 2% of GDP during the USSR, declined during in the 1990’s from about 1% of GDP to around 0.33%. The result of this was brain drain of about 400,000 scientists and technical specialists leaving Russia during the 1990s, (Ross, 2004, p. 119).

Considering previously discussed claims that external environment has great influence on HRM practice in any company it is logical to assume that many recent changes within Russian politics and economy should had a dramatic impact on HRM practice within Russian companies. The following discussion will illustrate some of the changes in HRM in Russia and identify the extent of these changes.

Impact of changing environment on HRM practices in Russia

The changes in HRM in Russia can be identified though examination of the survey of 735 chief executive officers carried out in the year 2000 by Igor Gurkov (Professor and Head of the Centre for Organisational Studies of State University—Higher School of Economics). The focus of Gurkov’s research was to compare 2000 survey finding with initial survey that was done in 1998. This would assist in identifying changes in human resource management (HRM) in Russian industrial companies in recent years. The three main types of expected changes were the following:

• Firstly, in order to expand their activities after many years of contraction, Russian companies need a radical change of recruitment and personnel selection methods.

• Secondly, the change of recruitment practices should lead to changes in other areas of HRM, especially in remuneration schemes and performance assessment methods.

• Thirdly, such changes could make Russian chief executive officers (CEOs) more considerate of Western techniques in HRM.

In addition to the above expectations Gurkov outlined some other factors that may influence the extent of the change in HRM in Russian companies. One of such factors is the rate of expansion of a company. Gurkov argues that “… a rapidly expanding company experiences more challenges in HRM in order to sustain the positive trends in performance” (Gurkov, 2002, p. 138). Another possible factor is the length of service of a CEO in his/her present position. It is often true that a newly appointed CEO brings a breath of fresh air to performance assessment and selection routines. Gurkov notes that there may be other factors that influenced change in HRM in Russian companies and that they could be discovered by closer examination of specific companies.

Results of the survey

All the companies surveyed were divided into three groups. The first group included companies whose CEOs assessed the current situation of their companies as ‘bad’. The second group was formed by companies whose CEOs assessed the situation as ‘satisfactory’. The third group consisted of companies whose CEOs assessed the situation as ‘good’ or ‘excellent’ and also the companies in a ‘satisfactory situation’ which showed a very positive performance trend. Then were identified the changes that have occurred in various aspects of enterprise management in each of the three groups of companies.

Data from Table 4 suggests that Gurkov’s expectations concerning “… the positive relationship between the speed of recovery of a company and the intensity of changes in HRM practices …” (Gurkov, 2002, p. 139) have actually occurred. As a result changes in various sectors of HRM such as selection, appraisal and remuneration were vast evident in the most successful companies.

Gurkov outlines that the changes in management practices in successful Russian companies should be related to the goals of the top management. In order to prove that proposition, he compared the range of goals of the Russian CEOs declared in surveys in 1998 and in 2000

Quality became very important for Russian CEOs. Reaching ‘world standards of quality’ is the top priority for the most successful companies. Russian CEOs have also become more focused in relation to their goal setting. The data from the previous survey suggests that in 1998 CEOs indicated on average 2.5 main goals, whereas in 2000 there the average was 1.3–1.6. However, Gurkov points out that the sets of goals of CEOs of successful companies provide a range of contradictions. In his view the biggest contradiction is “… an attempt to combine ‘world standards of quality’ with Russian standards of salaries” (Gurkov, 2002, p. 140). Gurkov explains that the essence of the problem is not even the absolute level of salaries, but unwillingness of CEOs to take notice of Western management methods and to compromise costs for better quality. International managerial experience shows that the increase in salary level is a long term investment in HRM (stricter technological discipline and better job attitudes) that would lead to raising companies’ performance standards, greater selectivity in staffing and more rigorous performance appraisal. As a result company should achieve better quality at lower costs.

Evidence suggests that most of Russian CEOs, especially CEOs of successful companies, are very respectful of Western methods of production management and quality management. However data collected by Gurkov also shows that almost a half of CEOs in all the groups do not believe in the applicability of Western HRM to Russian realities.

Therefore it is true to say that the majority of Russian CEOs believe that the main obstacles on the way to achieving ‘world standards’ are in the areas of technical production management and quality control rather than in HRM and in job attitudes in particular (Gurkov, 2002, p. 141).

As outlined in the above discussion innovation and practice of HRM is relatively limited comparing to Western standards. This can be also seen in the hierarchy of sources used for HRM innovation in Russia. The most commonly used source is company’s own inventions, nourished by studying the specialist literature.

At the same time Gurkov stresses that it is very rare that HRM innovations are initiated by newly recruited employees. This means that most HRM initiatives in Russian companies originate from the very top of organisations. Gurkov’s data also indicates that the role of management consultants in HRM innovation is also rather limited (Gurkov, 2002, p. 142).

Considering all these findings we can conclude that first of all together with recovering of Russian economy also has improved the performance of many industrial companies within the country. This in its own turn had led to a change in the goals of the companies. In order to achieve these new goals Russian companies introduced various innovations in their practices including HRM. In such innovations Russian companies rely mostly on their own ingenuity and imitation of the experience of their business partners and competitors. At the same times there is a general neglect of Western HRM techniques. The role of professional HRM experts (either internal experts from personnel departments or external experts from consulting firms) in designing appropriate forms of HRM innovations is also undervalued in Russia. Moreover, in general Russian CEOs tend to underestimate HRM development. Instead, Russian CEOs are mostly concerned with financial, marketing and technological aspects of their companies’ development.

Evgeny Lykov
MA in International Relations at Oxford Brookes University, UK

References

- American Management Association (2000) “Auditing Your Human resources Department”, AMACOM; in Price, A. (2004) “Human Resource Management in Business Context”, 2nd edition, Thompson;
- Brown, A. (2001) “Contemporary Russian Politics: A Reader”, Oxford University Press;
- Bryman, A. (2004) “Social Research Methods”, Oxford University Press, New York;
- Coxall, B., Robins, L. and Leach R. (2003) “Contemporary British Politics”, 4th edition, Palgrave: MACMILLAN;
- Gurkov, I. (2002) “Innovations and Legacies in Russian Human ResourceManagement Practices: Surveys of 700 Chief Executive Officers”, Post-Communist Economies, Vol. 14, No. 1, pp. 137-144;
- INCOTEC, (2004). “Production and Distribution of LPG in Russian Federation”, Map and Statistics; Moscow;
- Keenoy, T. (1990) “HRM: A Case of the Wolf in Sheep’s Clothing”, Personnel Review, Vol. 19, No.2, pp. 3-9;
- Ross, C. (2004) “Russian politics under Putin”, Manchester University Press: Manchester and New York;
- Sakwa, R. (2002) “Russian Politics and Society”, 3rd edition, Routledge: London and New York;

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