Russian execs mobilize against crooked deals

Lev Kaplan, a St. Petersburg construction executive, became fed up with bribe demands and mafia activity. It galled him to see unfair competition and corruption flourish.

The city in which he lived - Russia's second most well-known - had gained the unflattering sobriquet of the country's "crime capital" for its dirty deals and high-profile contract murders.

But instead of just shrugging his shoulders, Mr. Kaplan decided to do something about it a year ago.

He gathered 240 fellow members of the St. Petersburg Association of Construction Companies to draw up rules of ethical conduct. They agreed that anyone who violated the code would be kicked out and black-listed.

It was a pioneering move. But the effort appears to be gathering momentum among local business owners.

And the likely prospect that the tough acting president, Vladimir Putin, will be officially elected March 26 has the business community aflutter with hope.

Expectations are that Mr. Putin will make good on his promise to establish a "dictatorship of law" - a term that doesn't seem to bother supporters - to overcome the crookedness that has marked the 10-year transition from Soviet rule to robber-baron capitalism.

"Before, no one cared about the principles of ethics in business," says Galina Ratnikova, an official with the Russian Chamber of Commerce in Moscow. "But suddenly, the reputation of a company is a very important factor. The mentality is changing across Russia."

The absence of a strong state under former President Boris Yeltsin meant that small businesses that challenged government authority often risked sanctions or harassment by tax police. Low salaries encouraged corruption by politicians; parliamentarians had immunity from prosecution. The judiciary was not independent.

Putin supporters like Kaplan talk hopefully of such issues as transparency, respecting client confidentiality, honoring contracts, rejecting libel, and removing unfair advantages that hamper competition. Among the recent initiatives are plans for a competition organized by the chamber to honor the most-honest bosses and enterprises in Russia.

The fervor is remarkable considering that there are no guarantees that Putin will succeed. Detractors note that he has revealed no concrete measures and question whether he will crack down only against political enemies.

While Putin was deputy mayor in the early 1990s, St. Petersburg's economy declined. In fact, critics say, Putin nurtured the establishment of secretive, monopolistic structures that facilitated corrupt practices.

Associations other than Kaplan's are drawing up their own codes of conduct. According to Ms. Ratnikova, entire branches of industry - such as realtors and bankers - are discussing the need for regulations.

American businessman Matthew Murray, who has collected 100-plus signatures in St. Petersburg for a Declaration of Integrity in Business Conduct, says he has been swamped with queries on how to translate the document into action.

To meet the "overwhelming" demand, he plans to hold a series of seminars starting next month to teach Russian entrepreneurs how to write and enforce ethics charters. "People are gravitating to the theme of Putin's 'dictatorship of law.' They genuinely believe he will place the Kremlin's authority behind the court system," Mr. Murray says.

"Over the past eight weeks there has been a great deal more interest. Before, it was only a handful of reformers. Now a more diverse group of people are generally interested in the process."

The pessimists say that corruption is so deeply embedded in Russia that it will be difficult to change mentalities that have lasted most of this century.

"The establishment of ethics codes is certainly useful. But much more-serious changes are needed to create a civil society," says Alexander Metveyev, an analyst with the Russian Economic Barometer, an independent research foundation in Moscow.

But businessmen such as Kaplan and Murray, who worked with Putin earlier in his career, are convinced the former KGB spy can mobilize the secret services to crack down on shady dealings - and that he's keenly aware of the need to revitalize Russia's moribund economy.

"I am absolutely sure Putin can do it," says Kaplan. "He told me himself that Russia is doomed if it fails in fighting corruption."

Even without Putin, Kaplan will continue his efforts as head of the local construction association. Over the past year, the organization expelled nine members for unfair practices, such as failing to fulfill building contracts.

Another successful venture belongs to the St. Petersburg Insurance Companies Union, which wrote up a detailed list of rules, including prohibiting statements that damage other members' reputation and requiring honesty with clients.

The union also set up an ethics commission that has heard five cases in recent months, most of them centering on suspicions of unfair competition. Each one was settled via mediation by the commission.

"Guilty parties have demonstrated goodwill so far," says Olga Samovarova, the union's president. "The threat of expulsion is a good whip, which luckily we have never had to use."

Successful as they are, such practices are far from the norm in Russia's chaotic business climate. "There was a sense of exhaustion and frustration before, because there was no firm government. But I think hope is returning that there will be a flicker of governance," says Scott Blacklin, president of the American Chamber of Commerce in Moscow.

(c) Copyright 2000. The Christian Science Publishing Society