Curtain up on HR

After a period in the wilderness following the collapse of the Soviet Union,
Russia is beginning to take HR seriously. Ben Hooson reports

Misha, an ambitious, young, Russian executive with Western experience,
recently joined a Russian mega-corporation that groups telecom, high-tech, oil,
real estate, retail and a string of other assets with no obvious connection
except location in Moscow. Asked about the company, Misha says: "It’s a
mini-Soviet Union, like all the big Russian companies."

In Russia and other CIS (former Soviet) countries for much of the past 10
years, the name of the game has been cosying up to state officials to grab
control of lucrative fuel, chemical and metal production or to supply an easy
market for Western imports. Getting ahead of competitors through better
performance was not a priority, particularly using something as unfamiliar as
HR.

Dietmar Kuck, a consultant who has worked at the Swiss Organisation for
Facilitating Investments and KPMG for eight years in Lithuania and Ukraine,
says: "When I talked to companies about the longer-term, soft side of
management, there might be interest, but no decision to do anything. With
$50,000 to spend, 80 per cent of banks and large industrial corporations
preferred to buy a new Mercedes than invest in HR."

The good news in 2002 is that the carve-up of Soviet raw material assets is
largely over, and Russia is in its fourth consecutive year of strong economic
growth, with other CIS economies following suit.

Increased competition for markets and quality personnel is making local
companies wake up to the potential offered by proper HR management, and open
their wallets to pay for it.

Scott Eversman, a London-based American working for Heidrick & Struggles
executive search who has recruited for top jobs in Russia since the 1990s,
says: "Russian companies are beginning to understand that the human
component of their industry is important, that enhanced productivity is about
the contentment of your workforce."

What this suggests is a boom for external HR consultants as companies race
to install what they have failed to nurture over recent years.

"Whether you are talking about management assessment, audit,
compensation and benefit packages, testing and evaluation – there is suddenly a
huge, insatiable appetite for all that in Russia, and Russian companies have
never had it in-house," Eversman says.

Professionals all over the CIS confirm this message. Galina Uteulina, who
heads the HR department at Dutch bank ABN Amro in Kazakhstan and trained for
her profession in Amsterdam and London, has local companies asking her to
moonlight as their HR consultant. "It is an unfilled niche: local
companies want consultancy from HR practitioners who have had experience in the
local market. I know of no HR consulting like that in Kazakhstan, although
there are consultants with more of a training bias," Uteulina says.

In Moscow, at least one new consultancy has plans to fill the niche. HR
Partners was set up this July by four experienced local HR people, led by
Galina Melnikova, previously head of HR at Citibank in Moscow and personnel
consulting at the CIS base of Ernst & Young.

"We already have orders from international Fortune-500 companies
working here and from some of the top-10 Russian companies – by revenue, staff
and role in the economy – and we could take more assignments if we expanded,
but I want to focus on long-term relationships.

"Three or four of our agreements are for at least one year," says
Melnikova, who came to HR from a job on the Sports Committee of the USSR.

Years of gestation

If HR is about to come into its own in the CIS, much of the credit is due to
years of quiet gestation. HR was introduced a decade ago by Western companies
as the Soviet Union folded. Entering a totally unknown market, many newcomers
felt they needed locals running their HR from the start, even though few people
knew what it meant, let alone how to apply it.

Larisa Karimova lived over the road from the factory, which McDonalds built
at the start of the 1990s to supply its first Moscow restaurants. She took a
job as translator, but soon found herself heading the HR department when
foreign managers saw a natural aptitude and relevant experience – married to a
Soviet fighter pilot based in Hungary, she worked as liaison officer between
military wives and the administration.

"At McDonalds I had to learn on the job: initially it was just
recruitment, but we had to look at motivation and retention when Mars set up
production in Moscow and started poaching our specialists," Karimova says.

She never looked back, and did spells at another two foreign companies
before Transmark, the Russian subsidiary of international brewer SABMiller,
which has entered the booming local beer market with production in the west
Russian city of Kaluga.

Understanding HR

Karimova fits the profile of top HR people in Russia by being female – 90
per cent of HR managers here are female – and a having a high-powered
humanities background. She earned a degree at the prestigious Moscow Institute
of International Relations. Like many colleagues, she freely admits that people
management at Russian and foreign companies are two different worlds. Unlike
some, she has no desire to take her experience to a local employer.

"Some Russian companies offer big money for experienced HR managers,
but I would never go, because many do not understand HR and are not ready to
listen to or trust the HR manager: they just want someone to recruit the best
employees for them," Karimova says.

Professionals who spent most of their HR career in Russian companies also
have grievances, but say they see changes for the better.

Julia Sosnovskaya, who runs HR for a prominent Russian investment company,
Nikoil, sees the emergence of major differentiation between companies which
have accepted western HR and those which have not.

"There is a conservative management style which prefers to approach HR
as an administrative support function with primitive demands for document
execution, and there are progressive organisations looking for long-term
business development which are ready to invest in their personnel as a major
organisational asset and therefore create ambitious targets and high
requirements for HR professionals, " Sosnovskaya says.

The ‘primitive demands’ are mainly a host of Soviet leftovers: mandatory
updating of every employee’s personal workbook, which they carry through life
as a record of their work career for an all-seeing Big Brother – who in fact
died with the USSR – and various documentation for the state labour inspectorate,
including paperwork on business trips.

"There are heaps of papers that have to be filled in for labour
inspectors, some must even be hand-written, and inspectors closely monitor
observance by foreign companies particularly," Karimova says.

Overcoming misconceptions

A lot of misconceptions in Russian and CIS companies about the nature of HR
are, unsurprisingly, based on Soviet workplace doctrines and practices. Kuck of
SOFI had extensive experience of the old regime from his work with banks in
Ukraine: "The main objective was control, and performance review was just
a matter of raising salaries as the employee added know-how to their CV.

"When I went to Ukraine in 1997, the relationship of bank CEOs to their
staff was still a matter of control and checking rather than leading and
inspiring: one big bank employed 27,000 people and the CEO still signed the
employment contracts of regional cashiers."

Kuck notes that the old system was broken at a stroke in Estonia, Latvia and
Lithuania in the late 1990s when Scandinavian banks bought into the local
banking sector and set up modern HR systems.

Elena Novikova, who introduces herself as the grandma of Russian
recruitment, set up Ancor recruitment agency with her husband in 1990, to serve
the multinationals. The company is now a market leader with branches in 10
Russian and Ukrainian cities, around 155,000 CVs, and Russian and multinational
clients including Xerox, Philip Morris, General Electric, and Shell.

Novikova points to one reason for the recent surge in companies’ attention
to HR: the difficulty of getting and keeping good employees as economic growth
creates new jobs.

"For recruiters the competition now is for candidates, not for clients:
it may sound incredible but we only accept 40 per cent of initial requests from
companies," Novikova says.

A blessing in disguise?

The Russian job market crashed in late 1998 when the Russian Government
defaulted on its debt, sending the ruble into a nosedive. But 300 per cent
devaluation failed to provoke social or political chaos, and turned into a
blessing as it suddenly became profitable to make things in Russia. The upturn
on the job market has been almost vertical in 2001-2002.

The supply deficit is confirmed by Matthew Igel, head of the Moscow office
of Kelly Services – set up in 1997 – who says it is not just difficult to find
experienced professionals, but manual labour too.

"It is not so hard for our other offices, in St Petersburg for example,
but here we had an order for 150 people to work in a factory 10 days ago and we
have only filled half of the places," Igel says.

Valery Polyakov, a long-time friend of Novikova, accepts the title of
Russian recruitment’s grandfather. He started in 1989, before private property
was permitted, by registering his organisation as a ‘consultancy’ attached to
the Moscow city labour department. "I read something about assessment
centres in a book on US management. I thought it meant special organisations
for assessing staff, and that is what I meant to set up – a combined assessment
and recruitment service," he recalls.

His company, Metropolis, is now another market leader with 90,000 CVs,
serving Russian and multinational companies. Polyakov is also the president of
a Russia-wide network of 73 recruiting companies, and has witnessed the recent
revival of Russian manufacturing which has boosted jobs in production from zero
to around 50 per cent of all vacancies outside Moscow.

"Previously the only outflow from Moscow was when a tycoon bought a
regional company and sent his men to occupy key management positions, but now
people are going freely because a posting at a regional production site offers
experience and enhances career prospects," Polyakov says.

One step ahead

Nevertheless, Moscow remains way ahead of the rest of the CIS, measured by
living standards and potential for advancement. Recruiters as far apart as
Kiev, St Petersburg and Vladivostok confirm that the old Soviet capital is
still a magnet sucking talent out of their regions.

Another point, is a surge in demand for salary surveys as employers try to
figure out how much they must pay in order to win and retain employees. This
service is big in Vladivostok, for instance, Russia’s outpost on the Pacific
Coast, where the recent election of a new governor ended a long period of
political instability.

Sergei Salikov, head of Ancor’s Vladivostok office, says: "A lot of
local companies asked for salary surveys this year after the political and
social situation calmed down." The Vladivostok office serves a stretch of
territory about 2,000 miles long, from Irkutsk to the island of Sakhalin.

Differences in recruitment practice at Russian companies and multinationals
are striking, according to Polyakov. Multinationals make their orders well in
advance, provide a clear job description, and name a salary. Many Russian
companies want the job filled yesterday, give a vague job description and
discuss salary at interview.

"Russian companies react faster and are more flexible: one foreign
company needed a specialist to deal with customs, and we found and presented
five good candidates, but they couldn’t be looked at till the manager came from
Brussels, by which times the candidates had taken other jobs," Polyakov
says.

Unrealistic international companies is another complaint: "They might
ask for an accountant with 15 years experience and good English, but older
specialists are unlikely to have good English. We suggest they hire someone
with 15 years experience and someone fresh from university with good English
skills and accounting training – that way the company will have two rounded
specialists two years on," says Dastan Kokeyev, head of recruiting at
CAPC, which offers search, training and consultancy in Kazakhstan.

Blinkered assessment of job candidates is one obstacle to better HR, but
there are even deeper problems, which will make it hard to get the very
foundations of proper HR installed at many CIS companies.

Kuck summarised one of the main problems he encountered when implementing a
KPMG bank support programme in Ukraine: "Beyond a certain level employees
get their official salary grade plus ‘expenses’ [let’s call it that] which are
allocated by a superior, and the salary grade plus the expenses determines the
market salary. The expenses are fixed and if you obey orders, you get them; if
you do not, you lose your job."

The ‘expenses’ are not taxed, and are often based on a verbal agreement
between employers and employee. They can represent much more than half of a
worker’s salary, so what hope is there of establishing proper compensation
packages, performance-related pay and a host of other key HR concepts?

"It proved impossible to establish a transparent salary system at banks
in Ukraine, even at western banks [they are staffed by locals] and so it was
impossible to install HR as regards salaries – the banks gave it up and settled
for some soft skills," Kuck says.

Treating employees as assets

Galina Melnikova is determined not to delude companies about the possibility
of genuine HR when the employee’s salary is entirely at the discretion of his
employer: "Suppose I carry over my permitted holiday time to next year, as
permitted under Russian law, and my employer fails to pay me for it – I cannot
prove anything to an inspector or a court because I am officially only paid
$200 a month, not the $600 I get unofficially."

"The employee cannot even plan their personal budget with certainty
under these conditions: I work to persuade companies that their loss in rapid
staff turnover due to demoralisation outweighs anything they are saving on
payroll taxes," Melnikova says.

As Melnikova points out, the benefits of HR are only obtainable if employers
stop treating their employees as liabilities and start treating them as assets.
That evolution in Russia should be encouraged by enlightened self-interest. As
for the ability of Russian employees to react well to good HR – that is hardly
in doubt.

"Enthusiasm is a foreign word, but it is very characteristic of Russian
people: if they understand what they are doing, why they are doing it and what
they will gain, they will give it their best: for example, our foreign managers
are surprised just how fast work is progressing at Kaluga," Karimova says.

Another Russian characteristic, which should help HR to gel here, is
collective spirit. A sense of pride, belonging, and bonding in any social group
– of ‘ours’ and ‘theirs’ – is easily engendered in Russia, and that includes
companies, even with their current inferior HR conditions. One interesting
result of this is under-development of the market for temporary employment.

"There is an attitude that a temporary person is not "our
person", that he can’t be depended upon," says Salikov of Ancor. And
Igel of Kelly notes that more than half of his company’s business in Moscow is
permanent staff, despite its worldwide reputation as a temp agency.

An old Soviet joke sums up the Russian instinct for collective loyalty, even
in the most dysfunctional groups: A senior ministry official finally confesses
to his suspicious wife that he is seeing a ballerina. The furious wife insists
on a trip to the ballet. The curtain opens, a ballerina comes on and dances.
"Is that her?" asks the wife. "No," wimpers the husband,
"she is seeing the minister." A second ballerina comes on and dances.
"Is that her?" "No, she is seeing the head of another
department". A third ballerina comes on and dances. "Is that
her?" The husband nods pathetically. The wife looks satisfied: "Ours
is the best," she says.

Discrimination

Recruiters are best placed to observe discrimination by
companies choosing between job candidates, and they all agree it is rife in
Russia. Sex and age preference are stated openly in huge numbers of job adverts
in the press, even though the Russian labour code expressly forbids it. Racial
discrimination is only thinly disguised.

"Racial discrimination is illegal in Russia but in
practice a lot of employers try not to take people from ethnic groups in
Central Asia and the Caucasus. There is usually no problem with candidates from
Moslem republics inside Russia, such as Tatarstan and Bashkiria, but there is a
funny situation with Jews – some companies actively want them and some actively
don’t," says Valery Polyakov.

Unlike sex and age discrimination, which is decreasing as
demand outstrips supply on the job market, rejection of candidates on grounds
of race is growing. Companies are particularly fearful that traditions of
strong family loyalties in Caucasus nationalities could put their business at
risk from criminal elements.

Recruiters say that they find the strongest discrimination
among foreign employers, maybe compensating for the impossibility of such
behaviour at home. "They are afraid of people over the age of 40, and
previously they would only take men – now they want women, because they have
decided that Russian women are more reliable and flexible," says Elena
Novikova.

The anti-discrimination policy of the Kiev branch of Ancor
seems typical of recruiters, who have everything to lose from irrational
candidate rejections by employers: "When a client sets sex or age limits
we try to offer a good candidate who is outside those limits, in order to make
the employer rethink it approach, whether or not it actually hires the
candidate," says a branch representative.

Case study of a work in progress:
Mazeikiu Nafta

When the Williams companies bought an
interest in Lithuania’s Mazeikiu Nafta oil refinery in 2000, Ron Cordell was
brought to the Baltic operation as the business’s director of HR and employee
services to introduce "the human side" of western best practices to
its workforce.

He bluntly describes the HR practices then in place at the
refinery as "Soviet-era prehistoric".  Performance orientation was intended to become a cornerstone of
the refinery’s business operations, and nearly three years later, a new
beginning is underway.  Performance
appraisals make their debut this year, as does a performance-based pay system.

Old habits die hard there. "Everything takes three times
as long as you think it should, and some things have to be done several times
before they get embedded," Cordell says. "Progress is slow."

At the core of changes needed in the organisation of 3,600
employees was a switch from the authoritarian and dictatorial supervisory style
of the old Soviet era to a collaborative, coaching approach that motivated and
encouraged the workforce. Typically, respect had been awarded to bosses
"with nice suits and big cars", who did not welcome feedback from
their less exalted workers. "It’s been difficult getting a dialogue started
between supervisors and employees," he says.

The workforce restructuring has involved streamlining the
number of job titles from 700 to 450 and creating a hierarchy of 14 different
salary ranges within the refinery, where typical pay had been twice the national
average. The gradual move to performance-based pay, which kicks into higher
gear next year, will eventually reward workers for both company and work group
results – the latter based on achievements identified as necessary for company
success by the work groups themselves.

Another incentive is being offered to workers at the bottom of
their salary ranges. By improving their technical or mechanical skills to a new
professional level, workers can earn a mid-year step increase.

The concept of performance-orientated pay has been greeted with
some local apprehension, Cordell concedes, but now the structure has been
embedded in the refinery’s agreement with the trade unions – just as the
operation has been bought out by the Russian oil company Yukos.  Cordell does not anticipate a shift to
Russian management at all levels, however, but a continued reliance for some
time to come on expatriates as well as some local talent.

"It’s been extremely frustrating at times," Cordell
says of his experience there, "but after three years, you can actually see
some progress."

Dee-Dee Doke