I have lived and worked in ‘Eastern Europe’ since the summer of 1987, when the region still lay behind the ‘Iron Curtain’. The last years of Soviet-inspired communism were apathetic rather than fervently ideological, and cynicism about public institutions – Government, the law, the media and politics – was the norm.
On the other hand, greed and materialism had little to work with. Following the collapse of Soviet Communism private enterprise emerged and finally flourished, unconstrained, on the whole, by law and morality. The crumbling assets of the former regime were up for grabs, and grabbed they were.
I’ve written four posts on the ethical framework of those years, and have itemised many of the ways in which the cynical businessman might exploit his partners, competitors, suppliers, employees and the state.
It was within this framework that I built my own company LLP Group in Prague from 1992. Staying ‘clean’ was not impossible, but it was difficult, assailed as one was by requests for bribes, and recommendations by clever accountants of clever tax avoidance and evasion schemes. It was the Wild East, where anything went, and where the Government was always and ineptly in catch-up mode.
As LLP grew and spread across the region – to Hungary, Romania, Bulgaria, Poland, Russia, and Slovakia – I tried to spread the ethical word through frequent visits and by explicitly documenting the company’s policies. In the management manual I wrote as guidance for local managers I made it clear, for example, that if a gift (a bottle of wine at Christmas, a box of chocolates, flowers, a lunch or dinner) could not be declared by the recipient to his or her manager (and so on up the tree) then it counted as a bribe.
Times have changed, and business ethics have reached a much higher standard. By chance we found ourselves, in 2010, involved in clearing up the ethical mess of the UK’s Parliamentary expenses, as the supplier of the expense management system into which all MPs’ must now enter their Parliamentary expenses. I was proud that an Eastern European company was chosen, especially in the light of everything I’ve said. It no longer seems obviously absurd.
I’ve painted a dismal picture of business ethics in Eastern Europe. Most of what I’ve described was common practice before admission to the EU. It’s less common now, but still not infrequent. Business with the public sector is still as corrupt as ever but in the private sector less so. Business with international companies and organisations is overwhelmingly clean.
Joining the European Union (there were two waves of admission – in 2004 and 2007) has helped, and I think the Czech Republic, Slovakia, Hungary and Poland, are cleaner than they were. I would guess that if you were to award the UK nine out of ten for business probity, you could probably give these four countries six out of ten. Four out of ten, perhaps for the Balkans (Romania and Bulgaria), two out of ten to Russia, one out of ten to Ukraine.
If you’re an investor considering investment in a business in Eastern Europe (or anywhere else, for that matter), how can you judge that a business is ethically sound?
There are audit firms that specialise in ‘ethical audits’ but I am sceptical as to how thoroughly and imaginatively they can do their research.
- You must look at how a business treats its suppliers, its employees, its customers, and the wider community it operates in.
- Are its products harmful? If so, does it take steps to mitigate that harm, and inform its market of the dangers of its products (I’m thinking of drink, drugs, sugar, fats, and sex).
- Is it careful with its consumption of energy?
- Does it treat the environment well, and clean up the damage it might do?
- Is it, literally, a blot on the landscape?
- Does it encourage its employees to study?
- Does it retain its employees and foster their career development?
- Is it reasonable with regard to medical absences, maternity, or paternity leave?
- Are its offices and workshops safe and pleasant?
- Does it encourage employee feedback?
- Is staff turnover an indication of care or disregard?
- Does it pay its suppliers on time?
- Does it strenuously avoid, or evade tax?
- Does it contribute to good causes and do so with the active involvement of managers and staff?
- Does it abuse the EU’s largesse?
These are difficult questions to answer when you’re looking at a business form the outside, and from a distance, but to be really sure that you’re investing ethically, in the wider sense, I would suggest you need answers to them all.