One priority was changing the corporate culture – to manage as effectively as possible the transition from government institution to a market-orientated company and to ensure that ‘best practice’ was at the heart of everything we did, which also meant educating everybody involved as to exactly what this term meant; even in 2005 many of its precepts were almost completely unknown in Russia. (I knew that I as CEO had just as much to learn about these theories as even the most junior regional managers.) This was a substantial challenge at the best of times, but even more so in an institution as drenched in tradition and pride as Russian Railways. The esprit de corps of its long-serving employees was so entrenched that it could at times shade into a somewhat conservative mentality, one that left them suspicious of the kind of change that they worried might alter their working lives almost overnight. This led to huge tensions, and rumours quickly began to proliferate. People were concerned that they would lose their jobs, or that their salaries would be slashed. More than that, in an institution where it was not uncommon for sons and daughters to follow in the footsteps of their parents, many were afraid that generations’ worth of achievements would be torn up in the name of what they saw as a dubious kind of progress.
Drawing on the advice we sought from foreign consultants, as well as business leaders such as Hartmut Mehdorn, the head of Deutsche Bahn, we did all we could to promote an atmosphere of transparency and fairness. Audit committees became a key part of the way we functioned, and we introduced systems and structures that meant we could trace exactly how every rouble we received was spent. For almost the first time it was possible to identify which departments within the company were losing money. We also looked at the way power was applied within the company. Previous leaders of the railways may have ruled by diktat, imposing change from above and expecting their employees to obey without question, but although we wanted to preserve a strong sense of authority within the organisation, we also understood that the people who worked at Russian Railways deserved to be more involved in the discussions surrounding reforms. The reforms would, after all, have a direct impact on their working lives. We wanted to build a sense of trust that would extend throughout the company.
This attitude would come to be of particular use during the 2008 financial crisis. We had already taken a number of steps to try and insulate our company from the worst effects of the crash, but inevitably there was only so much we could do. We had to acknowledge that the promises of pay rises we had made previously were no longer tenable, and we knew we would be unable to escape a confrontation with the company’s trade unions – which was fair enough; we had made these commitments, and I did not want our employees to think that we were making active attempts to escape them. However, faced by a global catastrophe, it was also clear that we had to make hard decisions; we simply did not have enough money.
Since the trade unions within Russian Railways were a strong element in these negotiations, I knew it was essential to talk to them. I began by talking to their leader, pleading with him to assent to a freeze on the increase in wages. But he remained steadfast. It was my responsibility, he reminded me; the board at Russian Railways had made those promises, and they would have to abide by them. Since we were unable to reach a conclusion, I decided to address the workers directly. Along with my staff in the personnel department, I encouraged employees from across the country to appoint representatives – there ended up being around 300 of them – to come to Moscow to discuss these issues. Flanked by my colleagues in the company’s senior management, we made our appeal. I remember how one man, a locomotive driver, asked me if, when things picked up, we would be willing to revisit our earlier commitments and ensure that nobody would miss out as a result of the delay. I assured him that we would use half of every single extra rouble the company earned to reimburse those who had lost out. And I am pleased to say that I returned every penny that I promised; it was no more than they deserved.
Alongside changing the nature of the interactions between the management and the workers, we also prioritised education as a means of introducing the right kind of corporate culture. As we had right throughout the modernisation process, we did everything we could to make sure that everyone involved had the best information possible at their fingertips. So once again, we brought in consultants; we entered into a collaboration with the Stockholm Business School; we produced articles; and we offered management courses which were taught at the corporate university we established.
But all this would have been in vain if the board of directors was not also the supreme ruling body within the company. Of course, 100 per cent of our shares were owned by the state, but the idea that, for instance, deputy ministers might sit on the board – as was suggested in some quarters – was something we considered to be intolerable.[17] I knew from my own experience that deputy ministers (in Russia at least) do not exist independently of the ministers they report to. Any deputy minister on our board would inevitably be operating on the orders of their superiors, each of whom would have their own priorities, and a vested interest in making sure that Russian Railways fell into line with them. This could only lead to mess and confusion, as well as undermining our authority and compromising our strategic vision. Instead, we looked to invite respected independent figures – like Mr Mehdorn, who is still on the company’s board, or Professor Richard Werner of the European Central Bank Shadow Council – so that they could bring their experience of executive autonomy, and all the lessons that came with it.
Our reforms were also designed to introduce greater accountability. The old ministry had been constantly in debt, but in its new incarnation it was by statute no longer acceptable for it to remain in deficit for more than three years. If this situation persisted, then the new legislation stated that the company would be shrunk, or its share capital reduced, or in the most severe circumstances it could even be closed. The president of the company, together with the chief accountant, was legally bound by the criminal court to be responsible for financial data they provided to the state. Where before, a minister could consider his department to be almost like a small empire in which they were able to exert total control, the new CEO was now required to refer all major decisions to the board of directors for approval.
This was allied with an extensive obligation to answer to the government for everything we did. Because it was part of the strategic plan of the state – and a matter in which the President took a close personal interest – it was considered essential that the government continued to oversee it. Every plan we created, every decision we wanted to make, almost every breath we took, was recorded and analysed and submitted to Moscow.
Another thing that was plain was that Russian Railways could no longer be run as one undivided entity, an approach that may have been practical thirty years previously, but which was no longer sustainable in the twenty-first century. The finances, record-keeping and inventories of all the various elements of the organisation were bundled up together, and this made it almost impossible to measure anything within the organisation, to know which elements were performing well and which needed help or intervention. So, although the parent company remained a majority shareholder, Russian Railways’ manifold functions were hived off into 150 daughter companies, each a separate, self-sufficient business with its own budget and board of directors. We were moving away from being run as a national monopoly towards creating a competitive market and ultimately, we hoped, driving up efficiency, and driving down costs.
17
This is I think a useful illustration of how far things had changed since I myself had been a deputy minister who sat on a number of corporate boards. At that time, when concepts such as best practice had not really entered the lexicon of Russia’s business world, nobody, including myself, thought that there was anything contentious about a minister also occupying influential positions in a private company.