The International Journal
of Not-for-Profit Law

Volume 8, Issue 3, May 2006

By Julia Khodorova1

Philanthropy is developing with great energy in Russia today, as a result of innovative methods of donor participation in tackling social problems. Over 80% of Russian companies are involved in philanthropic activities. According to unofficial sources, corporate donors have generally provided some $1.5 billion a year, including $70 million in grants and scholarships given by Russian private foundations.2

Philanthropy in Russia radically changed in the last ten to fifteen years. During the Soviet era, philanthropy was nonexistent and unmentioned. The first steps toward developing philanthropy came in the late 1980s, through programs launched by international foundations. Their main purpose was to help foster democratic ideas, principles, and institutions. New Russian business companies started to donate a bit later.

In the early 1990s, few companies had any strategy or policy to guide their philanthropy. Most simply responded to emergency appeals from communities, petitioners, or local authorities. Companies spent a great amount of money on charity, but in most cases they had no opportunity or mechanism to monitor the results – which often were minimal. Moreover, few companies established priorities for funding and procedures for choosing the most effective proposals.

Fraud was also a problem. After Russia entered the market economy in the mid-1990s, legal chaos prevailed. Tax incentives for charitable foundations were widely abused. Along with depriving the government of tax funds, these abuses had the effect of sapping public confidence in foundations and philanthropy.

Today, Russia has a wide range of charitable foundations and programs, including some 200 foreign donors, ten private and family foundations, and twenty community foundations.3 At the same time, corporate donors provide the bulk of donations.

Companies have come to understand how social investments can help them maintain a positive image in communities. And they have started to become more strategic in their philanthropic activities – to consider not just current crises but sustainable and long-term development. Many companies have shifted from quantitative to qualitative approaches in their community philanthropy, out of a belief that the amount of funding is less important than the recipients and the consequences.4

Along with the humanitarian concerns that spur philanthropy everywhere, Russian businesses may have an additional motive for making charity a part of their general development strategy. Some Russians view corporate philanthropy as a form of social compensation for unfair privatization, in which the property, industry, and other capital that previously belonged to the society as a whole were transferred to big industrial companies. Now that the businesses are thriving, the society expects repayment.

Corporate social responsibility (CSR) has become an indispensable part of the business agenda. Companies develop complex and sophisticated CSR programs, often using the services of professional development organizations such as CAF, some other NGOs, and community foundations. Many corporate officials realize that they lack the expertise to design effective charitable programs themselves.5

Regional activities often stand in a class by themselves. Such leaders as SUAL (Siberian-Ural Aluminum Company), RUSAL (Russian Aluminum Company), the oil company TNK-BP, and others manage their own programs in the regions where they operate. Such charitable programs are typically integrated into the corporate development strategy in a given region, resulting in well-designed structures, defined target groups, and estimated results.

Many Russian companies still take responsibility for funding municipal social institutions in their regions, including hospitals and schools – virtually assuming the role of local authorities. In most cases the social institutions have no other recourse, and the contributions help to make local authorities more loyal to the company. Experts estimate that more than 80% of corporate funds are distributed in regions, with more than 90% directed to state institutions.

According to the Center of Economic and Finance Research, companies spend about 17% of their profits on social needs. Significantly, current Russian law does not provide any tax incentives or other benefits to companies spending money for charitable purposes. Russian companies’ spending in this area generally comes out of their net profits.

As for the objects of charitable spending, research indicates that international foundations and Russian donors tend to establish different philanthropic priorities. International foundations concentrate on civil society initiatives and institutions, development and sustainability, human rights, global environmental protection programs, HIV/AIDS, and economic development.

By contrast, Russian donors focus on social initiatives, youth and children programs, youth professional and occupational orientation, culture, sports, education, talented children or children with special needs, and rehabilitation of people with special needs. And, as noted above, corporate programs commonly support state services in their regions of operation.

In particular, education is a very high priority for business companies. Corporations have had increasing trouble finding professional, well-educated employees. Russians tend not to migrate to different cities, so local education is key. A regional corporation’s potential is significantly affected by the size and quality of the local labor market.

Consequently, many companies have launched support for youth, including scholarships, professional training and orientation, internships, and invitations to the head office. For example, the company Norilsky Nikel has a “Professional Start” program, which includes competitions for students to win internships. The most successful interns often receive job offers. Some scholarship programs require the recipient to sign a contract to work for the company after graduation, whereas other programs seek to develop better-educated citizens for the good of the country.

Generally the leaders of Russian companies recognize the risk that funds spent on social problems in the territories may be wasted. To reduce the risk, many of them have established effective relationships with communities.

Russian private and family foundations support a spectrum of issues, mostly focused on education. For example, the Dynasty Foundation, founded by D. Zimin, supports natural sciences, education, and scientific research; and the V. Potanin Foundation runs scholarship programs for students all over Russia.

Apart from education, grantmaking in Russia often emphasizes culture. Alfa Bank, one of the leading banks in Russia, has a well-planned philanthropy policy, one designed to correspond to the bank’s image as an intellectual, technologically high-end, and stable financial establishment. Alfa Bank funds large concert tours for the Mariinsky Theater and the Russian Ballet, as well as concerts and performances in different regions. Similarly, the private V. Potanin foundation supports museum development in Russian regions.

Although private foundations are significant, corporate philanthropy dominates the Russian public’s understanding of charity today. The socialist “equalization,” followed by the overnight impoverishment of many people in the post-Soviet period, have produced a general hostility to individual wealth. Most Russian companies are owned by their top managers, and the public identifies companies with their dominant shareholders. A company’s philanthropy, in turn, is commonly viewed as the doing of its principal owner. By the same token, the owner will generally channel his or her donations through the company, rather than making them as an individual.

Whether as individuals or through their companies, wealthy Russians are increasingly undertaking high-profile philanthropic activities. For example Vladimir Potanin launched a national scholarship program in his name; Viktor Vekselberg (of SUAL and Tyumen Oil Company) purchased the Fabergé egg collection, to return it to the country; and Mikhail Fridman (Alfa Group) established a personal fund to assist children requiring urgent and expensive surgery. So too outside the capital. In the city of Pervouralsk, for example, the CEO of the Pervouralsk Novotrubny Plant (a producer of metal pipes), which is a major founder of the Pervouralsk Community Foundation, opened a donor-advised fund in partnership with the foundation to assist local schools.6

In the view of Russian experts, companies’ and foundations’ overall giving is likely to continue to increase, and they will develop new forms of philanthropy in the years to come.

Notes

1 Julia Khodorova is development manager for the Charities Aid Foundation – CAF Russia in Moscow.

2 O. Alexeeva, presentation at Donors Forum, May 2005

3 Based on Donor’s Forum Research.

4 L. Zelkova (board member of the Interros Holding Company and CEO of the V. Potanin Foundation), “Towards Strategic Philanthropy: the experience of Russian business.”

5 Vadim Samorodov. Community Foundations: Developing Donors. International Fellows Programme Center for Philanthropy and Civil Society, New York, 2004.

6 Id.