COMMENT: ‘Stage 2’ of Russian business response to coronavirus: a view from the trenches

COMMENT: ‘Stage 2’ of Russian business response to coronavirus: a view from the trenches
The growing focus on ESG has shifted decisively from "environment" to "social," as companies respond to the coronavirus pandemic
By Olga Kuzmina and Tom Blackwell of EM in Moscow April 7, 2020

Economic consequences of the spread of the coronavirus have presented businesses across the globe with a monumental challenge, including in regard to developing anti-crisis measures and communicating them to the public and markets in the right way, and at the right time.

The situation is exacerbated by the need for companies (including their management, and their boards) to adapt to almost an entirely new paradigm of communications challenges, as well as communications channels. Alongside the decision-making process of how to explain the unexplainable, and how to forecast the unforecastable, are discussions of how to use Zoom or how to switch off mute.

An overview of the anti-crisis measures adopted by leading Russian companies, as well as their approach to employees and other stakeholders during the outbreak, shows that many Russian businesses are increasingly placing people-centred values at the core of their operations and directing technological innovations towards solving the most pressing problems of the day.

A number of publicly listed companies, or companies with aspirations to be listed, are efficiently keeping the public informed on their actions to protect employees and other stakeholders from the virus.

In addition to complying with the safety recommendations of the World Health Organization and the Russian consumer rights watch dog Rospotrebnadzor, Russian companies took a number of common steps during the first days of the outbreak to protect their clients and employees. These include shifting employees to remote work, cancelling internal and external meetings and business trips, introducing mandatory health checks, and enhancing disinfection procedures at their premises. Companies have also encouraged employees who have travelled abroad since the start of the outbreak to remain at home for 14 days, with the option to work remotely.

But only a small number of companies have provided the public with a transparent update on the economic consequences of the pandemic; how this has impacted their operations and financials and what they are doing about it. In part this can be explained because the situation is still developing rapidly and some of the businesses are only now starting to feel the pain. Others are hit hard already but are still analysing the extent of the damage. Nevertheless, we also see examples of very thorough approaches to communicating anti-crisis measures aimed at not only protecting the company’s own operations but also aiding the economy in general.

Yandex, Russia’s largest tech platform, has allocated more than RUB1.5bn to assist individuals and businesses during the coronavirus. A key part of this effort is the Helping Hand initiative, which provides transportation for doctors and deliveries of medicine, coronavirus testing kits and other essential goods through the Yandex.Taxi service. The company has also implemented a program to assist taxi parks with disinfection and support drivers and couriers affected by the coronavirus; created an online distance-learning platform for schoolchildren and teachers; and announced a RUB500mn program to make online advertising more accessible to SMEs.

Meanwhile, one of the top Russian e-commerce platforms Ozon Holdings has focused on protecting consumers from those seeking to benefit from the pandemic. In March the company announced that it was capping prices on high-demand goods in order to prevent price gouging by sellers who operate on its marketplace. Ozon has also seen a spike in demand for its contactless door delivery service, an innovation for the Russian market, and has equipped the company’s delivery agents with disease prevention guidelines and regular pre-trip examinations.

Retail has been one of the sectors impacted the most so far; positively in food retail and less so in non-food retail. M.Video, the largest non-food retailer in Russia and one of the top 5 electronics retailers in Europe is now reliant on the e-commerce business that it was meant to compliment and enhance its offline network of stores. The company quickly provided the market with an extensive update on how it ensures its sustainability in the new situation, saying its debt profile is resilient to FX volatility; the status of suppliers (including those from China) and inventory; mitigating any possible pricing fallout from the ruble weakness and avoiding price shocks for consumers; as well as its focus on critical product categories that are in high demand like essential household appliances.

Russian industrial companies have shown flexibility and a willingness to adapt in order to meet stakeholder needs. Magnitogorsk Iron and Steel Works (MMK) – one of the largest steel producers in the world – introduced a high-alert mode at its enterprises and established special-response headquarters under the oversight of the company CEO in order to protect the company’s business. MMK provided a timely and detailed update to the market with regards to optimization and adaptation measures it undertakes in sales, procurement, investment programme and IT to ensure uninterrupted remote work. In order to minimize contact between employees, the company staggered the beginning time of work shifts in its shops to reduce the number of workers passing through checkpoints. MMK has also installed 26 thermal cameras at its main plant to monitor workers' temperatures, and carries out regular disinfection measures at the plant and along the route that employees take to the workplace.

MMK’s Chairman Victor Rashnikov has since announced that he has pledged RUB500mn ($6.7mn) toward COVID-19 response efforts, including providing ventilators and other support for healthcare and educational institutions, as well as residents in the city of Magnitogorsk

ChelPipe Group, one of world’s leading producers of tubular products and integrated solutions for the oil and gas industry, has decided to allocate more than RUB70mn for additional payments to employees of continuous production facilities in April. In particular, for those who are engaged in production during the period from April 4 - 30, surcharges will be introduced for each completed shift. In addition, the company has provided financial support to a regional branch of the Russian Union of Industrialists and Entrepreneurs, which is raising funds for emergency and priority measures to ensure the health and safety of residents in the region where it operates.

Sibur, Russia’s largest petrochemicals producer with a staff of more than 23,000, has announced a comprehensive set of anti-crisis measures covering most aspects of the company’s operations. Despite the fact that the company’s diversified business, as well as stable demand for polymer products, has largely allowed it to weather the crash in oil prices, the company is taking pre-emptive measures to allow more flexibility. The programme includes reductions in capital and operating expenditures, as well as cost optimization including a four-day week for office staff. At the same time, Sibur enterprises in Russia and Italy maintain the supply of polymers that are necessary for the production of medical products (including masks) and polypropylene film for food packaging that are critical amid quarantine measures. As of the end of March, the company also introduced an “internal shift” system at its largest plant in Tobolsk, where the city utilities heavily depend on the heating provided by Sibur. Employees who are tested and found to be healthy can continue to oversee critical industrial processes while living in company-provided temporary housing at the facility, which ensures their own protection as well as the sustainability of company operations and continuous provision of municipal utility services. This shift-solution is being rolled out at other Sibur facilities.

Polyus Gold, one the world largest gold producers, whose business operations and revenues haven’t been impacted by market turmoil still provides a regular and thorough update on the status of its operations and tracks and reports the number of infected staff and what measures it has in place to protect its workforce. The company has also donated 45 medical ventilators to hospitals in the regions where it operates and created a RUB250mn fund that will finance activities aimed at preventing the spread of COVID-19 in the Russian Far East. The money will be used for the procurement of personal protective devices and medical equipment for local hospitals.

Businesses and their investors have adopted particularly innovative approaches to help each other navigate the crisis. In one example, food retailer Magnit has agreed with Burger King and KFC to offer temporary employment to workers of the fast food chains in the event of branch closures. All three companies have VTB as a shareholder in Russia.

The leading Russian Private Equity firm Baring Vostok created a platform where over 40 of its portfolio companies and their partners are doing exactly the same: helping each other by keeping people employed, sharing IT resources and expertise in handling crisis situations or other information sharing. This platform was made open to all companies through the launch of the business information portal www.antivirus2020.ru. The project, created in partnership with the Russian Association for Electronic Communications (RAEC), aims to quickly collect and distribute information that will help the business community respond to the pandemic. This includes information about relevant Russian government initiatives, case studies and best practices in combating COVID-19, and recommendations for safety procedures and employee support. Companies are encouraged to use the platform to share their experiences and develop a common response to the crisis.

Meanwhile, Oleg Deripaska’s Volnoe Delo Foundation, together with Moscow State University, has launched an online portal, which allows practitioners to learn best practices in the treatment of viral pneumonia and to receive individual advice from Russia’s leading specialists. The Foundation has also donated fully-equipped ambulances and personal protection equipment to 12 Russian regions, and produced a series of videos for the general public, where doctors and scientists answer questions about coronavirus.

When it comes to communicating crisis measures to stakeholders, speed and brevity are key. The advice to corporates is to stay open and transparent, according to Andrey Braginskiy, Managing Director of Communications at the Moscow Exchange (MOEX), who spoke at a recent discussion on business in the time of coronavirus hosted by EM. But investors are now looking for quick updates on how the situation is impacting operations, so communications should become more frequent and arrive in more bite-size forms. For its own part, MOEX is focused on continuity of operations, ensuring the safety of those attending offices (about 10% of the total workforce), and organizing productive work environments for others working remotely.

As employees, investors and communities seek support and reassurance amid the current crisis, a number of Russian businesses have stepped up to the challenge by introducing effective ways to safeguard the health of their employees while remaining engaged and responsive to the needs of their stakeholders. But the scale of the challenge is only going to increase in the coming months, and so we will be watching this space.

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