The New Professionalism of Russia's Execs

Back in the early days of Russia's experiment with capitalism, a bodyguard was a more urgent requirement than an M.B.A. for the average businessman. Corporate raiders brandished Kalashnikovs, and "taxes" were paid not to the government but directly to corrupt government officials. "That was a pretty wild time," recalls 39-year-old Steven Caron, an American expatriate who founded the St. Petersburg-based Sindbad Travel in 1992. "Almost every day, scary-looking people would pop by to check which mafia we were paying our dues to." One of his Russian friends, the owner of a popular nightclub, was assassinated in front of his apartment; three others had their businesses stolen by crooked lawyers paying kickbacks to the local authorities.

Nowadays the Wild East is a little tamer—at least when it comes to business. While Russia is looking increasingly unruly on the world political stage, aggressively leveraging its new energy might and waging a cyberwar against Estonia, inside the boardroom there's a new push for cleanliness. Oil money has flooded Russia with cash—the country's economy has grown by almost 40 percent in the past five years. That has brought in plenty of outside investors, including a number of Western institutions more worried about corporate ethics and transparency. Last month John Thain, chief executive of the New York Stock Exchange, warned of his concerns about the quality of Russian corporate governance and the security of minority shareholders in Russian companies. With $221 billion of Russian stocks now listed in London, such firms are quickly learning that cleaner management is the path to international respectability—and big bucks. The result is a growing focus on Western-style executive education—and a new crop of Russian M.B.A.s who are beginning to transform the country's business culture.

More than 200 business schools have opened in Russia over the last seven years, and their graduates are now filling plum roles once occupied by American and European expats, as well as launching their own companies. The best school, the Skolkovo Moscow School of Management, was started last September with the support of 14 top Russian businessmen, including the nation's richest man, Roman Abramovich. While such schools will graduate 7,000 new M.B.A.s this year, Skolkovo estimates that the country needs at least 30,000 more to fill demand from foreign multinationals and burgeoning local companies. Only three out of every 100,000 Russians have an M.B.A.—compared with 70 out of 100,000 in America. "The new Russian business class is in a hurry," says Marina Dracheva, a spokeswoman at TNK-BP oil company, a joint venture between Britain's BP and private Russian partners. "We are open to the world's best practices and theories; we are hungry for knowledge."

Training students to navigate balance sheets rather than bribes is just one challenge. Another is overcoming what Natalia Zolina, a senior marketing manager at Russia's second largest insurance company, Rosgosstrakh, calls "an old Soviet culture of extreme irresponsibility." Five years ago, while inspecting a regional office, she found that 115 employees out of a 300-person office had called in sick on the same day. At exactly 6 p.m. the rest would stampede for the elevators to go home. Now she and other business-school-trained colleagues employ textbook techniques to motivate employees to stay late, meet deadlines and consider themselves "a part of the team" (one exercise involved inspirational lectures by a well-known soccer coach). Zolina isn't short on motivation herself; last month she paid 3,000 euros of her own money to attend a three-day course at Skolkovo on management theory taught by a Western business professor.

It's no surprise that such upwardly mobile young Russian M.B.A.s are fast replacing expensive expatriate staff in top posts. After all, they are cheaper, and can better navigate the local terrain. A number of big multinationals like TNK-BP are training local professionals, and moving them into positions that Britons or Americans might once have occupied. Last year the company hired 500 graduates from Gubkinsky and Tyumen Oil and Gas universities, and it regularly sends Russian staffers to the INSEAD business school near Paris, as well as to the new Russian M.B.A. programs. "The young graduates who come to us are ambitious and bright—but they're often lacking in any knowledge of corporate governance," says one Western executive in Moscow who didn't wish to be quoted criticizing his employees. "We can't afford to be anything less than squeaky clean, so we have to ensure that all our people are fully on-message about Western standards of transparency and good business practice."

But while Russian business is becoming cleaner and more open, successful managers still need skills you don't learn at Harvard. "We don't need to bring bodyguards to business negotiations like we used to," says Rosgosstrakh's Zolina. "But Russian governors and bureaucrats love money; bribes still open all doors in Russia. No American M.B.A. will help you if you don't know how and when to pass them that little envelope."

While local officials still remain one of the biggest obstacles to really transparent business, there are some encouraging signs. Last year, President Vladimir Putin approved $50 million in state funding for a school of management at St. Petersburg State University, and gave the project 138 hectares of land near his own residence at the Konstantinovsky Palace. For all the murkiness in Russia's increasingly state-controlled energy sector, Putin apparently realizes the value of proper business education in boosting Russia's real economy.

Skolkovo's oligarch founders prefer that their $300 million school stay private (though it was officially opened by Putin). Each of the 14 founders—none of whom had an M.B.A. when they began in business—now gives regular lectures on entrepreneurship at the school. While about 5 percent of Western M.B.A.s start their own businesses, the goal at Skolkovo is for at least 30 percent of graduates to go on to become entrepreneurs. "Our graduates will speak a universal business language," says Irina Prokhorova, director of development at Skolkovo. "They will be understood both in the West and in other countries like India, Brazil and China where the economy is developing as rapidly as Russia's." Slowly but surely, their credentials will carry as much weight as those cash envelopes.