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The People of SIBUR
2007 Company Social Report
2008
1 To our readers...... 3 What changed during the year?...... 4 Events, strategies, projects…...... 6 Salaries, concessions, bonuses… ...... 12 Education, career, management culture…...... 23 Outsourcing, optimization, competency centers…...... 27 Occupational health and safety...... 33 The environment, petrochemicals, nature… ...... 38 The trade union, corporate newspapers, The Pastor’s Word…...... 42 The regions, the authorities, philanthropy…...... 46 The future, challenges, forecasts…...... 50 SIBUR’s challenges today and tomorrow...... 53
2 To our readers Chairman of the SIBUR Board of Directors Alexander Dyukov SIBUR President Dmitry Konov
Dear readers,
We are proud to welcome you to the pages of the second ever SIBUR Holding social report.
2007 was a successful year for the company in terms of profit growth and business development. Unprecedented high performance ratings were achieved, and personnel’s social security grew. Thus, the positive trend that had previously become apparent continued, and the main creators of SIBUR’s success, without doubt, were us: everyone working in the Company. Today the Holding is entering a new stage in its development. After a period of establishing order, optimizing processes, and understanding and realizing our role we are facing the need to grow more intensively. This does not mean that we do not need to maintain order, improve the performance of existing production facilities, and improve the productivity of labor anymore. Improving existing activities has the potential to enhance performance tremendously. But at the same time, new projects that will bring us to a qualitatively new level of product quality and production scale will require much effort and attention. What resources do we need to achieve these objectives? Most importantly, we need people. The scale of the new tasks is a serious test of SIBUR’s organizational culture, which is just beginning to form from new real conditions and our approaches to handling them. At the same time, it is a great chance. It is a chance for young specialists and experienced professionals, for employees and managers to bring their qualifications to the next level, build their careers, improve their families’ material living conditions, and impact the social climate in their regions of residence. Being aware of the real importance of the moment, SIBUR’s top management has decided to direct this social report primarily to its own colleagues—to Holding employees. The second step was the choice of conversation format. What problems are personnel interested in? In what form would they like to receive answers to their questions? It is no secret that besides issues of the company’s prospects, occupational safety, and environmental challenges, the ordinary worker is most concerned about the subject of his or her career, salary, and material incentives as a whole. Thus the document’s agenda took shape, in which SIBUR executives discuss questions in the form of a trust-based dialogue. Where the Holding is going, what its employees should expect, what they can hope for, and what is likewise expected of them comprise the answers contained in the SIBUR social report, along with a non-economic 2007 summary report. Management sees observing the balance of short-term interests (including solution of a number of social problems) and long-term stable development of the company as its main task. By signifying the search for this balance, the report performs yet another important mission: it encourages development of a dialogue in the management culture at all Company levels. Only by being open and full of competitive ideas may we realize our ambitious plans in global market conditions and provide each SIBUR employee with dignified living standards and self- actualization.
3 What changed during the year?
By 2007, various epithets could be added to the history of SIBUR: Unprecedented success. A year of starting big projects. A year of forming strategies. A reference point for a new understanding of the importance of occupational safety. All of these names are correct and speak of the same thing: this year was a truly rich one in the company’s life. In terms of corporate philosophy, major shifts occurred in the corporation’s self-conception. Interviews with SIBUR executives provide a detailed picture of the changes. Now we will try to formulate a summary and the spirit of their statements.
So, what were the principal changes that happened in 2007?
First of all, the horizons of the company’s viewpoint expanded. A number of business units approved the strategy for the next four to five years and stipulated core directions and resources for development until 2020. This was possible because of the corporation’s growing stability and resilience in the national economy and as a whole. SIBUR managers currently spend up to seventy percent of their work time on strategic planning, investment projects, developing long- term relations with suppliers, and expanding the corporation’s geographic coverage. For example, the company has conclusively gotten past the stage when all associated petroleum gas was supplied on the basis of one-year and sometimes quarterly contracts. The joint venture with TNK-BP, Yugragazpererabotka, began operations in 2007, providing us with a landmark experience which will be replicated at the corporation’s other joint ventures. A JV with Gazprom Neft has already been created, and other partners have lined up. Stability of feedstock supply for the First Directorate inspires confidence in the future of other business units. The social sense of strategic planning is forecasting the future for employees, a guarantee of their families’ wellbeing.
Second of all, understanding of the close bond between safety at production facilities and the company’s financial results was strengthened. Undoubtedly, the loss of associated petroleum gas in processing which resulted from an accident at the Belozernyi Gas Processing Plant played a key role here. The magic of numbers amounted to a million cubic meters that should have been gained but were not, a billion rubles in damages, and another billion rubles as the cost of restoration. By now SIBUR is confidently making its way to establishing occupational health and safety as a collective value. It is no simple feat, but in 2007 employees were already beginning to notice management’s special attention to safety at production facilities.
Third, succession pool and rotation programs increased in significance, the formation of a unified management culture accelerated, to a large extent evening the entrenched difference between Moscow and the regions. The functional separation remains, along with the peculiar tasks assigned to the corporate center and regional subdivisions. Enterprises will produce, and they must do this as efficiently as possible, while the corporate center will sell and gain a market advantage by consolidating product streams. At the same time, decision-making procedures and corporate values, as well as dynamism, efficiency, and making quality and customers’ needs the top priorities are consciously shared and practiced by an constantly growing number of managers and specialists. To such framework concepts the specific experience of each employee is added and becomes common property through the mobility and openness of corporate structures, working to improve the company’s competitive advantages and to evaluate and promote talent. Program offices, collaboration between employees from various business units on interesting projects, large-scale succession pool and rotation programs: these and other tools encourage communication and innovation, and create a comfortable environment for creative and career growth.
4 Occupational safety, employees’ confidence in the stability of their future and self-actualization are what SIBUR worked on in 2007. These remain the company’s priorities.
5 Events, strategies, projects… Chart 1. Basic indicators of JSC SIBUR Holding1. Revenue, billions of rubles.
160 142.7 140
121.9 120 106.6
100 84.6 80
60
40
20
0 2004 2005 2006 2007
Chart 2. Basic indicators of JSC SIBUR Holding. Clear profit, billions of rubles.
25 22.6 21.4
20
15
10.9 10
4.7 5
0 2004 2005 2006 2007
Chart 3. Financing of investment activities, billions of rubles with VAT.
20 18.19 18
16
14
12
10
8 7.27
6
4
2
0 2007 2008 .
1 Data per IFRS. 6 It is believed that in terms of economy, 2007 was spectacularly successful. How well-founded is that opinion?
Dmitry Konov: – The company’s financial results and general developmental results are just a few topics. From a financial point of view, this was the most successful year in terms of absolute indicators, while the foundation for success had been laid over the course of the preceding years. On the other hand, certain relative indicators improved since the year before. We thought about the future a lot in 2007, which was the first year that we implemented big projects. I’m talking not just about Tobolsk and Nizhny Novgorod; practical work for the construction of new facilities began in nearly all our businesses. The strategy that we abided by successfully in 2007 was like this: saturate the growing domestic market with products as much as possible, and build new production facilities that will be competitive outside of Russia. We are growing our own feedstock base, and in a number of years we will be obtaining natural gas liquids from associated gas using the most efficient chain. SIBUR’s position as the national petrochemical leader remains unchallenged.
Alexey Filippovsky: – We set yet another record: the corporation’s revenue grew by 17% and reached 142 billion rubles. We also increased the production volume for key products. In general, this was done through investments that we made in 2005 and 2006. The joint venture with TNK-BP began operating, which made it possible to stabilize future prices for our key feedstock: associated petroleum gas. I believe that it was a great step forward that we tested the model for our further interaction with oil companies for supply of associated gas in practice. And as a whole, SIBUR began investing more in the future: investment grew by nearly 2.5 times, from 7.3 billion to 18.2 billion rubles. In particular, we signed an investment agreement with Solvin for construction of a PVC facility in Nizhny Novgorod Oblast. For the first time in SIBUR’s history, our name is associated with the name of a global company.
7 What events and projects of 2007 created the trends of today and tomorrow?
Mikhail Karisalov: – We have a strategy for developing our hydrocarbon feedstock business until 2020, into which our projects for the next 4-5 years have been built seamlessly. I believe that it’s very good that in 2007-2008 we understand what we will have in 2012 in terms of number of personnel, processing volumes, and areas of presence. For example, according to plans we will begin expanding beyond the borders of Western Siberia in an eastern direction—toward the new feedstock base. At the same time we’re looking at Europe and we’re planning to build our own export terminal on the Baltic Sea. That will allow us to feel freer in our negotiations with domestic consumers who try to dictate their terms. Most of the projects in this program have gone through all of the agreement stages, including the investment committees. If everything works out the way we planned it, then the capacity of the Hydrocarbon Feedstock Directorate will nearly double by 2012.
Sergey Merzlyakov: – For the Directorate of Plastics and Organic Synthesis, and most likely to a great extent for all of SIBUR, 2007 was the last year before a long-distance run. At this point we have nearly completed the necessary preparations and have even gotten ourselves onto the track, and we’ve even started a number of investment projects. But first we had to raise our current level of efficiency by far and find room for improvement in our technological and administrative processes with our existing equipment. When we reached the maximum load level at our facilities, we realized that it was time to start building a new production base with more advanced technology that will thereby be more competitive. Just look at the individual capacities of those projects that we’ve already started: 500,000 tons of polypropylene in Tobolsk and 330,000 tons of polyvinylchloride in Kstovo. At the end of this stage, in 3-5 years, a whole new directorate will appear which will be seven times bigger than this one. And now we need to build up our strength, skills, and concentration in order to force ourselves to run the distance.
Andrey Zhvakin: – This was not an easy year for the Directorate of Synthetic Rubbers. The substantial growth in feedstock prices which is a blessing for the company nevertheless did not allow us to achieve the results that we planned for. But we had a pretty good situation for a number of products because our competitors had emergencies entailing unplanned repairs. In a word, some factors worked in our favor, while others worked against us, but the disadvantages were greater. We also couldn’t fully transmit the costs caused by the situation to the consumer, because all of us are in one boat. Russkie Shiny purchase 40% of our products. So, when the wind of the propitious trend died away, we had to let our sails down and start rowing. It became apparent that we didn’t have enough oars for everybody. In the middle of the year, we undertook a number of decisive measures, including personnel measures, but did not manage to completely correct the annual statistics. Until very recently, things at the Directorate were somewhat stagnant. Projects were poorly worked out or unpromising. We invited consultants, thought about things, and looked around. We completed work on the Directorate’s strategy, and in my opinion this made it possible for us to focus on our main directions of development, and understand what our competitive advantages are, and what is not worth doing for us. I also believe that this work allowed the corporation to reevaluate the Directorate’s contribution to the common result. By acquiring a clear view, we increased the number of investment projects substantially, including both those that are in the development stage and those that are being implemented. For example, a powerful upgrade of the production complex in Voronezh is expected.
8 How did the business changes affect social policy?
Dmitry Konov: – The social sphere is inextricably linked with the economy, and therefore it’s important here to count out all your expenses and income. On the wave of growth we can make big promises to everyone, and spend money needed for investment on payments, and then we will inevitably create a risk that if things get worse, then we won’t be able to perform our obligations. Going through such swings will be especially difficult for a company with nearly 80,000 employees. We need to look for a compromise. This year we were able to review salary levels at most of our factories, increasing wages while at the same time reducing the number of its recipients— inefficient personnel. Thus, through both popular and less popular methods we managed to raise salaries by 15-17% on the average. We expect that approximately the same growth will occur this year as well.
Vladimir Razumov: – There are two explanations to last year’s successes: management’s growing qualifications and favorable market conditions. Time is returning its debts to Russia. And people felt the advantages of the positive cycle when they got their annual bonuses in 2006. The growth of all kinds of compensations and bonuses continued in 2007 as well. Look at Russkie Shiny—what a growth in profit, and what growth in wages!
Vladimir Gurinov: – For the SIBUR – Russkie Shiny corporation, 2006 was a turning point. It was then that we formed an independent structure, and we devoted 2007 to stabilizing and developing internally. Production as well as social policy indicators improved noticeably. For stable business growth it’s important not only to expand facilities, but to care about people as well. By optimizing the number of our employees and improving labor productivity, we were able to raise wages for core personnel by over 235. Most of the payroll that we save we try to leave at the factory. We don’t pinch pennies and try to achieve a positive economic and social effect from our policy and stimulate enterprises to continue working in this direction. I always say, “Let’s get rid of the loafers and spongers, and we’ll give their money to decent, hard-working employees.”
Andrey Teterkin: – The employees of SIBUR – Minudobreniya found their confidence in a stable future rising, their confidence that the company has favorable prospects and its social obligations will be performed completely.
Vyacheslav Khomich: – The business successes, of course, effected a growth in wages and other bonuses. But I’m far from being ecstatic about it. My colleagues, the heads of professional committees, as well as trade union members are not very happy. Every time we have a reporting/election conference, the acute social problems of young families who can’t afford an apartment are raised, as well as those of other employees whose salary barely reaches the minimum subsistence level. By constantly raising the issue of increasing salaries with the HR Department, we try to cooperate with them on proposals that go to the decision-making center—to the shareholders.
9 What tasks associated with personnel were resolved in 2007?
Vladimir Razumov: – The HR Operations Department did a tremendous job. It managed to systematize the problem of wages at enterprises: it got a handle on the relationship between wages and the regional labor market, industry, and labor productivity. Personnel numbers were optimized almost everywhere, but the results were varied. Tomsk and Perm worked well. And that’s why they’re in the lead in terms of salary growth. By the way, the share of the payroll in the income of our enterprises is nearly twice as high as during Soviet times. In Europe it’s 1.5 times lower, but salaries are several times higher. Why? In order for our social order to win, we need a higher productivity of labor—my favor quote by Lenin.
Vitaly Baranov: – First of all, we managed to form the team in my block. I admit that it took a long time to find the candidates we needed. Unfortunately, in the process we had to say goodbye to some of the managers of key departments, for example, HR and IT. They didn’t always keep up with the corporation’s rate of growth. Thus, the position of HR Director has been problematic for the last three years. During this time no less than four people have filled the position. Although the HR function was previously seen as a technical one, we now understand that personnel motivation, rotation, and development are practically the principal key to corporate success. In Russia, experienced HR is in very high demand, while there are few real professionals with work experience in western companies on the market. The same can be said about IT managers. IT technologies in today’s business are like a black box: it’s an extremely complicated function, and you have to have a high level of expertise in order to assess its performance. To this day, assessment of IT specialists’ performance often depends on the current operating condition of computers and telephones: if they’re working, then everything’s fine. New projects and ideas in the information technologies field are hard to assess for ordinary people. Therefore, computer technicians set the tasks for themselves, resolve them in some way or another, and in the end performance assessment of those tasks turns into an exercise in self-assessment. That’s how it was at SIBUR. The head of the IT Department was subordinate directly to the president, who didn’t have enough time to make sense of the subdivision’s principals of work. When management of the stream was assigned to me, I began thinking about the service quality. They hired two experts for me, as well as one offsite consultant for assessment of current IT projects. After half a year we had a holistic view of the picture with IT processes in the company. That is when the HR solution became pertinent.
Mikhail Karisalov: – I would note the rotation of management personnel. The discrepancy between the interests of managers of divisions in Moscow and in the regions with the new corporate policy has led to five out of six General Directors of the Directorate of Hydrocarbon Feedstock resigning, and to the replacement of my deputies for production. Unfortunately, because of their age and education, they thought about business only in the production volume paradigm, while issues of performance, profitability, and quality remained unexamined. Each year, the unproductiveness of such a style outweighed their experience more and more. As a result, we now have a different team composed of executives in their thirties and forties, many of whom received their business education in the West.
Sergey Merzlyakov: – Each plant in our Directorate had its own development plan. But all of them were optimizing their workforce. It’s no secret that SIBUR-Neftekhim was the leader in downsizing, especially the Caprolactam plant, which was lagging in profitability. Tomsk was not far behind. At the same time, while maintaining our orientation toward new projects, we follow a course of
10 recruiting highly qualified personnel. Thus, last year we held negotiations with the universities of Perm, Tomsk, and Kazan, so that there will be somebody to work on our state-of-the-art units three years from now. We wouldn’t like to lose the plant, which is worth several billion. And according to statistics, over half of the accidents are connected with the human factor.
Andrey Zhvakin: – There are two main goals that are key for the Directorate of Synthetic Rubbers: optimization and motivation. Many HR initiatives were implemented in Togliatti and Voronezh. There they shifted from a tariff rate to a salary, and the teams welcomed that. Last year the work that was done at the enterprises made it possible for us to reduce staff numbers by 5%. At the same time, the staff of Togliattikauchuk was reduced very substantially, by 500 people. At the same time, we were able to improve the productivity of labor by 7%. At Togliatti we also created a multi- level bonus fund for more effective personnel incentives. In Novokuibyshevsk we carried out an outsourcing project of cafeterias and motor vehicle transportation.
11 Salaries, concessions, bonuses…
Chart 1. Employees’ average salary, rubles per month.2
18000 16216 16000
14000 13127
12000 11059
10000
8000
6000
4000
2000
0 2005 2006 2007
Table 1. Expenditures by JSC SIBUR Holding on social programs in 2007.
thousands of rubles Occupational safety 367,037 Personnel training 93,951 Expenditures on supporting the social sphere and social payments, including the following: 1,361,341 Expenditures on maintaining social infrastructural facilities (not counting payroll) 57,177 Expenditures on socially-related payments 316,178 Expenditures on purchasing travel tickets 75,135 Expenditures on philanthropy 623,677 Services by third-party organizations in the social sphere (medical institutions, etc.) 48,551 Expenditures on other social needs 240,622 Total 1,822,329
2 Including bonuses issued by management companies (LLC SIBUR, JSC SIBUR-Russkie Shiny, JSC SIBUR- Minudobreniya) 12 Table 2. List of the Company’s social infrastructure facilities
Programs FACILITIES CORPORATE purpose LOCAL purpose Medical services - medical clinics belonging to JSC AZOT, LLC Togliattikauchuk, JSC Uralorgsintez - medical stations on enterprise grounds Food service at - cafeterias and food services located on production facilities enterprise grounds Employee health - JSC Azot: Berezovo Sports Complex JSC Voronezhsintezkauchuk: Geveya - LLC Togliattikauchuk: Volzhskie Zori Preventive Medical Clinic health resort/preventive medical clinic - LLC Tobolsk-Neftekhim: Raduzhny Sports Complex Recreation for JSC SiburTyumenGaz: Azov Vacation - JSC KZSK: Shira Vacation House employees and their Hotel - JSC Voronezhsintezkauchuk: Bityug families Recreation Camp - CJSC Sibur-Khimprom: recreation camp - JSC AZOT: Berezovo Recreation Area Recreation for JSC SiburTyumenGaz: Young - JSC Voronezhsintezkauchuk: Kirovets children Petrochemist Corporate Children’s Children’s Recreation Camp Recreational Center project in Anapa - CJSC Novokuibyshevsk Petrochemical Plant: Solnechnyi Children’s Recreation Camp - LLC Tomskneftekhim: Solnechnyi Children’s Recreation Camp - LLC Tobolsk-Neftekhim: Raduzhny Sports Complex Sports and cultural - LLC Tobolsk-Neftekhim: Sintez Sports development Complex - gymnasia at JSC SiburTyumenGaz enterprises - LLC Zdravnitsa (JSC Sibur-Neftekhim): Kaprolaktamovets Sports Complex - JSC Sibur-Neftekhim: Chemists Community Center - LLC Tobolsk-Neftekhim: Sintez Community Center
13 To what extent is the incentives system active in the corporation effective and understood by employees?
Dmitry Konov: – It’s true that misunderstandings do occur sometimes. Especially when it’s easier to criticize the existing order of things than to search for the roots of your own failures. But there are true misunderstandings as well, and that’s a communications problem. Sometimes mid-level managers don’t want to take the courage to explain the bonus plan to personnel, and sometimes they don’t understand it themselves. We will try to do a better job of explaining. We want to be direct and honest with our employees, adding a large variable part to their income that grows from lower-ranking positions to higher ones. For example, the fixed share of my compensation amounts to about 30%. Workers have an inverse proportion. Furthermore, we are trying to introduce a high degree of differentiation: paying more to the best employees, and less to the less efficient employees. Informing employees about the results of their work is an important part of management’s work. The second axis of misunderstanding penetrates the enterprise bonus system. We believe that the right principles are at work here. On the other hand, any enterprise may believe that it is not getting paid enough. And again you get problems of communication and psychology. What’s more is the two bonus-awarding principles are divorced form each other. The average employee does not bear responsibility for management errors.
Vladimir Razumov: – The managers’ task is to constantly explain to people what they receive their money for and what fluctuations in their income depend on. It’s not always possible to do this. The bonus- awarding situation at the Togliatti plant was so badly confused that people suspected the administration of things that they shouldn’t have suspected it of. The optimal combination of permanent and variable parts is 60 to 40. Of course, the trade union and employees want to include 100% of income in the salary. Our people have been fooled many times. I’m an example of it myself. When as I boy I got into the Voronezh plant after graduating the institute, it was considered an elite place with great bonuses for export products. This was the time of the beginning of Kosygin’s reforms. But then the reforms were rolled back, and the bonuses which had stimulated issue of export products went away as well. But SIBUR has an impeccable reputation in this area. We don’t pay fantastic salaries, but we never deceived our employees. And we understand perfectly well that there must be a dignified minimum in the fixed part. From this point of view we have a problematic enterprise, Plastik in Uzlovaya. We are trying to find a way out there, too, trying to think up new options for developing the plant.
Vitaly Baranov: – The system has been functioning for a long time. If it’s possible to say it this way, it’s objective and efficient. It is probably difficult to understand it as you go, because we are all working in a corporation, and the final result, as well as bonuses, is formed from the results of the directorates, enterprises, and subdivisions. I have to admit that not all enterprise managers and middle managers pay the attention needed to explaining the rules for awarding bonuses. But those are communication problems, and not systemic ones. And we will resolve them.
Alexey Filippovsky: – The large share of the bonus in an employee’s income motivates him to work more efficiently. But the bonus should not be taken as part of the salary, and a manager must always have the possibility of canceling bonuses for a team. Sometimes management loses control over this tool, believing that salaries or tariffs won’t provide an employee with normal living conditions. That’s not right. In such cases the rate should be raised, but the bonus should remain a bonus and perform its function as an additional stimulus.
14 How and by what means did employees’ salaries grow in 2007? How competitive are they on regional markets today?
Dmitry Konov: – We’re trying to find the correct proportion between two factors: industrial and regional peculiarities. This is the cause of the difference in salaries for the same specialists in Central Russia and Northern Siberia. On the other hand, we don’t want to allow a major imbalance to exist within the corporation as a whole. It’s no secret that there are businesses with varying degrees of profitability within SIBUR. But we don’t tell managers to pay their people 10% of the enterprise’s income. In such a case poorly profitable subdivisions would pay their employees an unacceptably low amount. However, enterprise management may influence salary growth substantially by raising productivity and finding resources and reserves at the enterprise, including through optimizing operations and the workforce. For example, salaries grew by approximately 40 percent in Tomsk, and there workforce optimization was initiated by the plant itself. Furthermore, the inflation factor is included in annual target wage increases. But we do not set a goal for ourselves of outrunning price hikes or strictly adjusting for inflation. We have no such macroeconomic objectives, because they could lead to the company becoming insolvent eventually. But we do have goals in HR policy to keep and motivate people. If we don’t pay them an attractive salary, then we’ll begin losing people, and thereby we won’t reach our HR policy goals. So, the company is not its own enemy. In our wages policy we try to maintain employees’ level of activity and give them opportunities for greater earnings through their successes. I believe that it turned out better last year than the year before.
Alexey Filippovsky: – The average salary in the corporation rose by 24% in 2007. And, of course, people felt the spurt. We, of course, ended up in the median of regional markets, although in places we exceeded it, in spite of the sensitivity of expenditures. For example, there are regions where inflation amounted to 30 percent, and we had to compensate for it several times during the course of the year. People often say that the rates of salary growth should not exceed the growth rate of productivity. But I think that the payroll should grow along with productivity, while salaries should grow faster than productivity by means of downsizing. Do you see the difference? Let’s take a simple example. Let’s take a very simple company, where there are 10 rubles in revenue, and expenses for the payroll amount to 5 rubles. If revenue will remain on the 10 ruble level during the following period, and the payroll will be not 5 rubles, but 7, then profit will decline to 3 rubles. It’s simple math. But we have a distinct principle: profit should not be reduced, but increased. Therefore, if we want to increase profit, then we must not allow payroll growth to exceed growth of productivity. That is, we need to control growth of the pie, while salaries should grow faster by reducing the number of those eating the pie.
Andrey Teterkin: – Wages at SIBUR – Minudobreniya are fully competitive. It’s difficult for me to give details about individual professions. There are many of them, and as the result you just get the average temperature for the hospital. We analyze the regional wage market and our competitors’ offers, and therefore our behavior on this issue is proper; we’re not behind. But wages are just part of the picture. Material compensation is a rather broad compensation which includes living conditions for both work and recreation. Sometimes employees forget that their employee benefits are part of their compensation, and begin taking them for granted. I want to note that we will soon be equal with Eastern Europe in terms of pure wages, because the taxation level there is completely different. The share of wages in the prime cost of our product already exceeds the practice of world leaders. So, we have already practically lost the advantage of cheap labor power. That’s a challenge. I think that employees have nothing to complain about, and I don’t hear any complaints from them.
15 Vladimir Gurinov: – At the SIBUR – Russkie Shiny corporation people are working across the entire European part of Russia: from Saint Petersburg to Omsk, and from Yaroslavl to Volzhsky. It is useless to compare wages between regions. Each region has its own living standards, its own needs, and its own factors affecting wage growth. There are both internal causes: growing production volumes and the effectiveness of workforce optimization programs, as well as external factors, that is, market factors. Just look at our employees’ labor productivity and our competitors’ analogous indicators. We are way behind Eastern European companies, by 3 to 4 times, and we’re even further behind Western companies, for example, German and Dutch companies. That’s why our salaries are lower. However, when we came to the plants, the salary levels were even lower. We are now bringing compensation levels up to normal, and beginning to raise them in keeping with inflation.
Vyacheslav Khomich: – According to a study that was performed recently, there are overheated professions in the company. As a rule, this includes engineering professions, while blue-collar personnel is underpaid. By adjusting everybody’s wages to an equal degree, it turns out that we are just making the situation more unfair. The rich are getting richer, and the poor are getting poorer. The HR Department proposed to determine the value of labor by each profession on the Russian labor market in our industry each year and review rates on 1 April. However, there inflation is raging in the country, and therefore we are going to adjust again during the second semester. Of course, salary growth rates depend on the productivity of labor. But when the trade union tries to garner a benefit or pay raise, we are often told things that don’t make much sense. “Improve your labor productivity by 20%, and employees’ wages will rise by the same amount.” In order to improve productivity that much, the technological process needs to be drastically altered, and old equipment needs to be replaced with new equipment. The conclusion is that a strict proportional dependence of wage growth on productivity growth is impossible.
16 Monetization of employee benefits continued in 2007. Does this strategy aim at converting benefits into wages completely?
Vladimir Razumov: – There should be a minimum of benefits. Various services for employees are subsidized in the West as well. I remember how I once ended up in the Henkel company cafeteria. The lunch was great, and the décor was cozy. And prices were clearly not market prices. What’s more is that at present we don’t pay salaries that would make it possible for families to easily provide their children with vacations by the warm sea. Who would we rather have among our employees: a bunch of malcontents or good citizens? That’s why social infrastructure is necessary. Time will tell how the social policy and corporate philosophy of SIBUR and Russian business as a whole will develop.
Vladimir Gurinov: – Of course, benefits as a type of incentive must disappear over time. What does universal fairness consist of? It means that everyone does his or her own thing and receives the money deserved corresponding to his or her work. What you did, how you worked—that’s how you earn. Plant indicators currently pull non-core assets down which have grown accustomed to living at the expense of plant subsidies and facilities. Serious money needs to be spent on repair and utilities. And the lower an enterprise’s business indicators, the less its employees get. I believe that that’s not right. Why should a worker pay for a pool or community center out of his paycheck if he doesn’t use them? The simplest way out of the situation is to get rid of non-core businesses. But mechanically severing our ties to them would be wrong. We need to make them competitive, so we can sell them under optimum terms. We see that there’s the Vasilek Community Center. Let it operate independently. That will bring money to the company, and it will be better for employees: the quality of the community center’s services must grow, since it will have to operate competitively on the market, and not under the plant’s wing. That’s the general principle for structuring work at the company. It’s better to pay a person a living wage. When an employee pays for a pool or a group at the community center, he will take the money from out of his wallet, and will become more demanding as a client. He will be willing to pay for a group that his children will really want to attend or for a pool that he really likes. For example, I don’t give out tickets for New Years events, I sell them. The cost of the tickets may be one tenth of the prime cost of the event. But a person who extracts the money from his own pocket thinks about whether he really needs to go there, or whether it’s interesting at all. We’re tire makers, after all. Children’s camps, health resorts, interest-based groups are all important, but we must work efficiently. And to this day we have 26 non-core businesses as a liability. We have to spend money on them, and we could be buying new machines instead. And we can’t ask for work quality or efficiency. For example, we made the network of cafeterias in Yaroslavl an independent structure. The quality of the food didn’t get any worse, but the price of lunch fell! The same thing with preventive medical clinics and health resorts, and with auto shops. They are non-core for us, and they go on the market, become a business that develops by attracting other clients, reducing expenses, and struggling for quality. And an employee may not notice that some LLC Vasilek is no longer part of the Omsk Tire Factory. By making a stadium or community center a separate company, the plant continues to use its services. Trade unions and staff members will purchase trip tickets for workers at special concessionary prices. That’s honest, and that’s justified.
Andrey Teterkin: – At SIBUR-Minudobreniya corporation we wouldn’t want to transition to completely pragmatic relations with our personnel: “You give us money, and we give you our time, and we don’t even want to know anything else.” A concession is still an important element of attention. Employee benefits, even if significantly truncated, always outweigh the extra two or three thousand per
17 year that will spread out as a thin layer on the family budget. In order to optimize employee benefits, we conduct polls in work teams, clarifying what it is that people are most interested in. There are, for example, quite expensive programs that cover five percent of the team, and the remaining colleagues, of course, are not very pleased with that. Sometimes cutting back social facilities does not seem like a good thing. For example, in Siberia an uncompetitive trip ticket market has emerged as the result of the very limited number of hostels and health resorts. Sometimes it’s easier to have your own recreation center.
Mikhail Karisalov: – Employee benefits in the Directorate of Hydrocarbon Feedstock keep getting better and better; benefits are becoming larger and more diverse. Thus, compensation for trip tickets is growing, and the voluntary medical insurance program is expanding. For example, an employee with over five years of work experience in the corporation may take advantage of dental services at the cost of 20,000 rubles per year. With an average wage of 24,000-28,000 rubles, that’s a serious benefit. A young specialist returning from the army gets a 15,000 ruble relocation allowance. We help young mothers as well. What’s more, for example, we’re upgrading the bus fleet, replacing the old Icaruses with new, heated buses, and that also creates an environment of social comfort.
Sergey Merzlyakov: – At the Directorate we understand that we are obligated to create conditions for employees’ children to engage in recreational activities. That’s why we reconstructed the Solnechnyi children’s health resort in Tomsk. We are still financing groups and sport sections in Dzerzhinsk, even though we transferred Kaprolaktamovets stadium and Druzhba Community Center to another legal entity.
Andrey Zhvakin: – The Directorate of Synthetic Rubbers is moving with the rhythm of the entire corporation. In general, I’m not a big fan of social add-ons to the business. A company should be healthy, then there will be both jobs, good wages, and decent environmental measures. Surrounding yourself with health resorts and churches is not worthwhile. Social programs are necessary only as a selective tool for motivating key employees.
18 What condition are the main social programs in, i.e. the medical, pension, and housing programs?
Dmitry Konov: – We would like to transition to complete monetization, but it doesn’t work everywhere. First of all, social programs are a rather inflexible tool. For example, after starting the housing program, we can’t stop it without major expenses, and that could mean 100 million rubles invested each year over a fifteen year period. That’s a completely different risk profile than payment of bonuses or adjusting wages for inflation. Second of all, the programs are usually not as efficient as people usually think. It’s unrealistic to cover even 1000 people out of a 6000 person plant team with a mortgage fund. And it’s going to look very suspicious if only twenty people get it. The housing program works as a powerful incentive only in a small company in a profitable industry. However, we are currently developing a mortgage program in test mode for key, promising employees. But even here the problem emerges that two-thirds of them can’t find housing even with our concessionary credit terms. We are also studying the possibility of distributing private pension and voluntary medical insurance programs to all employee categories. However, we need to understand our possibilities soberly. Thus, in Gazprom, a company that’s friendly with us, there are 430,000 people, and the company’s clear profit is 600 billion rubles. And we have a staff of 80,000 people, and only 22 billion rubles in profit. The difference is strongly felt.
Vitaly Baranov: – The mortgage program can be described as a pilot program: we decided last year to allot some funds and see how this step will motivate our key personnel at the enterprises. So far, there has been enough money for a small number of employees from the regions. And, as experience has shown, not all of them may take advantage of the credit. We will improve the program, and it will work, although, unfortunately, it will not be comprehensive, but rather selective.
Sergey Merzlyakov: – At all the Directorate’s enterprises there are employees covered by voluntary medical insurance. There are plans to cover all employees with insurance policies. SIBUR’s mortgage project so far applies to 80 people, approximately 30 of which work in the directorate. Meanwhile, the cost of housing is constantly growing. We understand the difficulties that arise. We will think about how to help. Some period of time will inevitably go to improving the mechanism. The future mortgage lists will include employees who are key at a certain level as well as promising young people. Now, about pensions. As you know, SIBUR is conducting negotiations for a special pension program with Private Pension Fund Gazprombankfond, but so far only the general outlines of the relationship have been delineated. That’s exactly what we will need to finish in 2008. In 2009 we hope to offer an attractive pension program to our employees.
Vladimir Gurinov: – In SIBUR – Russkie Shiny a concessionary mortgage system is taking shape. We’re discussing other programs as well, but it’s too early to speak about the results. The mortgage covers only a few people. So far, that’s only a few dozen. All the same, at the moment the company is not in a position to build everybody free apartments. That’s why we’re trying to motivate people with wages. But the situation is not the same everywhere. For example, we make wages higher for employees working on serious projects, while we give incentives in other directions. But we also ask a lot more for the work. It’s clearly apparent at the new production facility in Yaroslavl. Employees there receive substantially more than at the old plant. By issuing different uniforms, we want to show that the new production facility is something
19 fundamentally new. We will send the people servicing it to Europe for internships. I have already made the decision.
Andrey Teterkin: – Voluntary medical insurance and pension programs at Azot in Kemerovo have only spot coverage, for example, as benefits for labor veterans. As for the housing program, per agreement with the Kemerovo Oblast administration we are transmitting funds to a housing construction fund, and the fund in its turn is issuing apartments to our workers based on interest-free credit for 20 years with no down payment. Over the past year we received 15 loans, and we plan to give 25 more loans this year. Many Muscovites need a whole hour or more to get to work, so half an hour to the plant for Kemerovo residents is not so bad. The corporate mortgage program, I think, does not match our wages very well, because the bank needs to earn a certain amount of income. Our employees’ average income is about 14,000, and we hope to bring it up to 17,000 in 2008. So today even concessionary mortgaging, unfortunately, works only for plant managers, that is for mid-level employees and higher.
Vyacheslav Khomich: – We see a pension program following the Gazprom model and mortgage as chief social policy priorities. Implementation of those programs was written into the agreement between the trade union and the corporation, but the process, we believe, is still going too slowly.
20 How autonomous are business units in their social initiatives?
Dmitry Konov: – Directorates may initiate social projects and realize them in practice with the permission of the corporation. For example, at the beginning of 2007, the Directorate of Hydrocarbon Feedstock proposed raising its employees’ salaries and in exchange reconsidered its annual business plan in terms of profit growth. But there is also the Directorate of Synthetic Rubbers, which earns many times less for a number of reasons. And it only plans a few investment projects. However, approximately one third of SIBUR personnel work in that subdivision. Will social policy be a key direction for the business unit? Unfortunately, the answer, for now, is most likely negative.
Vladimir Razumov: – Our businesses are currently experiencing various conditions in various cycles. But that’s how it’s always been. It used to be that the entire community would help the tire business. Now it will help raise the others, for example, the rubber people. There is a surplus of rubber synthesis facilities in the country, and there is no foreseeable growth in consumption volumes. Therefore, we will improve quality and expand our product range. Each function has its own tasks, and company management understands that. It’s now most profitable to simply pump oil to the West. But tomorrow the price of oil will fall again, and what will we do then? And in any case, Russia is not the kind of country where money obtained through the subsoil can simply be distributed. At the same time, the company takes into consideration the difference in the region’s economy and geography, so the salaries and bonuses of employees in the North are higher than those of their colleagues in Central Russia. It’s fair.
Vitaly Baranov: – The main directions and tools of social policy—voluntary medical insurance, the mortgage program, and others—are developed on the corporate level. Athletic and other recreational activities have their own traditions at each plant, and we don’t want to violate their customary distinctiveness.
Mikhail Karisalov: – Enterprises in the Directorate of Hydrocarbon Feedstock operate on difficult labor markets, in sparsely populated areas, and therefore attracting and sustaining personnel is a key management task. For example, the Vangapurovsky Gas Processing Plant is a project costing a billion dollars with a labor market of 60,000 in Noyabrsk. The abundance of competitors on these labor markets also needs to be taken into consideration. Therefore, in order to beat the competition of rich companies, we will also have to pay our employees heightened rates. That’s an objective condition. At the same time, I’m against distributing benefits and payrolls in the corporation according to the principle of “who earned what.” That kind of approach doesn’t account for real economics. We can’t survive without the Second and Third Directorates. Our feedstock can be monetized only through synthetic rubbers, polymers, and plastics. Of course, we can turn toward export, but that’s also not a cure-all, given the vicissitudes of the world conjuncture.
Vladimir Gurinov: – Everything I do in the social field, trying to accelerate transformation of a tire corporation into an efficient structure, is justifiable, although at first it may seem unpopular. Giving away stuff for free is wasteful, but you get used to it. When you invite everybody to a free concert with cocktails, 300 people plan to come, but only 200 actually show up. The expenses for 100 people go into the trashcan. Another example is souvenirs. I remember that several years ago I was given an order to purchase 4000 weekly magazines for 5000 plant employees to sign. Can someone in his right mind really suppose that all of that printing will be good for the business? In the area of social transformations we are even slightly ahead of big SIBUR. We have our own
21 specifics: a rather narrow-profile business, a company that is growing dynamically, all plants are located in major cities, there is a labor market there, and people are in demand. We need to develop our social policy following market principles, making work attractive for people. It’s more difficult for SIBUR to follow our example. In the harsh conditions of northern enterprises it’s important to have your own health resort base, that very camp in Anapa. Therefore, as I know, to this day a certain degree of patronage over former facilities is maintained at various directorates’ plants. A preschool representative comes to a plant manager and shares his problem with him… The General Director, with a sigh, begins calling somewhere, deciding something. There’s a tremendous sense of inertia in relations. We can’t afford it any more.
22 Education, career, management culture…
Can we say that a system of career advancement has taken form in the corporation? In what way is career growth connected with corporate training? How effective is the succession pool program?
Dmitry Konov: – This may sound banal, but one of the main objectives of our HR policy is giving people an opportunity to show their worth. And I think that it’s one of the important bonuses that a major company like SIBUR can give. The career advancement system is very complicated to introduce, but it will work. Program offices, rotation, forming a succession pool, and continuing education are its visible elements. For example, the set of program offices has already facilitated growth of staff mobility within the Directorate of Plastics. Employees are trained not only through projects. We’re planning to create a corporate university in the corporation. It may be an ordinary educational institution with courses and trainings that are interesting for our employees. The other, more interesting possibility is program study modules that don’t depend on location and are targeted and portable. We are currently discussing the content of such modules in the Training Council, from management education to narrowly specialized training. You have to understand that this is investment in the future, since the effect of educational activities is always delayed by three years or more. On the other hand, there are immediate results in the area of behavior and ideology. For example, we conducted joint seminars for various management groups. After the sessions it was clear that they had become better aimed at personal development and that they had developed communication skills. People began to understand that, provisionally, at the beginning of a new project it’s better to agree the plan, interests, and details, and only then move toward implementation than it is to agree things during the process. Of course, such mental advancement naturally affects work results, and ultimately career advancement.
Vladimir Razumov: – 20 percent of employees at Tomskneftekhim are people with university-level education, and there is quite a lot of young people among them who are interesting to us. You think that they’re attracted to and remain because of wages only? It’s obvious that the young specialists are also motivated by new equipment and interesting work. The same is true at Tverskoi Polyethylene Terephthalate, where employees’ education level is high and working conditions are excellent. People are standing in line to be employed there. Yet another signal to us and our colleagues in other regions is the need to re-equip and introduce automated processes. I’m confident that at the new production facilities, for example, in Perm and Tobolsk, there will be lots of involved and ambitious young people.
Vitaly Baranov: – The succession pool program is developing actively. The time of resolving problems by involving people from the market has passed. We began valuing employees’ loyalty more, that they share our basic values. HR programs are closely connected with production optimization. For example, in one of the programs specialists come to Moscow to work on a corporate project. Then, with their new experience, they go out to the regions, where there is a reserve of vacant positions for them. In other words, the 100-200 young specialists who are on the lists of each plant are not simply held to present hope, an application for their talents and strengths is already being prepared.
Mikhail Karisalov:
23 – Only 20 percent of new executives in the Directorate came from SIBUR’s management succession pool. I felt intuitively that an influx of new blood would be necessary to create a more universal corporate culture. That’s why the appearance of people from LUKOIL, PricewaterhouseCoopers, McKinsey, and MTS is a major boon.
Sergey Merzlyakov: –Creating a succession pool and opportunities for career growth are important for many ambitious employees. They tell me openly that even salary growth is not as important for them as career growth. Systemic interaction between enterprises at the enormous corporation helps revive the rotation mechanism. For example, not only young professionals, but older, more experienced ones as well from Omsk, Perm, and Tomsk come or are planning to come to the Tobolsk project. By leaving, they will likewise give others the opportunity to grow.
Andrey Zhvakin: – Let’s look at various types of study. The first of them is occupational training for specialists, which is required by supervisory bodies. The second is specialized training in universities. We previously sent employees to study in universities in large quantities, but now we have switched to the spot method. At present two general directors as well as dozens of managers and engineers are studying. The third type is study during work. Any operational interaction must bear a developing element. We have tuned the system of quarterly discussions in Moscow and on location. The subject of the two-day sessions is current results, problems, and plans. We identify a major problem, select a speaker and a work group upon completion of discussions, and they begin solving the problem. There is also continuing education such as seminars, trainings, and conferences. It used to be that the approach to this was somewhat careless: “Masha, will you go to the conference in St. Petersburg?”—“Why not? I’ll go.” But it’s not like that anymore, believe me. We understand what a person’s potential is and why he needs a specific study module. And how continuing education will help him climb the career ladder. We have decided that rotation is an important, but difficult matter. We cut back the management hierarchy to four levels of management in order to simplify the movement of the social elevator in the Directorate. People from enterprises undergo corporate internship in the center on projects connected with their production facility. They meet colleagues from other regions and from Moscow. They establish relationships, and during the course of joint projects horizontal, and then vertical movement takes place. In general, we need to pay more attention to keeping young people in the corporation and fit into an adaptive program. Otherwise we get the effect of a pool with a missing plug: they will just study, and then leave to make their careers in other companies. Therefore, we need to encourage mentorship at all levels and follow timely staff rotation. As for material incentives, it’s impossible to solve the problem separately for young specialists. The mortgage program is very selective. Therefore, a career stimulus is extremely important.
Andrey Teterkin: – It’s still too early to say that at SIBUR – Minudobreniya we have a clearly delineated career advancement system. But you need to understand that as an independent corporation we began operating on 1 May 2007. The first steps in assessing key managers and creating a succession program have already been made. It probably isn’t worthwhile speaking about these initiatives being developed.
Vladimir Gurinov: – For engineers, career is becoming a major factor of interest along with money. Here we are putting a lot of hope into succession pool programs that have recently begun operating in the corporation. At the Yaroslavl tire factory there are good examples of how shop managers and foremen became project managers and even product line managers. It has been noted long ago that employees grow through work on projects.
24 Has a team taken form in the corporation? A unified management culture?
Dmitry Konov: – SIBUR four years ago and the corporation today are two different companies. And we will continue advancing. But we need to admit that there is a certain distance between the corporate center and the regions, a difference in the dynamism of changes and readiness for them. General education, succession pool, and rotations programs are nothing less than an attempt to involve regional leaders in a general culture of innovative development, because the standard of management culture is set through uniform behavior by management.
Vitaly Baranov: – The team in the central body has been formed already, and we just have to perform a kind of tuning of interaction. Ken Potter, a well-known clown for financiers, notes that SIBUR’s management is stronger than the management of such an efficient structure as TNK-BP. The corporation’s General Directors’ Club has also been completely filled. They likewise had enough time to gather the necessary people. While developing a program of competency centers in the company, over the course of this year we will look once again at enterprise management, and have a talk with it.
Alexey Filippovsky: – There are two types of managers: satraps who sit on an asset and managers who search for means to develop it. Just two years ago the proportion of those categories at our plants was 50/50. We couldn’t reach certain red directors. “What are you doing?”—“We’re issuing products.”—“What optimization measures are you taking?”—“We’re issuing products.” By now there are almost no managers like that left at the company.
Vladimir Razumov: – There’s an ingrained stereotype of a director of production. He’s a bad director. People of my age couldn’t fit in at SIBUR for this reason. They relied entirely on their production experience, and that was experience from their previous lives. Life has changed. Today we need a more universal and dynamic view of a company as a business, and not as a production facility. A manager’s key competencies are purely management-related. They include general education, cultural perspective, ability to perform staff selection, ambitions, and communicability. Basic engineering knowledge can always be mastered. That’s why it’s no accident that, for example, in successful Western automobile companies a specialist with deep knowledge of the industry is only the Vice President, a kind of technological adviser. On the other hand, in my opinion, at present there are still not enough industry experts, professional chemists in SIBUR management. But the process has started. We’ve already invited many people from the regions to the corporate center, and here, most likely, they will grow into powerful managers.
Vasily Nomokonov: – I think that the gap between executives and the other management levels remains in the sense that management in the regions doesn’t always think in terms of efficiency and profit. The executives have modern ways of thinking, and they’re ambitious, but they don’t have enough knowledge of the industry and technical knowledge. Furthermore, they don’t always hear and understand how enterprise employees live. The majority of our managers have not gone through the production school, unlike their Western peers who go through all of the levels. But I see that we’re heading in the right direction: we’re cultivating mutual understanding between managers in the central body and enterprises; we’re undertaking special efforts to develop young people at enterprises so that they will be accustomed to the new value system; we’re beginning to invite Western colleagues with practical experience, including technical experience (Otto Berge, Michael Mikhail, Ken Potter).
25 Mikhail Karisalov: – Today at the Directorate a creative spread is being formed out of nerds with gold medals, red diplomas, and MBA degrees and production people. I have the task of communications. SIBUR also sticks out its shoulder, organizing team building and leadership seminars. I can consult other Directorates, and I learn from my colleagues at the same time. Now that the directors at the plants have been replaced, a correct atmosphere is appearing. The general directors’ function is to represent our interests on location, work with government, trade unions, and position the company within the region as a whole, since we are very noticeable in cities with a population of twenty to thirty thousand. At the same time you must have a feeling for the enterprise and not behave like Varangians [translator’s note: Vikings who occupied Russia during the Middle Ages]. For example, the turnover of the Directorate of Hydrocarbon Feedstock is 56 billion rubles, so how could it be that we can’t even pay 1500 rubles to a hundred retirees on Oilman Day? This is exactly how SIBUR’s image as a socially responsible company is created.
Sergey Merzlyakov: – In the contemporary economy, profit often depends not so much on technology as it does on the efforts of management, who, as it turns out, coordinates the corporation’s operations from Moscow. I think that people in the regions are beginning to understand the justification for the division of functions better.
Vladimir Gurinov: – Everybody’s different, and everyone has his own ideas. It’s necessary for a team to have people with different viewpoints, but they must be professionals and aim at unified corporate goals. Beyond that, you just have to know how to communicate well. When I came to the corporation, the plants were managed by production directors who, unfortunately, did not believe it necessary in their work to go beyond the framework of solving largely technical production issues. That’s wrong, and we have now shifted in the direction of timely management that has a more holistic view on all economic and production processes. As a result, contact with regional managers is much simpler and more comfortable for both sides.
26 Outsourcing, optimization, competency centers…
Table 1. Workforce size, average salary, and labor productivity. 2005 2006 2007 Workforce size, persons.3 85,719 -7% 79,927 -7% 73,947 Average salary, rubles per 11,059 +19% 13,127 +24% 16,216 month Labor productivity, thousands 1242 +23% 1526 +26% 1929 of rubles per year per person
What is the purpose of workforce optimization? How does it relate to the company’s economy?
Dmitry Konov: – I would like to elucidate a general, so to speak, ideological factor. We don’t live in a vacuum; there are competitors all around us. We earn money and spend it partially on our staff, or otherwise we don’t earn anything and disappear. Do we want to build socialism in a separate company and reach the level of stagnation of 1985, or do we want to observe a balance of interests by organizing an efficient and socially responsible business that will give everyone a chance? By the way, regarding socialism: in the formerly socialist Hungary there’s a company called TVK, a direct competitor of ours, whose labor productivity is ten times greater than SIBUR’s. We need to go the way that they went, and today we’re investing approximately 40 billion rubles on improving productivity, and in general this includes completely new investment projects. How does it relate to optimizing our workforce? At Tomskneftekhim there are 5000 workers. At the polypropylene production facility in Tobolsk which will have a similar capacity there will be 600 specialists. The tendency is clear. We don’t see the task like “You, factory, must lay off 500 people.” We ask questions and calculate what kind of staff the business can afford. Ultimately, everything depends on the economy. The problems of today’s rubber factories come from the fact that they weren’t optimizing two years ago, as the Directorates of Plastics and Hydrocarbon Feedstock were. It’s probably easier for me, since I’m not a plant director or shop manager, to say some things about people’s fates, but at present I don’t see any arguments in favor of a socially wrong policy of keeping everybody in the company. We frequently just can’t afford it, if you look at the long term.
Vladimir Razumov: – It used to be that when two factory directors would meet, then they would ordinarily begin comparing their staff size: “I’ve got 10,000 people, how about you?”—“I’ve got 15,000. I’m more important.” These days, everything is the other way around. The one who is “more important,” that is more efficient, is not the one who needs to care for a massive number of employees, but the one who has just a few high-class elite people. And SIBUR is no exception to this value system. In spite of all of the talk about working at the limit, again and again we find redundant people at the plants. Last year in Togliatti they laid off 500 people with no negative consequences for the plant: salaries were raised by redistributing the share that went to those who were laid off. Outsourcing pursues the same objectives. We have already subtracted repair people from staff at plants in Kemerovo, Togliatti, and Voronezh. Optimization is necessary and simple as a kind of elementary rotation in a team. In the old days people of my age either lived on their pensions or they were general directors. And now they’re only shop managers, and
3 Number of personnel in production subdivisions 27 unfortunately, they don’t make way for young people. What’s more is that coworkers who have been working together for 35-40 years can’t ask for anything from each other.
Alexey Filippovsky: – Workforce size in itself is not what’s important. What’s important is the share of expenses for employee salaries in the company’s profits. Not everyone has realized yet that if we will still have the same size of workforce three years from now, we will have to close plants. And that’s a completely different level of social stress than planned, rational optimization. Personnel is not being cut back quickly enough at present.
Vasily Nomokonov: – Workforce optimization is not just layoffs. You can’t reduce the size of your workforce without affecting efficiency. The volume of work isn’t going anywhere; it’s actually growing. There are three reasons for excess staff: the low level of automation, inefficient labor planning and organization, and finally operations following the natural economy principle. Those are also three levers for optimization. Repairmen account for a quarter of plant teams. And as a whole, the share of auxiliary personnel in the corporation’s staff can reach 50%. Another approach is needed, some kind of mental exertion, for example, in order to make the decision to purchase a number of services. We aren’t the first ones to go through this. Some companies, including our competitors, have broken ahead along time ago. And we’re learning from our foreign colleagues. We go there with a detailed questionnaire so that workforce optimization will go as efficiently and painlessly as possible for us. As to the connection with the business plan, it’s the most direct connection. The payroll is one of the largest and fastest-growing items in our budget. By optimizing our workforce, we are solving several tasks at once. First of all, we are reducing costs and improving the profitability of our assets. Second, we are raising our employees’ wage level by improving labor productivity, which helps retain the most qualified employees. Third, we are freeing up inefficiently used work hands for other companies and organizations where they can find a more appropriate application for their energies.
Mikhail Karisalov: – The Directorate, like the entire corporation, is optimizing, but from the other side: we’re adding people. We plan to create another 1500 positions by 2012. We now have less than 9000 employees, so we are expecting an increment of over 20 percent.
Andrey Zhvakin: – Management’s main social task is to preserve the enterprise instead of surrounding itself with pseudo-sociality with a low paycheck and an unclear future. We have studied the experience of a Polish enterprise similar to the plants of the Directorate of Synthetic Rubbers in terms of its funds and the specifics of its situation. Over fifteen years they reduced their workforce from 6000 to 1600. The way is identical for everybody who wants to be competitive in the modern, global economy.
Vladimir Gurinov: – It’s no secret that the enterprises we have inherited are quite old. People have worked and often work at them by habit, in the old rhythm. That costs us dearly. Intra-plant logistics in the broad sense consumes a lot of capital. A good example is that it used to be that there were 200 people in a shift, and they made 200 wheels. Now 150 people make 300 wheels. People are confused: “How is it possible?” Then you tell them about how in Europe 50 people make 400 wheels, and the quality is higher by far. And they become even more confused. All of this is explained rather simply, and this is apparent where we are installing new equipment and teaching people to work in the modern rhythm. Innovation and optimization are interconnected. It’s
28 impossible to work the old way on the new machines. And the more we invest in a plant, the more we invest in production, the more the plant has to optimize.
Andrey Teterkin: – We inherited enterprises from the past, including a business organization where we need to handle the issue of excess personnel. You can deceive yourself, but sooner or later the time will come to pay up. There are plenty of examples in history, and we could take the late USSR as one of them. Objective economic principles are at work here. If Yara, the world leader in the nitrogen industry, receives 50 times more revenue per worker than we do, then that difference will inevitably catch up with us and will hit us bad. An attempt to maintain all employees in our workforce would just make them hostages of the situation. As we commission new facilities, we are going to need less and less employees. It’s not worth forgetting that the quality of our technical base leaves much to be desired. The compressors at the hydrogen production facility were received by Russian plants as part of the reparations from fascist Germany. It’s funny. They’re over sixty years old! So, by upgrading, we will smoothly reduce staff, politely parting with employees. Those who remain will not be offended, since the payroll remains practically unchanged. By the way, it’s very much because of workforce optimization that last year paychecks overtook inflation by far, rising by 23 percent. We expect that in response to such an encouraging attitude, employees will conscientiously continue searching for ways to improve efficiency about which only they know. And, of course, we’re hoping that all safety standards will be observed. The company’s future is the fruit of collective efforts.
Vyacheslav Khomich: – Optimization is a great project that helps improve the average salary at an enterprise. At the same time, it requires very subtle work in identifying inefficient subdivisions and functions. And you also need to get shop mangers interested in it, who are connected with many employees by friendly and family ties. How do you close an entire shop? That kind of reorganization affects the entire plant. Management and the trade union sit down and start to think and look at the lists. There are people who can be retired, conditionally, you can give them a samovar. But this girl, for example, can’t be laid off, because she has a young child. While we have to search for work in other shops for promising employees. By conducting a dialogue during optimization, the social consequences are minimized, and the business unit’s efficiency grows.
29 At what rates is further downsizing planned?
Vasily Nomokonov: – It’s difficult for me to speak about the rates. I would rather make a forecast about the final results of the optimization program. Although, of course, you have to understand that optimization is an eternal companion of an efficient business. If you don’t count outsourcing, then the only way to improve labor productivity by 10-20% is through layoffs, depending on the type of shop. This is done through targeted, very low-budget automation and active use of common sense and insight. Extraneous personnel can always be found at enterprises because of inefficient work organization, and that’s an area in which there’s still much room left for cutbacks. If we introduce an outsourcing system at SIBUR in the degree that it exists in the West, with its developed auxiliary services markets, then the corporation’s staff can be reduced by several thousands of people, to five to ten thousand, for example. But I repeat, it’s still a long way there from here.
Vladimir Gurinov: – To put it frankly, there’s still much left to be done. It’s a complicated process: each optimized unit entails changes in the plant’s operations and in employees’ lives. There is international experience, and there are the examples of leading Russian enterprises. We take all of this into consideration in our plans. Unfortunately, so far we still have to initiate layoffs through a commanding voice from the center. We set the necessary proportions of main and auxiliary personnel as well as other parameters. Everybody knows that it’s difficult to lay off a woman working in the accounting department who has been there for a hundred years already in a humane way. But if she performs one calculation per day, and she should be doing thirty, then her colleagues have to take all the rest of the work upon themselves, and they already have enough business of their own. And they all receive the same salary. In my opinion, instead of following the pity principle, universal fairness should triumph, although by definition it is impossible to fully attain.
Andrey Zhvakin: – Next year at the Directorate about 5% of staff will be laid off. We are emphasizing mainly administrative and auxiliary personnel. I have to remark that in general the Directorate has a three-year program that makes it possible for directors—in essence, that means all managers— who participate in it to have a longer work horizon for downsizing, which makes it possible to work more strictly according to plan. Labor productivity over those three years will improve by 20 percent and will exceed three million rubles per person. However, those are only cosmetic changes. Our successful competitors from Poland in their time acted in a much more radical way. Therefore, it’s necessary to modernize equipment, and investment is needed. At Voronezhsintezkauchuk there are about 4500 employees. In comparison, production facilities in the West that are similar in terms of their output capacity but better automated have 600-700 specialists. Inefficiency is built into the technological process, and therefore 200 employees are needed just to weed out defective products. Therefore, we can’t get by without technical innovations, either.
30 How do work teams react to workforce optimization?
Dmitry Konov: – Of course, there is a kind of emotional apprehension, but in practice people quickly find new employment for themselves. Because of demographic problems, there are not enough people for the Russian economy. Therefore, I would even make the paradoxical claim that by keeping people with low salaries, we are depriving them of the opportunity to find themselves in other businesses and fields. And we show the remaining personnel the connection between optimization and salary growth by leaving their laid off coworkers’ salaries within the enterprise’s payroll.
Sergey Merzlyakov: – The principal discontents are the employees at non-core facilities. They used to have the status and benefits of petrochemicals specialists, while in essence they did not have such qualifications. As Russia enters the WTO, competition in the industry is only growing, and therefore we have no way other than reducing expenses. Sometimes people speak of a cushion in the form of sponsorship by Gazprom, however we work with it at market prices, and furthermore, its feedstock amounts to no more than 15-20 percent of the products we consume.
Vladimir Gurinov: – Even the trade unions, in spite of their intense emotional ties to days gone by, are beginning to understand that if the company will not make money, then nobody will make it. Neither those who work nor those who protest. Our business’s profitability is small. It is a different situation than in the automobile business, for example. There, an employer may not reduce costs, but still raise wages, because the industry’s profitability is higher. There, the trade union can knock some heads. We can raise salaries only if we start working better and more efficiently: we need to improve profitability, production volumes, and labor productivity. Without reorganization it is simply impossible. A foreign investor acts harsher. You don’t have to look hard to find examples. In any newspaper you’ll find information about the purchase of major companies and subsequent layoffs of thousands of workers and shutting down of production facilities because of their lack of profitability. That would not be appropriate for us. We follow rational considerations, make our decisions as carefully and as accurately as possible, and people always remain in the focus of our changes.
Andrey Teterkin: – At SIBUR – Minudobreniya corporation we try to help employees on their way out to retrain and find new work. However, you have to keep two circumstances in mind. First of all, the country’s population, as before, is continuing to decline, while the economy is rising, so people are in demand now. Second, we aren’t dismissing employees as much as we are halting employment of newbies. The employees of unprofitable production facilities that we close down are transferred to the main production facilities where there aren’t enough people. Our metalworkers, mechanics, repairmen, and electric welders find work in fields that are new for them. Although, of course, engineering and technical personnel needs constant retraining. That’s the way our business is.
31 Outsourcing is one of the main methods for staff optimization. What stage is it in?
Dmitry Konov: – At present we frequently have to make statements about the poor development of the service market. As previously, the major players in the country are compelled to maintain a semi-natural economy. And certain managers still have it in their minds that everything in the plant has to be their own. There’s still a lot more to be done here, and we have to do a lot of work in the area of psychology. Subdivisions that have already been outsourced find themselves in various circumstances. For example, the repair and construction subdivision of Togliattikauchuk was one of the first to be organized into an autonomous structure. When they went to the project in Nizhny Novgorod, the quality of their work was given an ambiguous evaluation. We give services the opportunity to raise the standard, to improve their competence. Imagine that Togliattikauchuk has 7000 employees, including 700 repairmen, 300 of whom are inefficient. Why should 6700 employees pay for 300 inefficient ones? We find basically the same kind of efficiency reserves in every function if we look at their organization closely. It’s a very interesting subject. So, 580 scientists are working in our laboratories, and it’s obvious that there’s a potential to increase labor productivity. In the regions 400 people are occupied in sales and marketing, fields that are practically nonexistent at the enterprises. As to the issue of natural economy, auxiliary production facilities amount to 65 percent everywhere. Repair and construction units exist and thrive at each plant. The essence of optimization and outsourcing is correct management of value creation. And in the social sphere, that means a good salary to those who work well, and not a small one for everybody.
Vitaly Baranov: – It’s well-known that when a company outsources, it has more possibilities of influencing the quality of various services. But we cannot simply drive people out of a number of departments and begin purchasing services on the side. The alternative is a soft scenario of corporate structural reorganization. A major project in this direction began in the Information Systems Department. We invited consultants in order to understand which functions are ready for outsourcing on our market. It became apparent that there are enough IT companies to provide the competition for our subsidiary to keep it in shape. At the same time, there is great demand for IT services, and it can currently attract new clients and thereby receive a development impulse not just from SIBUR. 2007 was spent in preparation, and we plan to complete formation of the new structure before the end of 2008. Outsourcing in the long run may cover more and more auxiliary functions. Certain services need to repeat the procedure. In particular, this involves the Administrative Section. Our fully-owned subsidiary provides food services and custodial services in our offices and on SIBUR territory, but it turns out to be tied to customer service. The same people both gave orders and performed the orders. Therefore, I transferred the Administrative Section block to the HR Directorate, which is supposed to find a person from the market who is ready to create a real customer service. Certainly, it’s necessary to reconstruct both psychology and work methods in order for the identified functions to become competitive on the market. We are aware that that’s not an easy way to go. Furthermore, as a shareholder of the new service companies, SIBUR is not only interested in improving the quality of their services, but in turning those structures into a source of income. Thus, the non-market element of relations between them and SIBUR will gradually disappear entirely.
Vasily Nomokonov: – Unfortunately, sometimes in the regions there just isn’t any market of the services that our plants need. Most likely, we will have to begin developing them following the example of Eastern Europe, which at one time also engaged in a natural economy. But, step after step, the
32 situation is getting better. In Russia two global catering companies have appeared that are capable of taking your cafeteria into their own structures in any city and making the service more efficient and higher-quality. The same thing is beginning to occur with cleaning. But outsourcing is not an end in itself. If we are satisfied by a subdivision’s quality of services and profitability, then there’s no reason it can’t remain within the corporate structure. For example, the food service at Voronezhsintezkauchuk has gotten significantly better, and expenses fell while we were searching for somebody in the city to give the corresponding contract to. They realized where the wind was blowing, and they changed their approach to business in a timely manner. However, as markets develop, specialized companies will inevitably become more efficient than our shops. It’s just a matter of time. When we wrote the regulations for outsourcing, we took all of these factors into consideration. They have a distinct algorithm for decision-making, just like in the investment regulations. We look at a subdivision’s optimization potential, and look at the market for these services in the region or city. There is no point in extricating a subdivision if it will always remain a subsidiary of the plant because it doesn’t have any other clients. When there is a service market, then first we provide 70 percent of our subsidiary’s load. But we smoothly increase the share of other clients. And then we sell the non-core business. There is another scenario as well. If we don’t know how to make a function efficient, and there is an alternative that is accessible on the market, then we close the subdivision and turn to external contractors. As a whole, the plan is to develop outsourcing around competency centers. But first we need to build those centers themselves. For example, the Legal Department at present is a separate competency, but not entirely, because the enterprises’ lawyers are managed by general directors, while the corporate center becomes involved in work only when a problem arises. Our task is to create an understandable and uniform system of double subordination. So we will increase the manageability of functions significantly and create the preconditions for outsourcing. Take note that a competency center may be located not only in Moscow. For example, if we have a really good taxation specialist in Nizhny Novgorod, then all colleagues will be recommended to go to him with their taxation issues. Within the near future, the managers the five centers created, including mechanical engineers, electric power engineers, R&D specialists, logistical experts, and accountants, will present their development plans to us. There may be a total of up to 20 competency centers organized at SIBUR. Occupational health and safety...
Table 1. Accident and injury rates in SIBUR group
Accident rate 2004 2005 2006 2007 Accidents 2 3 2 2 Fires - 1 1 - Incidents 233 70 51 92 Injury rate Number of people 92 52 37 63 injured Number of fatalities 4 6 1 4
33 What causes accidents? Is it the human factor or technical problems? Is there a connection between workforce optimization and the rise in the injury rate in 2007?
Dmitry Konov: – The number of accidents in 2007 remained on the previous level, but, unfortunately, they were larger in size. During a very short period of time, we extended control over safety and carefully investigated all of the incidents. Let’s look and see if there is any connection with the layoffs. In the recent past nearly 1500 people have left Tomskneftekhim. An accident occurred at the plant, and people began speaking about a shortage of workers. But the investigation established unambiguously that people were simply violating safety rules. Furthermore, production instructions had been neglected for many years, and it was only this time, so to speak, that the wind blew the wrong way. Somebody had bad luck. That’s the whole difference between unfounded assertions and fact. The most tragic accident occurred in the most profitable directorate, where salaries are the highest and there had been no serious layoffs for a long time, at Belozernyi Gas Processing Plant. And why did people die two years ago in Voronezh? An employee had decided to pick at a polymerization unit with a piece of metal. That’s also the human factor, but it had nothing to do with workforce optimization.
Pyotr Degtyarev: – There is no direct connection. I would like to call your attention to the fact that not only ordinary specialists were violating safety procedures, but managers were, too. They had basically good intentions: to produce more products or accelerate completion of repair work on a unit. The command was given to subordinates who frequently did not even know that they were violating anything, and only a few people at the enterprise were capable of seeing the big picture. It’s entirely possible that this is some kind of self-righteousness, complacency, and a desire to achieve a result quickly. At the same time, SIBUR executives believe that enterprise management realistically assessed the situation and controlled risks. Today, company management is united in the opinion the violations must be stopped.
Alexander Moroz: – It’s difficult to answer the last question. But I can help you understand my point of view by answering the first two questions. We have observed a reduction in the injury rate at production facilities starting in 2004. And we must admit that after reducing the number of accident victims to 37 in 2006, we probably let ourselves relax too much. As they say, who’s to blame: man or machine? The initial cause is always the same: a technical glitch. And in such a situation, the rules prescribe a specific procedure. In all accidents that led to injury or fatality, the rules were broken. For example, the incident at Belozernyi Gas Processing Plant. The automatics had gone into a nonstandard situation. Pressure was rising in the system. According to instruction, the unit should have been stopped. That would not have been difficult, since all processes are automated. But apparently shift workers were thinking, “Why should we stop the process for five hours just to perform 5-10 minutes of tuning work? We must perform according to plan.” It worked the first time, as well as the second and the third, but the fourth time they did this, things didn’t work out. As a result, instead of losing 300-400 tons of natural gas liquids, during emergency stoppage of operations that lasted almost a year, about half a million tons was lost. This is not even to speak of the human tragedy. I think it’s clear who’s fault it was, and what the cause was.
Vasily Nomokonov: – At first glance, superficially, it may seem that there is such a connection. But an accident is always a combination of circumstances, a coincidence of factors. And it’s very difficult to identify correlations. Could corporate downsizing have caused employees to ignore a pre-
34 emergency system signal for four whole days? It is purely the human factor. We can analyze each major accident (and we have done that), and we found that human error was the cause of each one. And that means low motivation, low qualifications, low awareness. And they on their part often find a correlation with salary levels. But that is directly connected with labor productivity. So everything is the other way around. The better performance will be, the less accidents there should be. There was never such a situation when we could say “Oh, if we only had twice as many workers here, then they would all contribute and prevent the accident.” Maybe that would happen in another industry, but not in petrochemicals.
Sergey Merzlyakov: – The causes of the major accidents at Tomskneftekhim and Belozernyi Gas Processing Plant have already been established: there were gross violations of safety procedures. That is, these dramas were in no way connected with equipment deterioration or a staff shortage. I don’t see any general growth tendency in the accident rate. However, we involved Dupont, a world- renowned expert in industrial safety, to prevent similar cases in the future. The last accident at its enterprises is dated at the beginning of the 1990s, and that’s why you can’t find a better advisor for thorough audit of this subject. Dupont specialists conducted diagnostics at Tomskneftekhim. Their conclusions are currently being reviewed and assimilated, and recommendations will follow later. Besides the main, humanitarian motivation, we are motivated by an economic component as well, since any incident at the plants means real losses for shareholders. It is fundamentally impossible to cut expenses on safety. There is a procedure at each plant and each unit that determines the number of personnel in a shift, and nobody has the courage to change it without agreeing the changes first with technical supervisors—that would be illegal. Our norms, by the way, are stricter than in any other European country. For example, there has to be at least two shift inspectors. There is the same rule for operators. That’s how the safety net works. It will be possible to remove the safety net per agreement with supervisory bodies when we acquire high-technology equipment, which we plan to do for the new projects. It’s another matter that employees sometimes begin to complain about a shortage of workers for annual repair work. There are two ways of resolving the problem: we can hire contractors or improve the organization of repair work. But it’s unacceptable to maintain an over-inflated staff because of repair works performed only occasionally.
Andrey Zhvakin: – It actually works the other way around: the less people there are, the less accident sources you have. It’s a matter of personal responsibility. You must understand that this is an ironclad guarantee of a stable, comfortable life for you and your family. And to make life really comfortable, you need to perform workforce optimization and raise the average paycheck. That’s what the connection really is, and the growing accident rate actually shows that we are not laying off personnel as quickly as required by circumstances.
35 What production discipline enhancement programs are currently active in the company? What is their effect? What new steps are being made in occupational safety?
Vladimir Razumov: – 2007 turned out to be a difficult year. And in September, after two accidents and several injuries had occurred, we were compelled to convoke an irregular meeting of related managers and conduct a serious discussion. To my surprise, after a regular pep talk, occupational safety parameters improved dramatically. Today, I call upon my colleagues to look at the situation soberly and acknowledge that the methods that we inherited from the old life, when directive bodies gave a command and we tried to carry it out, are now obsolete. Administrative leverage doesn’t work in the long-term. Everybody’s safety depends on everyone’s actions at their workplaces. After the failure of 2007—91 injuries—we must try in 2008 to do better than the 2006 parameters—37 injuries. And we should become the best petrochemical company in terms of occupational safety parameters by 2011. Is it possible or not? A poll of 1500 SIBUR employees showed that the overwhelming majority believes that everything is okay in the company in terms of training and instruction. But still only 20 percent believe that safety is a truly important, high-priority issue for management. I want to invoke the example of Tobolskneftekhim. I went through a major accident with this enterprise four years ago. I saw the people, and I know them, and at the time I was disappointed with many of them. But by now many of them have managed to reform themselves and at present upper and middle management are really trying to create safe labor conditions. So, it’s primarily a matter of changing people’s attitude to these problems that may seem far away from economic concerns. In 2007 we began major operations to reconstruct our teams’ psychology. The most important thing for each employee should be workplace safety. Dupont is supposed to help us in this long-term project. It has been active in industrial safety issues since 1911, and before the war in 1940 its managers came to the conviction that all incidents may be prevented if personnel has the right attitude. Dupont’s experience will be useful for us, too.
Pyotr Degtyarev – In 2007 an effective industrial safety management system was developed and approved, and it is now being introduced at enterprises. In 2007 an agreement was also concluded with Dupont, the world leader in industrial safety and occupational health. Together with Dupont experts, our specialists conducted a diagnostic investigation of two enterprises: Tomskneftekhim and Togliattikauchuk. A plan for specific, joint actions by employees of the corporate center and plants has been planned. Continuing cooperation with Dupont is planned at other enterprises as well. By 2012-2013 we should attain a complete absence of accidents through an annual reduction in accident and injury rates of 10-20 percent. We also assigned qualitative criteria for effectiveness in this area. That is, what should change in the organization and management of industrial safety at our enterprises, and how it should change. We don’t need ceremonial reports. We need thorough, professional analysis of conditions at enterprises, a proper attitude, the understanding of all line managers, and daily work to improve the situation.
Alexander Moroz: – After the injury rate grew during the first half of 2007, we held a number of meetings and intensified monitoring of observance of workplace safety rules and norms. By the end of the third quarter, the drastic measures bore fruit in the form of a fall in the injury rate. But we also understood that in order to rise to the next level of production safety, we will need the assistance of Western enterprises who have gotten way ahead in occupational safety. So, Dupont had begun paying attention to the safety of its employees way back at the beginning of the twentieth century. It has accumulated a rich experience, and not a single accident has been registered at Dupont plants since the beginning of the 1990s. That’s why SIBUR chose it as a consultant on 36 industrial safety issues. Our partnership includes several stages. Dupont employees have already reviewed the occupational safety and health management system at Tomskneftekhim and Togliattikauchuk, and there are three plants left to go. The consultants’ conclusions so far are not encouraging. For example, the Dupont people noted that employees are insufficiently informed about incidents. For example, if an incident occurred in one shop, then they do not find out about it in other shops, even though it could prevent the occurrence of similar situations there. This is actually an occupational safety audit project, and our specialists are working on it together with Dupont employees, and they are assimilating the experts’ work methods.
Mikhail Karisalov: – After the tragedy at Belozernyi Gas Processing Plant we all realized that there was excessive formalism in industrial safety and occupational health issues at the Directorate for Hydrocarbon Feedstock. The accident, which cost a human life as well as billions of rubles in losses, caused us to conduct a systemic review of methods, procedures, and personnel’s attitudes toward the problem and begin creation of a new collective value: workplace safety. We raised all methods and tried to construct a system of control and incentives in this area. The Five Stars program was started: an employee is issued five stars at the beginning of the year, and if he is able to go through the entire year without violating safety regulations, then he receives a special bonus. We have developed and are introducing new uniforms for all enterprises in the Directorate. They will protect employees much better than the old ones. We also tried to introduce the HAZOP method, which was applied during restoration of Belozernyi Plant. It is a code of rules and standards that makes it possible to analyze technically whether a pipe diameter truly matches a faucet, or whether the pressure applied for the faucet matches the pressure that will be in the pipe, and so on. But it may be that the main reform was a change in the management unit. We told the general directors, “Begin with yourselves.” If they had previously been a model for anything at all, but not for observance of safety rules and norms, then today, of course, things have changed dramatically.
37 The environment, petrochemicals, nature…
Chart 1. Anthropogenic impact on the environment caused by SIBUR group enterprises.
Payments for environmental pollution, millions of rubles
Atmospheric emissions, thousands of 66.7 tons 65.1 2007 ɝ. 2006 ɝ.
27.9 26.1 Discharge of wastewater into surface 49.0 water bodies, millions of cubic meters 56.6
Formation of residential and indutrial 102.6 2006 2007 waste, thousands of tons 111.5
Chart 2. Costs for environmental protection measures in 2007, millions of rubles.
3300 3258.3
3200
3100
3000 2921.8
2900
2800
2700 2006 2007
38 Green stories To put it lightly, it is too late to create a national park or natural preserve on the territory of Azot in Kemerovo. The mark left by man will remain there for a long time. On the other hand, the industrial site’s environmental thinking is progressing rapidly, and, as if in support of green initiatives, unexpected guests have begun arriving at the plant…
Carbamide falcons These birds are not forest dwellers. A pair of falcons has been producing nestlings here for several years, having located their simple habitation on the carbamide shop tower at the 78 meter mark. During the daytime the falcons ordinarily hunt, flying off to the forest, while at night they return home, where the considerate employees of the carbamide shop wait for them with a delicious dinner: they bring meat, chicken legs, and sausage. These pets enjoy such attention, and they respond affectionately to the humans’ care, thrill everybody with their high flights, circling around the buildings, and trust toward people.
The incident with the antlered creature One ordinary workday, near the Azot equipment storehouses, a moose decided to go for a walk. This creature did not limit itself to the surrounding environs of the plant and had managed to penetrate onto the plant territory itself by way of open railway connections—there had been reports of him being sighted there as well. The employees of the equipment base invited a team from the Ministry of Emergency Situations to help the moose return to the place where he had come from. Unfortunately, he did not wait for their help, since he immediately ran out of sight whenever he saw people. “What can we do?” people fretted, deeply wishing that the beautiful creature would turn around and return to the forest glades.
The call of the jungle The water hyacinth is endemic to Brazil. It is possible to use this plant to extract most biogenic elements from wastewater, including nitrogen, phosphorous, potassium, calcium, magnesium, manganese, sulfur, as well as such ingredients as phenol, sulfates, petroleum products, phosphates, etc. This is the set of elements that serves as the chief pollutant in our rivers and water bodies. The plant, whose roots are inhabited by dozens of species of useful mollusks and crustacean worms, creates the conditions for these organisms to break down the ingredients, turning them into elements that are digestible for the water hyacinth. To put it more simply, the plant consumes and neutralizes harmful substances, and each plant behaves like a miniature cleansing structure. Specialists from the wastewater treatment shop at JSC Azot in Kemerovo, together with a group of scientists from the Institute of Cytology and Genetics of the Russian Academy of Sciences, Siberian Division, have begun an experiment in cultivating this unique plant at the water treatment structures of JSC Azot. As time has shown, the water hyacinth has adapted beautifully to Azot’s industrial waste, and has begun multiplying furiously, conducting its own biological treatment of the water each day, in addition to the technical wastewater treatment methods applied at the plant.
39 How does the petrochemical profession impact SIBUR’s reputation as an environmentally safe enterprise? By what means does the company respond to environmental risks?
Dmitry Konov: – Our own associated gas processing base is a byproduct of oil production, and other links in the production chain unambiguously point to the contribution of petrochemicals in environmental conservation. For example, production of methyl tertiary butyl ether (MTBE): if you think about it, is it really good or bad? MTBE raises the octane rating of gasoline. You can improve the octane rating of fuel without purifying it, and thereby leaving a mass of harmful admixtures in it. You will drive as if your gas is excellent, but meanwhile you will be polluting the atmosphere badly. As a whole, the negative effect of the impact of the chemical industry on the environment is much less severe than the effect of the metallurgical industry and motor transportation. Nevertheless, the mass media prefer to maintain the focus on chemists as the chief enemies of nature. Of course, the positive role of petrochemicals does not eliminate the issue of environmental harm as a cost of our business. There are particularly problematic plants in Volzhsky and Tobolsk. The way to solve problems is well-known: upgrading production facilities. And that’s what we’re doing.
Alexander Moroz: – First, I will tell you about the results of environmental protection measures. So, in 2007 102,600 tons of residential and industrial waste was produced at the Corporation’s enterprises, which is 8 percent less than in 2006. The other important conclusion is that the volume of wastewater dumped into surface water bodies declined from 2006 to 2007 by 12 percent, amounting to 49 million cubic meters. The volume of insufficiently treated wastewater dumped into water bodies fell substantially, by nearly 20 percent. The general positive effect of reducing water drainage volumes is associated with a reduction in the volume of water consumed per unit of production and with reconstruction of water recycling supply systems and treatment structures at a number of enterprises, including JSC Uralorgsintez, JSC Plastik, LLC Togliattikauchuk, JSC Gubkinsky Gas Processing Plant, etc. Furthermore, we have made an important step toward systematizing our environmental protection policy and developing environmental standards. Over the course of two and a half years, a corporate environmental management system was developed and introduced at our enterprises. Specialists from the central body as well as Bureau Veritas Rus consultants conducted a comprehensive analysis of management and production processes that impact the environment. Corporate standards were developed and approved; environmental aspects and risks were identified, and Environmental Quality Regulation target programs being developed by enterprises were evaluated. In March SIBUR successfully underwent a certifying audit performed by Bureau Veritas Certification Rus (BV Certification) on compliance with the international standard ISO 14001:2004. And this year we are planning to complete development of an environmental management informational/analytic system together with our IT subdivision. The system will be commissioned in 2009.
Sergey Merzlyakov: – I think that both our employees and the general public understand the SIBUR has become, in a sense, a hostage of Soviet industrial policy, and is now reaping its fruits: dirty wastewater, slag collectors, air pollution. But we have no intention of shirking our responsibility; we just can’t do everything at once. In keeping with the agreements signed with the environmental prosecutor’s office and other supervisory bodies, we are actively running environmental protection measures. For example, we undertook the obligation to clean up our slag collectors over a period of 5-7 years: process affected land to make it conform to safety standards required for environmental safety. For example, afterwards, the land can be covered by asphalt. We are also reducing atmospheric emissions, partly according to economic considerations: products worth money are
40 being dumped into the atmosphere. The decision to shift to a new ethyl benzene production technology was also made in Perm, where the wastewater is rather dangerous. That way, we are working in all directions at once.
Andrey Zhvakin: – The environmental impact of plants operated by the Directorate of Synthetic Rubbers is gradually dropping. Organizational and technical measures are having their effect. Sometimes that means stricter control; sometimes it’s innovation in treatment and disposal technologies. Our strategy is aimed at replacing old, toxic production facilities with new product lines. For example it is in Voronezh, and not Moscow, that creation of an environmental competency center is planned for the Directorate. There one of our strongest, most experienced experts is employed.
Andrey Teterkin: – SIBUR – Minudobreniya enterprises are old, and their technologies are imperfect. But we see these problems very well, and governmental supervisory agencies don’t let us go slack. Today we exceed the maximum acceptable emissions norms for a minimal number of parameters, and the trend is positive. For example, emission of pollutants fell by over two thirds over the past three years. Furthermore, the result was achieved not by reducing production volumes. We actually raised production in 2007 by 13-18 percent. It’s just that over that three-year period we spent 5.5 billion rubles on upgrading facilities in Kemerovo alone. I suppose that by 2009 we will reduce emissions by 20 percent more. Compared to the same Kemerovo cogeneration plant we look quite decent, and we understand that referring to others’ misfortunes is not a way out. But you cannot demand that an enterprise solve all the problems that accumulated over the last forty years at once.
41 The trade union, corporate newspapers, the “pastor’s word”…
To Manechka for gingerbread The trade union committee of CJSC Sibur-Khimprom is concerned not only about the essentials, i.e. defending workers’ interests. It has been organizing tours to various ends of Prikamie for many years as well. Plant workers have managed to visit all of the most famous historical, architectural, and natural monuments of Perm Krai. These include the Museum of Ancient Wooden Architecture in Khokhlovsk, Svyato-Nikolayevsky Belogorsky Monastery, and Kungurskaya Ice Cave. Tours to the northern towns of Cherdyn and Solikamsk, renowned for their ancient roots, are especially popular. Another tourist center is Usolie, a mostly one-storied town. Its chief treasure is its wonderful architectural monuments of the eighteenth and nineteenth centuries. The Golitsyn Estate welcomed Sibur employees with its live warmth and the aroma of bread. “To Manechka for gingerbread” is a thematic tour of the room on the first floor arranged in the ancient Russian style, and everyone found it delightful to their taste—literally. The tourists were treated to freshly-baked gingerbread that they themselves had cooked, and were served tea with aromatic herbs. Then everyone set out to inspect the house where time had frozen, and where it seemed that its occupants had just recently left… It may be said that the Stroganov Chambers are the chief brand name in Usolie. Here Sibur employees found exhibits of samovar manufacturing, the tea trade in Perm Governorate, and the falling of meteorites in Usolie District. Many were especially interested by an unusual exposition containing, for example, a real airplane frame that fills an entire hall, a gift to the museum from cosmonaut Alexey Leonov, who landed in the Usolie forests along with his colleague Belyayev. The group was equally impressed by the beautiful ancient Usolie temples, the most wonderful of which is Spaso-Preobrazhensky Cathedral. The final chord of the journey was a visit to the village Oryol-Gorodok. It was in the evening darkness that the tourists approached the stela honoring Yermak. According to legend, it was here that the Cossack chieftain’s troops gathered before their march on Siberia. The tourists were able to see the local church, Praise to the Mother of God, whose outlines resemble a ship, mainly from the inside. “I really liked the Stroganov Chambers, and the place itself is impressive: the view on the broad Kama River, the free expanses,” relates tour participant Tatiana Smirnova. “I found out a lot of new things. It was interesting to visit places where our ancestors lived and created, where everything breathes history.”
42 What does building corporate communication mean? What measures were enacted in 2007 to this end?
Alexey Firsov: 2007 changed the quality of the Corporation’s communications policy profoundly. This is not just about a series of projects of the Department of Corporate Communications, but most of all it’s about the openness that company management has demonstrated. Within SIBUR, the indicators of such openness were a series of meetings of Dmitry Konov and directorate leaders with plant employees, expanded and quite frank communication through the corporate mass media system, and monitoring of public attitudes at a number of enterprises. In the external environment, the company has become a very significant newsmaker, disseminating information step by step about the implementation of its investment projects, industry interests, and changes in corporate policy. At the same time, I can’t say that the informational field is comfortable for us in a number of directions. SIBUR is operating in severely competitive conditions, and there were points of contention with other players, and what’s more is that in connection with SIBUR’s weight in the Russian petrochemical industry, the company has undertaken the risks and problems of the industry as a whole. I think that SIBUR has stopped seeing its communications policy as simply pretty packaging unrelated to actual business affairs. We have stopped being image makers, have stopped producing corporate glamour. We have found a real connection between communication quality and the effectiveness of business processes, although it has been difficult to deduce that connection.
By changing the quality and content of informational work, we created a package of tools that would make it possible to perform communications within the corporation and beyond its borders more intensively. So, the new version of the company’s website has come out. A corporate magazine appeared, and unlike many similar publications, it was built not as a kind of advertising brochure, but from the very beginning it has aimed at serious analysis of business processes. Then, an electronic newsreel was created that makes it possible to accumulate and publish in online mode information about current events within the group. A number of plant newspapers went through redesign and a serious content amendment procedure. In general, we see direct meetings between management and work teams as well as plant newspapers and the magazine as key tools for informational interaction with personnel. But besides them there are a number of separate products that have appeared, for example, the company’s first Social Report.
What caused such a shift toward openness in business? It primarily happened because before 2007 the company was performing complicated, internal restructuring, which required great efforts by management. For understandable reasons, such processes are not very public. When Alexander Dyukov’s team completed work on the base in its general outlines, it was possible to work on the superstructure. As a result, we had to catch up with a lot of things last year that had already been taken care of in companies whose fate is simpler than ours. This year will see the development of those directions that were roughly delineated in 2007. SIBUR’s position in regional enterprises will be strengthened, as will the brand name policy, international and federal information policies, and the corporate mass media system. There will be a complicated process of ideological rethinking in connection with possible changes to the company’s shareholder structure and its withdrawal from the Gazprom group.
Mikhail Karisalov: – I believe that the “pastor’s word” will respond, although it might take a while. That’s why I always try to get feedback from employees, and in turn communicate my message to them. At least twice per year we rent a local community center and invite 300-400 people—the ones that I can call away from the plant without fear that it may stop. I want to cure people of their indifference. Everyone must realize that the common result depends on him, too. As a rule,
43 those who confess this philosophy advance their professional position quickly and join the group of fifty people that we organize at each plant for serious work. We have even created an inoffensive nickname for such people: “real communists.”
44 How was the company’s interaction with trade unions constructed in 2007? What role do they play at enterprises today?
Dmitry Konov: – I want the trade union to become a fully-fledged interested party and participant in decision- making at the company. Unfortunately, so far it has been impossible for either the employer or the trade union to establish a workable culture of communication. We will continue to develop it. This line is an alternative to excessive rapprochement between the trade union and corporate structures—a phenomenon that we often observe in our business today.
Vyacheslav Khomich: – Relations between the trade union and the corporation are constructed on the basis of a three- year labor agreement. The current one is effective until 2009. The agreement establishes a social minimum below which the terms in collective agreements at enterprises cannot drop. It is understood that anything good has some value. We have 34 plants in various economic conditions and in various regions. But the corporation must be a relatively unified social space covering production facilities whose profitability may range from 5 to 50 percent. The collective agreements vary not only by their content, but in their form as well. For this we have also decided to bring everything to a unified basis. We are currently working out a standard collective agreement together with the HR Department which matches with the structure of the general corporate agreement. The basis of the agreement in its turn relates to an industrial tariff agreement that accounts for macroeconomic factors and trends of the world petrochemicals market. As a whole, through constructive interaction between the trade union and employer, work conditions at SIBUR are much better than the state minimum. For example, the legally set payment for category 1 disability caused by occupational injury amounts to 90,000 rubles. Our corporation’s payment is 300,000. It used to be that employers were legally obligated to allocate at least 0.015 percent of the payroll to holding recreational events. Currently, this minimum from the Labor Code as well as SIBUR’s labor agreement obligates the company to spend at least 0.3 percent on sports and culture. What’s more, employees paid per the base rate receive money for holidays as well. We can also mention the additional payment for working at night, the 50 percent additional payment for pre-school services, and other enhanced social obligations undertaken by the corporation that the labor union has gained.
Sergey Merzlyakov: – Strikes are prohibited at enterprises in our industry. But monitoring and the social diagnostics that we conduct don’t speak of any alarming symptoms. We have managed to establish mutually advantageous cooperation with the trade unions. Sometimes uncooperative rebels can be found among the trade union leaders, but in such cases they find themselves without the support of trade union members who prefer to solve conflicts through dialogue.
Andrey Zhvakin: – As a whole, we at the Directorate of Synthetic Rubbers look for a compromise. There are restless trade unions, the so-called “alternative” trade unions. For example, in Togliatti such an organization plays a thoroughly destructive role. I don’t think that the noise they make helps the enterprise and its employees. If the trade union understands what its social responsibility is, then the dialogue works itself out automatically. We are not conducting mass layoffs. We are a responsible employer, even though certain damage to business efficiency may result from that.
45 The regions, the authorities, philanthropy…
An Ordinary Miracle for the little people of Tomsk In April 2007 the results of the Ordinary Miracle charity event were tallied. The event had been held with the support of LLC SIBUR, LLC Tomskneftekhim, and the Tomsk Oblast Administration under the slogan “Let’s help children together.” Through collective effort, it was possible to gather over 3.5 million rubles. During a two-month period, the Tomsk television station TV2 broadcast stories about children needing expensive medical treatment, about families trying to handle a calamity that had afflicted them, and about those who responded to the request for help. 22 April a final telethon was conducted, hosted by the famous broadcaster Svetlana Sorokina. At the same time, in the City Garden, which had turned into the territory of goodness and mutual help for several hours, a charity concert and donation collection was held. During the event, money was transferred to target bank accounts, and people transmitted funds directly to families that had requested help. A significant portion of the total sum of the donations was collected during the charity concert. Many organizations centered in Tomsk and Seversk, as well as ordinary citizens, responded to the requests for aid. In conclusion, an ordinary miracle occurred for 39 children: their families are now able to pay for expensive medical treatment, acquire exercise machines needed for rehabilitation, and improve their living conditions, which is a key factor in the recovery of a severely ill child. Misfortune is many-sided, but there were even more people wishing to help. It is Tomskneftekhim’s charity policy to provide assistance to those who because of various circumstances need it. This policy developed through financial support for the large-scale charity event.
46 Was the practice of concluding agreements with the regions in 2006-2007 justified? What policies would the corporation like to see enacted by regional administrations?
Dmitry Konov: – The practice of social partnership with the regions has had uneven results. A positive example is Tyumen Oblast. In general, relations with the government are always better where major investment projects are underway. It’s a two-way motion, and we expect goodwill gestures from the governors: infrastructural support, tax exemptions, etc. However, even when the authorities are business-oriented, that doesn’t always guarantee investments. In other regions it’s objectively unprofitable to start up major projects. For example, it can be the effect of remoteness from sales markets or suppliers. The same thing can be said about active production facilities—everywhere they are efficient to varying degrees. The basis for smooth work with the government is constructive communication, openness, and performing the obligations you have undertaken. Furthermore, the regions at present are not just going this way, they’re competing with each other for companies. Business goes where it is most comfortable.
Andrey Teterkin: – We have good partnership relations with regional administrations. In Kemerovo the social agreement is already effective and quite successful. Nevertheless, the presence or absence of a general document does not play a substantive role in real-life practice. It’s difficult to apply an unambiguously desirable template for interaction. In Kemerovo we spend more on social investments, but we also find a more attentive attitude toward our problems. In Perm the governor confesses more liberal economic values, and the profit tax exemption extends to all industries, and therefore it’s difficult to lobby our interests there. But we don’t feel any need for special relations with the government in that region, since the tax policy already forms a comfortable environment for work. Each model is good in its own way. We are visible on the economic activity radar in both regions.
Sergey Merzlyakov: – Governors are primarily interested in investment. For them that means employment, taxes, etc. The regions are struggling with one another for the company’s money, and that’s good. Recently we signed a ten-year agreement with Tyumen Oblast for Tobolsk-Polymer in which we undergo the obligation to pay a certain tax and hire a certain number of people. In exchange, we receive partial repayment of subsidies at a loan rate and property tax and profit tax exemptions. That is, in total we are saving approximately 11 billion rubles over the ten years that the agreement is effective. We will sign a similar document on July 1 with Nizhny Novgorod Oblast on PVC and EP-300 projects in Kstovo.
Andrey Zhvakin: – We historically had problematic relations with Togliatti, but there is a new mayor there, and we’re hoping for change. People from production are now coming to power there. They understand that the city and the plant are closely interlinked. A draft agreement with Samara Oblast is in the final stage. We have even relations with the other regions. There are agreements in some of them, and in others there are no agreements. The fact of a document’s existence is not that important by itself. We are planning to create a competency center on the road rubber market in Voronezh, and that project is included in the Voronezh Oblast investment program. In other regions our interaction probably has a purely social character: we finance city holidays, athletic events, and solve community issues together with bureaucrats.
47 What did SIBUR emphasize in its charity and sponsorship programs in 2007?
Alexey Firsov: – Charity entails not just general tasks related to the company’s reputation, but brings SIBUR to the corporate standard commonly accepted in the world, when business considers it to be a rule to invest part of the money it earns in the public good. Before the Corporate Communications Department was created, the corporation’s philanthropic work was not systemic. We produced a related procedure which limited our initiatives to the regions of company presence and priority directions. Each year the priorities will change a little. Last year we paid particular attention to the environment, as well as veterans’ and children’s organizations. We will also dedicate 2008 to environmental protection activities, and what’s more is that we will help chemical education and enlightenment. I want to emphasize that our charity programs are not a good that we toss out into the wide world, but an attempt to improve the social infrastructure around our enterprises and on territories where our employees reside.
Mikhail Karisalov: – In general, the Directorate helps education and athletic activities. It’s no accident that there are so many Olympic champions in Siberia: the people here really love sports. There are more expensive programs as well. For example, we invested over 80 million rubles on resettling the residents of decrepit camps in Nizhnevartovsk. It is not only pleasant and necessary, but it is a great boost to the company’s reputation. On the other hand, our directorate’s enterprises are located in relatively well-to-do districts where there aren’t so many acute problems.
Andrey Teterkin: – The priority of SIBUR – Minudobreniya is sports and education. That way we make an additional contribution to the region’s life. However, we cannot satisfy the needs of all petitioners. That’s why we actively consult related government agencies, and only after they conduct an expert review and issue an endorsement, we provide assistance to those in need.
48 Has SIBUR formed an image for itself as an employer on the external market? What does it look like?
Dmitry Konov: – I think that it hasn’t formed such an image yet. That will take another five years, or maybe less. My feeling is that SIBUR has an image as a dynamic company with certain rules and principles, but I don’t know how stable and coherent that image is.
Alexey Filippovsky: – If we judge according to the corporate center, then right now we are a somewhat less attractive employer than the investment banks and oil companies. But these structures constitute a narrow sector, and there’s an enormous quantity of people in the country from regional universities who are talented, insistent, and ambitious. And I think that we should focus on them.
49 The future, challenges, forecasts…
The SUNNIEST New Year Solnechny [translator’s note: “Sunny”] is the favorite recreational place for the children of Tomskneftekhim employees. During their 2007-2008 winter vacation from school, 130 children ages 6 to 15 goofed off and also became visibly more mature. Just before New Year’s Eve, preparations for the holiday were in full swing at the camp. A happy, slightly chaotic, but all the more charged atmosphere predominated all around. You know what the most wonderful thing is about New Year celebrations? The anticipation of miracles. And it is worth saying that the combined efforts of the children, leaders, and administration managed to create a real fairytale this season at the camp: over a seven-day period, Solnechny lived following the plot of the Snow Queen story that we all know from childhood. According to the plan, each new day brought the camp closer to its cherished aim: saving Kai from the captivity of the beautiful mistress with a cold heart. “Chapters from the fairytale were staged. The children decorated the cafeteria windows in the style of the Snow Queen’s habitation. A literary trivia quiz was held. The most important thing was the acts of kindness, from assistance in the cafeteria to team participation in creative activities. They helped melt the fragments of the wicked mirror that had scattered across the world,” relates Eleonora Vlasova, the camp’s Deputy Director for Educational Work. “I remember each day as a special occasion!” shared Nastya Alekseyeva. “And when you begin telling your classmates about how you celebrated the New Year, many are surprised and begin asking, ‘Where is this place—Solnechny?’” Here, in Tomskneftekhim’s children’s camp, Nastya and her friends are repeat visitors, and each time it is a great pleasure for them to come to their favorite camp. What is the secret in its attraction? Life at Solnechny leaves no room for boredom. During those cheerful winter days creative studios and athletic sections were at work engraving birch bark, drawing, embroidering, folding paper, skiing, ice skating, and playing snow soccer. There is also a very kind, homey atmosphere at the camp. For Tomskneftekhim the children’s camp is a form of social support. It means caring not just about the company’s own employees, but about the young generation as well. Solnechny, surrounded by coniferous forest, gives children each year a great opportunity to strengthen their health and gather energy before the beginning of the next academic quarter, and bring their bright impressions of a vacation spent among friends back to Tomsk.
50 What do you consider the main challenges facing SIBUR?
Dmitry Konov: - Maintaining our growth rate, since our tasks are becoming qualitatively more complicated, and the economic situation is not as good as many of my colleagues may think. Although, I do think that the success in 2007 was achieved mainly through the efforts of the corporation’s employees, and not through market trends.
Mikhail Karisalov: – Economic growth, stable political trends, and high oil prices are the guarantee for SIBUR’s future successes. Oil producers are openly speaking about how the prime cost of production will never be the way it was before, since Western Siberian oil is running out. Furthermore, it’s no secret that the price of one of our products, dry lean gas, is regulated by the government, which maintains a high price band. And the forecast of dynamic development leads us to the alarming thought of a potential staff deficit. In fact, even now I cannot get enough people for the two plants in Gubkinsk and Noyabrsk. So far there are only shift workers there: Moldovans, Belarusians, etc. The problem is not just wages, it’s also the general conditions: a tiny city with fiercely cold weather. On the other hand, at our other site in Tobolsk, people are not afraid of going north for employment in oil companies where salaries are twice as high. Returning from their shift to Tobolsk for the summer, they work on their private land plots, growing potatoes and tomatoes. I have spoken with them. “Why go north if the result is that your annual income remains about the same? And I can spend the warm part of the year in nature, and the vegetables and berries will be my own.”
Sergey Merzlyakov: – A possible shortage of key personnel at enterprises and during implementation of projects. We are currently determining who those people are, and we will begin to train them intensively, plan their career growth, and motivate them. Second of all, inflation. In terms of world experience, the salary concept is not a way to deal with inflation. That way we will just spin its flywheel and the labor market at the same time. The best way to compensate for growing prices is to promote employees’ careers by giving them benefits and nonmaterial incentives.
Andrey Zhvakin: – The most important thing is to maintain key consumers’ loyalty. And to specially emphasize the Asian market at the same time. We can solve these tasks only by completing the transformation of SIBUR into a community of mobile, open, and interested people, without a division between “us at the plant” and “them at SIBUR.”
51 How do you see SIBUR in 5-7 years?
Dmitry Konov: – An integrated resource base in products that are in demand on the market. A much more environmentally safe and efficient company. A self-learning system. A high level of industrial safety culture.
Alexey Filippovsky: – I’m convinced that SIBUR can be just as profitable as the oil business in Russia. We have access to a feedstock base, way-above-average, talented managers, and loyal shareholders who don’t squeeze everything out of the company to the last kopeck and give us the opportunity to invest enormous funds in our future. These three factors inspire us with optimism. And what are we supposed to do in order to look into the future with even greater optimism? In essence, we must memorize two words and believe in them. The first word is ‘efficiency.’ Efficiency must become our mantra: every morning you should repeat to yourself that we must be more efficient than our competitors. And for this we must generate at least three times more events than we do now. And the second word is ‘upgrading.’ The way forward for us is through new facilities. It turns out that SIBUR needs two key competencies. The first is the ability to efficiently manage what we already have, and the second is being an expert in construction, in new technologies, in a word, in replacing the facilities that we have now. If we can acquire these skills over time, then the company has the preconditions for optimism.
52 SIBUR’s challenges today and tomorrow
“We definitely are doing quite a lot. But the question is what are we doing, how do we do it, and will we be competitive with the rest of the world?” A. V. Dyukov, from a speech at a Conference of the management of SIBUR Group 21 March 2008
What challenges face SIBUR? Will the company be able to maintain the results it has achieved and develop further? What is each employee’s share of responsibility for this, whether he’s a manager or a specialist? In the future scenarios that SIBUR management is working out, the global petrochemicals market plays the main role. According to our current predictions, this future has both serious problems and impressive opportunities in store for the company. How do prices form in petrochemicals? They are determined according to the least efficient producer. And that producer always either makes no profit, or is losing money, or is making a small profit. Meanwhile, more efficient competitors are making real money. What will happen in 2008, 2009, and 2010? An enormous quantity of facilities will be commissioned in the Middle East. They will be modern facilities, and will operate with a cheap raw materials base. Therefore, the least efficient players will leave the business. Thereby price bands will become more narrow, and the company will have to compensate the effect of growing competition. That is the first main challenge. How can we prosper this way? We know the answer: by improving labor productivity. At present a certain distance remains between SIBUR and the average indicators of the world petrochemical industry: $53,000 per person against $1.5-1.6 million in North America, $1.4 million in Europe, and $680,000 in Eastern Europe. Even the average Russian figures are twice as high as SIBUR’s indicators, fluctuating around $103,000 per year. What happens with payroll expenses for SIBUR and its competitors? Their growth rate in Europe is about 3%, as compared to 23%, SIBUR’s average annual payroll growth rate. All of this accrues to a team of nearly 80,000 workers and inflation in the country. At the same time, the rate at which we optimize our workforce and labor organization is not as high as it could be. In 2005-2006 quite a lot of optimization programs were being implemented which lay on the surface and which produced a sufficiently large economic effect at a relatively low cost: optimizing price formation, production flow planning, introduction of a general optimization model, purchasing optimization, etc. By now it’s become more difficult to implement measures with a similar effect; we have to spend a lot of time and energy on innovation. But company management sees enormous reserves for improving its operations and is assigning managers a complex task for 2008: improving the economic effect of the optimization program from last year’s level substantially. The second challenge is connected with the fact that the oil and gas industry in Russia and in the world is basically entering a new stage in its development. Oil and gas companies are compelled to begin development of fields in new regions, including Timano-Pechora, Eastern Siberia, Irkutsk Oblast, Yakutia, Krasnoyarsk Krai, Sakhalin, and the Far East. In Yamala, oil companies are supposed to begin operations, as well as gas companies, including Gazprom. And SIBUR, in general, can expect to obtain additional access to the resource which is our raw material. The corporation is getting the opportunity to construct new gas chemical facilities. They will require a new level of occupational safety and health standards. Industrial safety is something you have to pay for; you have to work on it. SIBUR is willing to undertake these expenses, and company management will require a paradigm shift in this issue. This demand is being made today not only to managers, but to all employees without exception. Safety and efficiency. Today these fundamental concepts of corporate culture are being endowed with a special meaning for SIBUR.
53 You may direct your opinions on this report and recommendations for the content of future reports to the following address: SIBUR Holding Russia, 117218 Moscow ul. Krzhizhanovskogo, d. 16, korp. 1 Corporate Communications Department Tel. (495)937.17.26
or by e-mail: [email protected]
54 Reviews
COGITO CORPORATION
The SIBUR 2007 Social Report is an innovative document. It creates a new, higher standard of reporting for Russian corporations. Up until now, social reports looked like company advertising, and gave no new insight. It was not very interesting to read them. What is a social report? A glossy booklet with pictures. The charts, rising social expenses, and salary indicators do not mean anything without relating the problems to general tendencies. Meanwhile, analysis, synthesis, and a view of the prospects of social policy in connection with the production strategy and external challenges are acutely needed. Many companies’ reports formally follow AA1000 international standards and the Global Reporting Initiative, but they do not clarify the most important thing: who are these social reports addressed to, who will read them, and who should be interested in them: Investors? Governmental authorities? Journalists? SIBUR has gone further: it created a report that is not an advertisement, but rather a contemplative report. We are given access to the company’s decision-making headquarters. The document includes speeches by company managers on strategy and the most important issues of social life. At the same time, production strategy and social and environmental policy are considered in a single problem field. The unprecedented degree of openness for a social report testifies to the company’s strength. SIBUR’s 2007 report will concern many people. It will be discussed at plants, in government agencies, and in the media. This is because SIBUR’s experience is a model for large-scale Russian industry. SIBUR, with its 80,000 employees and territory from Krasnoyarsk to the Baltic Sea, is in the state of an investment boom. The corporation began constructing fundamentally new plants earlier than its competitors. That is its way. Soon all of Russia’s industry will undergo a shift from using the facilities that it had inherited from the USSR to an investment- based scenario of development. SIBUR started earlier than many, and now claims to be the generator of new standards, the trendsetter in corporate policy.
Vitaly Sednev, expert
The Story of a House
All authors are familiar with the fear of the blank sheet. Corporations know this fear, too. Each new format, each new document are just such a blank sheet. The temptation to follow the standard pattern is great, even when one doesn’t really try to deceive oneself about its efficiency. In this social report SIBUR found its own words. And it is not a philological accomplishment or a successful improvisation; it is the result of managers’ internal work on themselves and with their colleagues, all of the company’s employees.
55 Regardless of the format, a social report will remain a corporate document. Before it is issued out, dozens of employees work carefully on it. They invest it with the intended meaning. By imagining themselves as their readers, they try to evaluate the appropriateness of the form and content. They look for a compromise between the organization’s image and actual profile. SIBUR’s 2007 social report is not simply the result of that work, it is a chronicle. Reading the managers’ words, we feel the presence of a live person involved in a collective task. We attend to his intonation and follow his train of thought. It is as if we have entered the manager’s office at noon on a workday, sat down with a cup of tea to speak about problems and perspectives, about what was and what will be. The conversation finishes, and we return to our projects and our business routine, to our hourly concerns. The result is an unusual social report: a slice of the year, a slice of the week, a slice of the minute. Scale it as you like. The famous architect Frank Gehry loves to build projects in the form of incompletely constructed buildings. That way, in its incompleteness, its projection of height, the house’s originality, strength of character, essence, and fate manifest themselves most intensely. This report, not far from Gehry’ philosophy, was produced by SIBUR’s architects for the corporation’s employees—the residents of a collective House.
Dmitry Chernikov, journalist
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