Fear, loathing, hope

Melanie Stern is section editor of Families in Business.

Russia's wealthy business families want to lead a foundation culture. But the shadow of socialist rule and the grip of the Kremlin are just two of the many hurdles that potential philanthropists need to overcome, finds Melanie Stern

The concept of writing cheques for worthy causes as a way to curry favour among social, political or business circles is nothing new. It happens everywhere. But the practice takes on a life of its own in Russia, where the hangover from decades of Soviet rule fuels paranoia among the country's burgeoning business class, led by untold first generation wealth and powerful oligarchs. Of these, many are business families led by the sons of poor parents who made their riches in Putin's fire-sale liberalisation of state assets, and many want to emulate the aristocratic, wealthy families of Western Europe and America.
 
Many families also want to put their new-found riches to good use and build a strong, modern Russian society that can operate as part of Europe proper. This is shown in the growing popularity of formal discussion on the subject, evidenced by a healthy attendance from families to recent family philanthropy sessions held in Russia by Charities Aid Foundation (CAF), a British charity advisory. "Some 25 families attended. Most are not yet involved in giving, but they were very interested in the concept as a long-term move," says Olga Alexeeva, head of global trustees and the former head of CAF's Russian operations. "But there are lots of prejudices and fears – this is first generation wealth, children of poor parents, and they are very different in their thinking to their parents. Now this young, rich generation have to decide how to spend their money and have to learn about philanthropy and wealth management."

From these discussions, the concept of philanthropy is becoming ever more popular, and today there are some 20 major ­family philanthropic foundations in Russia. But you won't find evidence of more than three if you Google the subject: in Russia, being a tall poppy – and a rich one – is a very dangerous situation. "We work with several well-known, wealthy Russian families on their foundations, but these people are very careful and don't want to see their names in print," says Alexeeva.
 
There are several social and political reasons why associating one's family name with charity in Russia is seen as a bad move, and why some believe a functioning private family philanthropy scene may be some years off for the country. First, there is no history of philanthropy among Russians. It used to be the role of the state to provide cradle-to-grave care for all; as the idea of charity makes real the concept of those in need, those for whom the state had not provided, private philanthropy has been considered undignified and remains socially controversial 15 years after the demise of the Soviet regime.

Corporate philanthropy is currently the predominant force in the sector and far more socially acceptable, due to the previous Soviet mandate that all companies must contribute to societal needs, for example, fashionable state-led causes like rebuilding churches and theatres, or donating food to orphanages. But private Russian families are holding back on their philanthropic involvement because they just don't trust the current incumbents. Several massive corruption scandals involving corporate and domestic charities have all led to the Kremlin's door – most recently via the imprisonment of former Yukos CEO Mikhail Khordokovsky for alleged tax evasion (Khordokovsky led Yukos' major philanthropic foundation, Open Russia). In the time of Boris Yeltsin's government, luxurious tax breaks and duty waivers were awarded to various companies masquerading as charities. Both the Russian Orthodox Church and the infamous National Sports Fund were found to be operating a state-run monopoly on the country's tobacco and alcohol imports. For these reasons, foreign NGOs operating in Russia are given more trust, but Russian families want to do things themselves and lack both the support and trust in the state to move ahead with any pace.
 
Corporate philanthropy does make some crossover with family giving. The prominent Dynasty Foundation, founded to support educational and scientific programs by Vimpelcom chief executive Dmitry Zimin and his son Boris in 2001 is one example. There is also Vladimir Potanin's foundation which is run through his $9.4 billion industrial conglomerate, Interros. These are socially more palatable ways of giving because they emulate the favoured route of the past.

All in all, the odds are stacked against families. Stephen Schmida, a philanthropy consultant in Washington who was director of the Eurasia Foundation in Moscow, says: "I honestly don't see that much potential for family foundations in Russia. I think it will always be the case that corporate philanthropy will be the more robust type of giving and that family giving will be the exception, not the rule. The barrier for most wealthy families is cultural and very strong; the wealthy are deeply resented in Russia and though they might drive a flashy car around Moscow, they don't want to stick out much more than that. When Russian families give they try to do it through networks of people they know and trust. It is still easier to do it quietly and to literally hand over an envelope of cash than to do anything formally".

Eugene Avdienko, editor of Families in Business' Russian-­language sister magazine Semeinyi Biznes, agrees that things are still difficult for those with genuine philanthropic aims. "Today Russian philanthropy is based on mutually beneficial relations between rich families and 'officials' unfortunately, and this is the dominating factor for most Russian companies," says Avdienko. "Very often local authorities give companies opportunities [in return for philanthropic activities] such as beneficial credits and lucrative building permits."
 
Abolishing various tax breaks for the wealthy has allegedly gone some way towards improving credibility among Russia's domestic charities and has removed the opportunity for money-laundering operations involved in philanthropy. But this has also removed some of the key ways to attract families to philanthropy, much as families in the US use tax breaks legitimately. Additionally, Russian law was recently changed to more stringently restrict the types of funding NGOs can receive, so families making grants are forced to give to Kremlin-approved causes. "This doesn't make it impossible for families but it is another barrier," says Schmida. "But I would say the decision to remove these tax breaks was sound because the priority for Russia is to control revenue and tax evasion. If you open even the smallest loophole there, people will drive trucks through it. So I don't think the Russian government is particularly interested in promoting philanthropy."

They may not be, but the will remains among wealthy families, and these changes have not affected this at the upper level. At least half the names in the first 25 entries in the Forbes Russia Rich List "have structured philanthropy" says CAF's Alexeeva, citing names like Sibneft oligarch and Chelsea FC owner Roman Abramovich, who with his wife and family founded the charity Pole of Hope. This charity funds the construction of schools and hospitals for children of Russia's most north-easternly region, Chukotka. (He also registered Sibneft in the tax haven.) Anatoliy Mikhailovich Karachinsky, president of his electronics group IBS and Russia's answer to Bill Gates, is said to be involved in various charitable projects. But professionalising philanthropy is still a nascent concept. "Many families don't understand why they should be well-organised in their giving and why they should bring in outsider trustees when their philanthropy is purely a family affair. The idea that when you set up a foundation, the money you put into it is no longer yours, but that it is for the public benefit, is still new to Russian families," says CAF's Alexeeva.
 
This is not surprising for a country whose corporate sector has existed for less than two decades, and for whom the term family business doesn't often mean multi-generational firms. In Russia, a high-ranking family business is typically in its first generation of family leadership, being a family business through ownership and sometimes with the second generation working in a senior role also. Observers expect a large-scale successional transfer of these firms in the next 15-20 years. Philanthropy experts believe this will be the trigger for an emerging trend in organised philanthropic foundations.
 
CAF's Alexeeva believes wealthy Russian families are in a position to coax trends towards longer-term causes. "Most families just don't understand cultural management and feel it is too complicated for them to go beyond just rebuilding the walls of some theatre, which is very straightforward," she tells Families in Business. "Giving food or christmas presents to poor children changes nothing in the wider scheme of their lives. Giving needs to become more sophisticated. They need to take the lead of families from other countries such as those in the UK."

At the end of the day, families may have the will to give, but very little comes to pass without the blessing of the authorities, which is why family-led philanthropy will probably best flourish as part of a corporate strategy for the foreseeable future. Any such activity stands at risk of being hijacked by Russia's complex social-political climate, but there is certainly reason to keep trying, and places families can go to talk about their ideas. "Families don't usually care about the politics, but the Kremlin does," says CAF's Alexeeva. "Many wealthy Russian families are very much pro-European democrats but hide it well because it puts them at risk. But they all know that there is no future for Russia in isolation from Europe." Semenyi Biznes' editor Avdienko agrees that families should keep trying. "Despite lacking the benefits other countries offer wealthy people, and the budgets foreign charities have, commercial philanthropy continues to grow. It says a lot for Russian businesspeople that this isn't a defining factor of philanthropic activity. It turns out that charity is happening regardless of the government's position – as the business and private wealth classes continue to grow."