Q

: Today, it has become kind of fashionable in Russian business to discuss social responsibility. How do you perceive this notion? What are UMMC’ social standards?

A: In my view, leaders of most Russian companies recognize that business, which calls itself socially responsible, can no longer remain limited to solving single social problems. In present conditions business is involved in social and economic processes of a very wide range in cities, regions and on the national scale. Its success depends more often than not on supporting social balance on all levels of interrelationship with the society.
As far as the Ural Mining & Metallurgical Company is concerned specifically, we set apart several directions of our social responsibility. First, a timely payment of all taxes that contributes to consolidating municipal budgets, which are the source of financing many social programs. It is worth noting that not a single one of our enterprises has accrued taxes and, on the whole, our payments to budgets at all levels and to off-budget funds amounted to 5.4 billion rubles ($192 million). Second, the company ensures a social protection of its personnel, i.e. retaining jobs, providing growth of wages, maintaining a set of social guarantees, which are included in labor contracts. It makes sense to consider separately the social and economic partnership of UMMC with administrations of regions, where the company’s enterprises are located. Along with the standard package of obligations these contracts provide for the company’s participation in target social program.
To a large extent we rely on traditions. Since the Soviet times metallurgic enterprises, especially the big ones, were directly engaged in social development of territories, including constructing and maintaining social purpose-oriented facilities. What is more, the metallurgical industry was formed according to the plant-town building principle: town people were at the same time either workers of enterprises or members of their families. Our task is to maintain appropriate conditions on these territories that make people there feel comfortable and link their future with their towns.

Q: Your Holding unites almost 30 enterprises that are quite different by their production specialization and social and economic status. With such a diversity is it possible to unify social standards and conduct a uniform policy?
A: Over 5 years have passed since the establishment of UMMC and during these years it has managed to do a lot of things. Of course, it was difficult at the start to single out priorities and arrange planning of social activity taking into account a great number and different nature of social problems at enterprises. But today our actions are based on accurate economic calculations and they are correlated with the Holding’s corporate strategy. By the form it is close to what is called social investing. There are documents common to all: Program of developing human resources at UMMC, Provision on social and economic package. They set directions of development and serve as a basis of enterprises’ labor contracts.
But it is another matter in what volumes and when social programs will be implemented. Some enterprises joined the Holding earlier than others and, as you rightly noted, due to objective market conditions they have different financial and economic abilities. Nevertheless, enterprises integrated in the company’s structure strengthen their market positions, increase production volumes and with every passing year get more and more funds to finance social programs.

Q: Among social projects which ones are recognized as the most important?

A: I can tell you a lot about social and charity projects of UMMC. About taking care of children, about dealing with problems of youth and helping veterans. For example, all-in-all 900 cars have been bought at the company’s expense for participants of WWII and this is only a small part of our program to mark the 60th anniversary of the Great Victory.
Many large social projects of ours have been started in 2004. And it is connected with results of our business’ successful development in the last two years.
UMMC-Prospect, the Non-State Pension Fund established last year, will make it possible for our company’s workers – and there are over 70,000 of them today – to secure an honorable retirement. The corporate pension within the Fund is formed on parity terms: an enterprise invests as many rubles as its worker does. In other words, the total amount of accumulated money is automatically doubled.
In the Sverdlovsk region, where most of the UMMC enterprises are located, there is a complex program of social responsibility called Together. The program is designed for 5 years and it includes social projects, the cost of which totals about $125 million. It provides for expenses on creating conditions for recreation of workers, members of their families as well as on supporting young families, maintaining children in pre-school institutions, etc. Similar programs are also being worked out for other regions, where the Holding’s enterprises are located.
At present, one of the most acute problems in Russia is connected with developing house construction and providing broad strata of the country’s population with accessible housing. The very name of our program in this area reflects it: the program is called Accessible Housing. We offer several schemes to our workers: mortgage credit lending with an enterprise’s participation, leasing with the right to buy out living quarters, providing a one-time additional help in the form of interest-free loan or grants. Last year, when the program was just started, investments in these projects amounted to a little more than $2.6 million. In 2005 we intend to increase this amount to $8.7 million.

Q: How much is the total amount of those expenses, which may be called social?

A: Besides paying out $192 million to budgets and off-budget funds, which I have mentioned above, expenses on charity and social programs added to this sum $39.3 million. Various social services for the company’s employees account for about 40% of this amount, maintaining social facilities, financing sports and culture account for 30% of it and the rest goes to finance charity programs.
Our concept of business’ social responsibility also includes ecological safety. Out of $200 million to $250 million that UMMC annually invests in developing production, a considerable amount is directed to solving ecological problems.

Q: So, you spend a considerable amount of profit for purposes not connected with expanding production and sales. Is the company trying to optimize these expenses?

A: We are not just trying to do it; as the results show, we really succeed in optimizing our work in the social sphere. In 2004 the Holding’s losses because of maintaining social facilities remained the same as in the preceding year, though the number of these facilities increased following the integration of new enterprises in UMMC. In principle, there is a possibility to switch over from losses to profits. For example, hotel complexes, which are also included in the UMMC social infrastructure, have already reached a necessary profitability level. In the future sports and cultural centers may also become profitable. At some enterprises of the company the non-commercial partnership turned out to be successful. For example, the SHAAZ plant annually signs contracts with the local administration to implement social orders. Incoming funds are distributed as follows: approximately 50% come from SHAAZ, 20% are from the town administration and the commercial activity accounts for 30 %.
However, when choosing priorities in the social policy we have to proceed not only from the economic expediency but also from actual living circumstances. We understand that our duty is, above all, to provide a certain level of social comfort to our own employees. There is a reason for this as well. Efficiency of any enterprise depends on availability of qualified labor resources. And this is becoming a problem in Russia: because of unfavorable demographic trends many industrial enterprises will face in a few years an acute shortage of labor force. Attracting workers will depend on what package of social services and enterprise’s social image will be.
We are thinking about this already because it is not about some faraway future any longer. For example, by implementing programs of mortgage credit lending for house construction we hope to use them as a way of helping our enterprises retain young specialists, highly qualified employees, workers of scarce professions. We also regard investments in the system of personnel training as the priority ones: they are concrete, they are intended for specific groups and they are controlled. Sent by UMMC over 600 students, our future engineers, technologists, etc., attend specialized colleges.

Q: Do the company’s plans include preparing corporate social accounts as is accepted in the international practice?

A: The company’s leadership regards this task as an issue of the day. Last year we held a number of meetings with specialized companies so as to determine in what direction to start working. There are two most widely used approaches in the world practice. The first one assumes preparing a social account in a free form that makes it possible to independently determine the volume and set of data to be used as well as resources that the company is ready to provide for preparing this document. The second option is to use standards recommended by outside organizations. As the experience shows, in compiling a corporate social account one can start with the little and expand it later. At present, we are still analyzing all available information.

Q: What, in your opinion, is necessary to do so as to make the idea of social responsibility of business a really determining factor for most of companies in Russia?

A: I think that large metallurgical companies as, by the way, the business community on the whole, need cooperation with the State. It should be an official, legislatively regulated cooperation in preparing and coordinating fundamental solutions in the economic and social spheres. I believe that through joint efforts we will be able to develop civilized and efficient methods of such a cooperation.

To the sidelines:
UMMC has in its care:
– 10 palaces of culture
– 9 stadiums
– 6 swimming pools
– 7 palaces of sports
– 13 disease-prevention centers
– 11 recreation camps
– 9 rest houses
– 1 boarding house

Pic 1. Expenses by UMMC on social programs financed from profits, million rubles*.

620 683 697 767 1129
2000 2001 2002 2003 2004

By data from UMMC
* ruble exchange rate for $1:
28.4 - December 2004;
31,9 ruble – December 2002;
27,8 - December 2004.

Pic 2. Structure of expenses by UMMC on social programs financed from profits

Financing charity programs 36%
Maintaining social and cultural facilities 31%
Medical services to employees 2%
Sports events 3%
Social services and payments to employees 25%
Expenses on training and raising professional skills 1%
Cultural events 2%