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Saturday, March 22, 2008

Ukraine’s Richest Man Launches His Third Stage of Charity

I very much like these words: “Charity speaks with a quiet voice.” That’s why I would quietly reach for my pocket and help those in need. That was my credo. That was my first stage of charity. But, unfortunately, in our country, we have systemic problems. And no one can solve them with a quiet voice. So today, right at this moment, there starts my third stage of charity — a stage of my own personal responsibility. Why did I come to this decision? It’s because I will practice charity at all times.

— Rinat Akhmetov, net worth: $14.6 billion, according to Fokus magazine, the Ukrainian equivalent of Forbes

As long as Ukraine remains one of Europe's poorest countries — while generating multi-billion profits annually — the ball is in Mr. Akhmetov’s court to match words with deeds. Let’s see the color of his money.

Let’s see whether his commitment will pull the rug from under unfavorable reports like this one (Ukr).

When it comes to social responsibility and its voice in the court of public opinion, impressive bottom-line results win more admirers than redressive legal action.

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elmer said...

So that's how it works.

A "charitable foundation" called "Rebirth of Ukraine" spends $200,000 for Yanukovych's GMC minivan, PLUS a HUGE mansion with very large acreage PLUS a yacht.

Charitable foundations aren't inspected by the tax authorities (either due to bribes, or because one's own people are in place at the tax authority).

But you get tax deductions for all the "charitable expenses."

Disguise all this with a few measly dollars thrown at some orphan kids once in a while, and VOILA -

You've won the Ukrainian government lottery!

Not one, but several mansions! Not one, but several expensive cars.

But wait - there's more!

You also get a yacht for your kids!

But wait - there's more!

You also get all expenses paid!

But wait, there's more!

You get bank accounts in Cyprus, Monaco (with gambling trip included), and Israel. Also possibly Switzerland, except that Switzerland has treaties that honor oooperation in crime investigation.

But wait - there's more!

People heap praise on you for your wonderful "charitable work."

Ex-President Clinton has a charitable foundation.

Victor Pinchuk has a charitable foundation.

They "fight AIDS." They bring Elton John to Kyiv for concerts.

Pinchuk brought Clinton to Ukraine for hugs and kisses with Kuchma, who is widely thought to have ordered the murder of Georgi Gongadze, the journalist from Ukrainian Pravda.

Charitable work indeed.

In Russia, they are not nearly as charitable. The oligarchs steal in order to obtain wealth.

They they build a few small Russian orthodox churches, which noone goes to anyway.

But the Russian oligarch is perceived as a holy and wonderful man.

It's much cheaper to build a few lousy churches.

DLW said...

I believe Saul Alinsky gave as one of his rules for radicals that one must hold one's opponents to their purported rules.

Even if disingenuous, the fact that people like Akhmetov feel compelled to make statements like such is a way to make them do more than they otherwise naturally would.

Taras said...

Elmer, that’s what the article alleges.

The best way to confront such allegations of “mischarity” is by counterbalancing them with a stellar record of genuine charitable activities. To reach that standard, the quantity and quality of these activities should produce a nationwide effect.

Good point, David. But what’s so radical about holding them to their purported rules? I think it’s pretty rudimentary rather than radical.

To look better both at home and abroad, the IPO-bound oligarchs will have to do more in the way of social responsibility. They will have to be reactive, interactive and proactive in changing this country’s social contract.

Otherwise, they risk losing some of their riches or reputation (or both), once their compatriots hold them socially responsible, or once the Western public does.

That’s the game.

elmer said...

Taras, people interested in an IPO don't look at whether a bunch of thugs who are issuing shares pretend to do charitable work or not.

They look at the financial statements, whether they are audited and reliable, the circumstances of the particular company issuing the shares, the business track record of the company issuing the shares, and the business climate in which it operates - competition, laws, regulation, markets, type of product or service, etc.

Akhmetov is going to pretend to throw out a few crumbs.

I hope it does have a nationwide effect, but the question is whether Ukraine becomes a nation of beggars dependent on a few crumbs from oligarchs who dispense crumbs at their whim.

Akhmetov talks about systemic changes.

One brings those about by a free, effective, honest and open government.

Not by a PR campaign based on pretending to feed some orphans.

DLW said...

Elmer, that’s what the article alleges.

The best way to confront such allegations of “mischarity” is by counterbalancing them with a stellar record of genuine charitable activities. To reach that standard, the quantity and quality of these activities should produce a nationwide effect.

dlw: Good points!!!

Good point, David. But what’s so radical about holding them to their purported rules? I think it’s pretty rudimentary rather than radical.

dlw:It's not rudimentary to make your opponents either seriously soil that good public reputation they hoped to build or actually follow thru with the implics of their vain-glorious words.

Taras: To look better both at home and abroad, the IPO-bound oligarchs will have to do more in the way of social responsibility. They will have to be reactive, interactive and proactive in changing this country’s social contract.

Otherwise, they risk losing some of their riches or reputation (or both), once their compatriots hold them socially responsible, or once the Western public does.

That’s the game.

dlw: Amen. I think we're saying the same thing...


Taras said...

Hi guys!

As you can see, I’m trying to strike a benevolent tone in this post, one of appealing to the guy’s better self.

Of course, I wouldn’t bet on it until I see the results. But keeping in mind that, in the West, a company’s image can either help or hurt its performance, let’s give him the benefit of the doubt.

If he truly commits himself to making Ukraine a better place — a much better place — I can only wish him good luck.

elmer said...

Taras, a company's image in the West, and indeed to a certain extent the demand for its products and services, can be shaped by advertising - but it's the financial results, the bottom line, that still count as far as stock price is concerned.

I hope that Akhmetov, who has made no specific promises, does indeed step up his charitable activities.

But other than generalities, what have we got? Nothing.

And in the West, just because the president of a company, or even the company itself, donates to charity does not improve it's earnings per share.

And earnings per share are heavily determinative of stock price.

Some companies do indeed use affiliated charitable foundations, which has some effect on the company's marketing efforts.

McDonald's has Ronald McDonald houses in various communities.

(But then again, what is the first place targeted in places like Serbia? McDonald's.

People in the former sovok countries still can't seem to distinguish between private enterprise and government, and seem to think that McDonald's is the US government. It's not.)

Akhmetov is not there yet.

The problem with giving him the benefit of the doubt as far as making Ukraine a better place is that I suspect he has a totally different idea of what would make Ukraine a better place.

Anonymous said...

Cautionary tale

"After a number of unsuccessful schemes for colonies in Africa or Asia, in 1876 [Leopold II] organized a private holding company disguised as an international scientific and philanthropic association, which he called the International African Society. In 1876, under the auspices of the holding company, he hired the famous explorer Henry Morton Stanley to establish a colony in the Congo region. Much diplomatic maneuvering resulted in the Berlin Conference of 1884–85, at which representatives of fourteen European countries and the United States recognized Leopold as sovereign of most of the area he and Stanley had laid claim to. On February 5, 1885, the result was the Congo Free State (later the Belgian Congo, then the Democratic Republic of Congo, then Zaire, and now the Democratic Republic of Congo or DRC again, not to be confused with Republic of the Congo), an area 76 times larger than Belgium, which Leopold was free to rule as a personal domain through his private army, the Force Publique.

Forced labor was extorted from the natives. The abuses were particularly bad in the rubber industry, including enslavement and mutilation of the native population. Missionary John Harris of Baringa, for example, was so shocked by what he had come across that he felt moved to write a letter to Leopold's chief agent in the Congo: "I have just returned from a journey inland to the village of Insongo Mboyo. The abject misery and utter abandon is positively indescribable. I was so moved, Your Excellency, by the people's stories that I took the liberty of promising them that in future you will only kill them for crimes they commit."

Estimates of the death toll range from two to fifteen million although most sources indicate it was around ten million.[2] By 1896 the sleeping sickness had killed up to 5,000 Africans in the village of Lukolela on the Congo River. The mortality figures were gained through the efforts of Roger Casement, who found only 600 survivors of the disease in Lukolela in 1903.[3]"


PS I would much rather that the citizens of Ukraine were able to make their own wealth legally and be unafraid of it being 'stolen' by others, than have to depend on someone else's charity. Judicial and liberal economic reform today !

Taras said...


The link between image and income varies, depending on the public’s leverage and the company’s risk-return tradeoff.

For McDonald’s — the company that symbolizes America and globalization — the link can be strong.

Nike and Google both had human rights problems. Due to their different business models, they handled them differently.

Still, in a tight market characterized by increasing commoditization, being a good citizen can be a source of competitive advantage — or disadvantage.

For non-Western tycoons, image can translate into psychic income: winning or losing the respect of the Forbes crowd.

That creates a window of opportunity for the public to raise the ante on social responsibility.

The quantity of charitable activities should meet the challenges that Ukraine faces in the 21st century. The quality should be people-oriented, not public relations-oriented. (If the former requirement is met, the latter will follow.)

Paternalistic and paltry handouts — used as a shelter/smokescreen for stabilnist — will do Ukraine no good.

In other words, social responsibility means systemic reform, period.

Luida, thank you for the great cautionary tale!

It prompts us to think of ways that societies should resist the Trojan Horse of pseudo-philanthropy — as opposed to true philanthropy.

Ukraine should learn from Congo to make her own banana republic heritage history.

elmer said...

Taras, when a person buys a car, or shoes, or cell phones, does that purchase depend on whether or not the company, or any of its personnel donate to charity?

Everyone in Ukraine wants a BMW, a Mercedes, and Luis Vitton or other brand name clothes or goods. They don't give a hoot about charitable donations.

I think we can all agree that Luida hit the nail exactly on the head - short, direct and to the point.

To wit:

"I would much rather that the citizens of Ukraine were able to make their own wealth legally and be unafraid of it being 'stolen' by others, than have to depend on someone else's charity. Judicial and liberal economic reform today !"

Boom! Bam! Exactly!!!!!!!!

What exactly has Akhmetov promised?

And what good came out of his "first two stages of charity"?

He claims this is now his "third stage of charity."

What happened during the purported first two?

I hope he follows through, but I think it's more BS from a thug who is trying to cover up his thuggery.

Akhmetov is right about "systemic changes," though.

Except that as to "systemic changes," I'm with Luida, and not Akhmetov.

Taras said...

Social responsibility cannot be reduced to charity.

With the global economy on the verge of recession, industry and consumer boycotts can be a powerful tool of influencing politically sensitive trade items such as metals.

A recession, of course, would be a bad time for IPOs.

Anyway, as far as I know, he claimed that his second stage of charity centered around his Foundation. In his third stage, he takes “personal responsibility.”

To carry the concept further, the public needs to link his personal and corporate image (brand equity) to the progress report on how much systemic change he has spearheaded. His performance evaluation should come from a public with a high level of awareness and activism.

It’s the only win-win solution. Unless he gives back — and does it generously, in a way that meets Ukrainian society’s long-term needs — he will get no credit. It’s up to him whether to take responsibility today or to be held responsible tomorrow.

Anonymous said...

Another cautionary tale

"After a full century of insisting that their peculiar value to society is the ability to get to root causes of, and decisively solve, social problems, how have foundations performed? For a field so insistent that its grantees show demonstrable outcomes, philanthropy in fact has precious little to show for itself. One hundred years ago, at a time when the federal government’s presence in social policy was insignificant, foundations did in fact play a major role in establishing the institutions and professional structures of medicine and public health, with considerable pay-off when it came to combating diseases like yellow fever and hook worm. Later, scientific developments in agriculture supported by the large American foundations produced the “Green Revolution,” saving millions from starvation. But when it comes to social—not medical or agricultural—problems, the record of philanthropy is abysmal.

Here, philanthropy has largely tinkered around the edges of the de livery systems of the social welfare state, fine tuning this program, replicating that one, and rearranging existing services into new combinations. That may be commendable work, but it’s hardly how philanthropy justifies itself. It claims rather that the ungodly bright deserve the privileged position of grantmaking leadership because they don’t tinker, but rather cut directly to the source of significant social problems, grasp their cause, and solve them once and for all—just as hookworm was decisively eradicated in large parts of the South. And this is precisely where philanthropy has such a feeble record. It would be difficult, if not impossible, to name a single social problem—even an insignificant one—the roots of which philanthropy has laid bare and solved.

Even worse, philanthropy has on at least one occasion followed what looked like a root cause in a particularly monstrous direction. Early in the 20th century, the new science of eugenics recommended itself to Andrew Carnegie, John D. Rockefeller, and his son “Junior,” precisely because it appealed to their “root causes” aspirations. Just as tracking physiological diseases back to germs had begun to eliminate root causes of medical ailments, so tracking social pathology—crime, pauperism, dypsomania, and moral laxity—back to defective genes would allow us to attack it at its roots. Indeed, suggested prominent progressive scholar Charles Van Hise, “We know enough about eugenics so that if the knowledge were applied, the defective classes would disappear within a generation.” They would disappear because the eugenicists had set out to persuade the state to confine and sterilize the unfit. As Junior noted, this was the only “scientific way of escape from the evils” to which bad genes gave rise.

From the perspective of philanthropic eugenics, the old practice of charity—that is, simply alleviating human suffering—was not only inefficient, it was downright harmful. As birth control heroine Margaret Sanger (another Rockefeller grantee) put it, America’s charitable institutions are the “surest signs that our civilization has bred, is breeding, and is perpetuating constantly increasing numbers of defectives, delinquents, and dependents.” ...

What might a new approach to philanthropy look like? It would start by challenging the central premise of 20th century philanthropy that the ungodly bright are somehow better equipped to solve society’s problems than are everyday citizens. The notion that citizens themselves could and should play a central role in solving their own problems is, of course, reflected in Alexis de Tocqueville’s understanding of American democracy. The great danger of the new age of democracy, in his view, was that citizens would become too absorbed with narrow, materialistic pursuits to pay attention to public affairs, and would be willing to turn over their affairs to management by bright, benevolent elites. That might result in a smoothly operating and efficient social service delivery system. But it would also mean an ominous concentration of power in a few hands, as well as a gradual impoverishment of the spirit or soul of the democratic citizen, as he lost the capacity or the desire to engage with—and to be enlarged by—vigorous encounters with other citizens of differing backgrounds and opinions. ...

Perhaps foundations wishing to pursue an alternative to leadership by the ungodly bright could build their giving instead squarely on Tocqueville’s insight. They could redirect funding to programs that originate with the views of citizens at the grassroots, with their understanding of the problems they face, and how they wish to go about addressing them. Solutions tailored by citizens who actually live with the problems are more likely to be effective for their own neighborhoods. Community ownership insures that these approaches will be supported and sustained over the long haul, rather than provoking the sort of resistance that often greets programs designed by remote experts and “parachuted” into neighborhoods. Perhaps most important, the process of formulating and proposing solutions to their own problems cultivates in citizens the skills essential to democratic self-governance—the ability at first to endure, but finally perhaps to relish, the messy, gritty process of deliberating, arguing, and compromising demanded by American democracy’s conviction that all citizens are to be treated with dignity and respect. This is at some remove, indeed, from Warren Buffett’s preference for a kind of philanthropy that would insulate him from being “too involved with a lot of people I wouldn’t want to be involved with and [having] to listen to more opinions than I would enjoy.”

Tocquevillian or civic renewal philanthropy would reach out quietly but actively into the communities it wishes to assist, harvesting “street wisdom” about which groups genuinely capture a community’s self-understanding of its problems. Such groups will more than likely have duct tape on their industrial carpeting and water stains on their ceilings. They will not be able to draft clever, eye-catching libertying brochures or grant proposals. They will not have sophisticated accounting systems, or be able to lay out a schedule of measurable outcomes. They will not speak the language of the social sciences, but more often than not, the language of sin and spiritual redemption. They will not be staffed by well-paid credentialed experts, but rather by volunteers whose chief credential is that they themselves have managed to overcome the problem they are now helping others to confront. No matter what the group’s formal charter states, it will minister to whatever needs present themselves at the door, even if it means being accused of inefficiency or mission drift. For each person is treated not as an inadequately self-aware bundle of pathologies, but rather as a unique individual, a citizen possessed of a soul, demanding a respectful, humane response to the entire person. ..."

Unfortunately what is being imported to Ukraine is the age old concept of philanthropy (which is being readily accepted by individuals eager for acceptance and ways to increase their reach and profits) and not the newer trends for ex. social entrepreneurship or microfinance.


Taras said...

Thank you, Luida! You nailed the subject from A to Z.

We really need to get our philanthropists to read up on this stuff, or they will go about it in the old-fashioned way, as described.