Corporate social respons

Table of Content

This Paper will examine the relationships that exist between the media and corporations such as Lukoil. Nowadays, with the growing importance of Corporate Social Responsibility it is essential to make sure that the CSR activities take place and are adequately covered by the media.

This master’s thesis will give the summary of the term CSR and reveal the current tendencies of it in the corporate world. It is necessary for public relations people to keep up with the ever-changing business world and be aware of the acute social issues of the modernity. This paper will contribute to their understanding of what CSR is and how it matters for the businesses and the society. But not only will this study sum up the existing knowledge on the subject but also it has the purpose of adding to this knowledge by showing how mass media coverage can make or break the CSR image of the company.

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While substantial research has been done concerning different aspects of CSR, there is a distinct lack of sustained research into CSR’s relationship to mass media. As one of the most important stakeholders, the news media manage the corporate reputation and could not be overlooked.

Taking the biggest Russian oil company as an example, this study will show how CSR should be an integrated strategy undertaken by the company and how it has to be more of a lifestyle of the management rather than just the well-written corporate documents for the public to read. The reason behind choosing the oil industry in this paper is that it has not been discussed in CSR literature thoroughly enough, which is unfair considering the challenging aspect of it for the PR person. The modern environmental issues and unpredictable nature of oil business itself makes it really hard for the PR department to develop and maintain the mutually beneficial relationship with the public following the professional code of ethics and personal moral values. The hardest part of work of PR people is to present the corporate documents and regularly update them to make sure they match the reality and are perceived, shared and trusted by the community. By screening the current media releases one can understand if the corporate documents match the reality or not.

In this paper I will examine the internal CSR documents of Lukoil, which can be found on the corporate web site, as well as the media pieces that present the outsider’s view on the same topic. The research question will be the following: How the normative standards of the company are being reported in the media?

Objectives of the Study

To find out how Lukoil’s normative standards are being reported in the media.

To find out whether Press thinks Lukoil is being socially responsible or not.

To find out if Lukoil is properly implementing its CSR policies.

To find out whether Lukoil should reexamine the implementation of its CSR policies.

International Overview of Oil plus the Politics of Oil

To really benefit from this study, sufficeth that it cites sources for the data which provides the world’s overview of oil. This Paper will not quote any more, any data which would otherwise contribute more to present and future misconceptions or misperceptions of the world’s oil (Capital, 2004; Fuel Focus, 2007; MBendi, 2001; Winter, 1996).

However, for emphasis, quoted here is that series of very important and related equations of:

“Produced + Reserves = Discovered

Reserves + Yet-to-Find = Yet-to-Produce

Produced + Yet-to-Produce = Ultimate” (Campbell, 1997). even where the definition of reserves depends on which oil player will be using it (Capital, 2004; Fuel Focus, 2007; MBendi, 2001; Winter, 1996).

It is because any Organization of Petroleum Exporting Countries or OPEC member jacks up his reserves to allow him to increase his present and available production more. However, there is no way to verify the actual availability of country-to-country reserves (Capital, 2004; Fuel Focus, 2007; MBendi, 2001; Winter, 1996).

By backtracking, this condition historically paved the way, in order to counterbalance the OPEC, by the other countries setting up the Organization for Economic Co-operation and Development or OECD, which tried as much as possible to negate the adverse effects of the OPEC oil cartel (Capital, 2004; Fuel Focus, 2007; MBendi, 2001; Winter, 1996).

But the most important issues here for the world’s oil are these three facts.

First fact is that based on the Hubbert’s Peak or a lucky scientific prediction, the United States domestic production of oil has already peaked in 1975. By that time, the United States if it continues, as it should inevitably continue to produce more oil will only further deplete its ultimate supply. Hence, the United States’ increasing reliance for its oil from anywhere in the world sends mixed signals to every one of every dire imaginable implications and consequences (Deffeyes, 2001; MBendi, 2001).

Second fact is everyone’s guessing when the world’s oil peak would be reached. Very reliable and very conservative estimates peg it sometime near 2010. After that time, experts claim that even if “major” finds are found, supply time can only come still after 10 years yet (Deffeyes, 2001; MBendi, 2001).

Third fact is governments with the help of media are in concert not playing this “doomsday” scenario up. Worse, alternative sources are not really very seriously implemented at all. Aggravation is added in that uninformed, ill-informed, or misinformed individuals all over the world nonchalantly go about their usual business, oblivious to serious backlash of sudden skyrocketing oil prices due to ever decreasing supply (Deffeyes, 2001).

Overview of Russian Oil

Russia, very well knowing the situation above, gears itself up to become a major player of sorts to provide the much needed shortfall of world’s oil, in exchange for hard currencies plus, for example, political muscle-flexing in the entire European landscape. A few years back as Russia did make its importance felt by its withholding energy supplies to Europe, the European Union, EU, then was taken aback and finally took notice of Russia’s inevitable growing international energy clout (Corporation, 2006; FindArticles, 1998; Killen, 2007).

If that surprises you, then think again about these facts:

President Vladimir Putin’ claim for Russia’s ambition is to become the world’s leader in the energy sector is anything but empty. Thus, in 2005 with very high world oil prices, the Russian economy will then continue to rely further on its energy exports. While Russia does have verifiably significant oil reserves, still its world’s largest proven natural gas reserves are largely undeveloped. Truth of the matter is that Russia lacks the much needed foreign investments to properly develop all its potentials on oil production, gas distribution, petrol yield productivity, trans continent pipeline expansion, power generation, and even ongoing build up of new nuclear reactors, locally and abroad (Corporation, 2006; Engineerlive, 2007; FindArticles, 1998; Marchenko, 2006).

Overview of Lukoil Operations

Within Russia, the major oil companies in descending order are Lukoil, Yukos, Surgutneftegaz, Tyumen Oil Company, Tatneft and Sibneft. However, when it comes to joint ventures, Gazprom and Rosopprom should be included in the list (Engineerlive, 2007).

What happens to Lukoil, happens not only to the Russian oil and gas industry but to Russia as well (Global Insights, 2007; Line, 2006), as the saying goes. Responsible for 25 per cent of all Russian oil production and 18 per cent of its refining, Lukoil is Russia’s largest oil producer employing more than 130 000 people (Engineerlive, 2007).

Moreover, the company claims to have the largest oil reserves of any single company while doing business in 40 regions in Russia (Marshall, 2007; Watson, 2007c; Writer, 2007) and operating in 25 other countries (Davis, 2006a, , 2006b; Hill, 2007; Killen, 2007; Marshall, 2007; McNamara, 2007a, , 2007b, , 2007c; Stewart, 2006a, , 2006b; Watson, 2007a, , 2007b, , 2007c, , 2007d; Writer, 2007) with the continuing acquisitions of more than 2500 petrol stations (Davis, 2006a, , 2006b; Hill, 2007; Marshall, 2007; McNamara, 2007a, , 2007b, , 2007c; Stewart, 2006a, , 2006b; Watson, 2007b, , 2007c; Writer, 2007) around the world (Engineerlive, 2007).

Lukoil further received a boost recently with the completion of a favorable evaluation of its oil and gas reserves by US company Miller and Lents (Engineerlive, 2007).

Corporate Social Responsibility or CSR in General

As Lukoil becomes more and more the major player it is destined to be, like other numerous corporations before it, Lukoil cannot escape essentially the notion that if corporate social responsibility or CSR can neither make or break a company—at least improperly implemented CSR can eat up a company’s revenues (Baker, 2007; Baskins, 2005; csrnetwork, 2007; Khodorova, 2006; Poussenkova, 2006; SA, 2006).

Therefore, corporate social responsibility comes to some as:

“… how companies respond to the agenda for corporate citizenship – the growing need to manage issues that affect their business reputation – and to respond to the growing needs and concerns of a range of different stakeholders” (Baker, 2007).

So that companies could manage issues that affect their business reputation and so likewise that a range of different stakeholders can respond to their ever growing needs and concerns, it is noteworthy that Mr. Mallen Baker in (Baker, 2007), as Development Director for Business in the Community, put up a new community-based Swicki search facility that aims to give the best, most relevant, results for such search in (Baker, 2007).

That a recent global study by the OECD showing that emerging market companies already realize and do in fact voluntarily adopt corporate social responsibility show that evidently and obviously consumers, as one of the company stakeholders who are ultimately the customers or clients of these companies, then do have their say in the company’s reputation, therefore any future company success (Baskins, 2005).

Corporate social responsibility as the company’s triple bottomline also only means that the company is fulfilling its corporate, social and environmental responsibilities (Baker, 2007; csrnetwork, 2007; Khodorova, 2006; Poussenkova, 2006; SA, 2006).

Public Relations, PR

Where and when public relations disparagingly means “image shaping” to generate positive publicity or enhance one’s reputation; or the dissemination of information cynically as “spin doctoring”; or that as “advertisers lie about their product, public relations people lie about their company” (Princeton Review, 2007); however, all of those conditions should have ideally no place with in a company’s sphere of corporate social responsibility (Yudkin, 2007).

Why some companies combine their CSR activities with their PR unit is all too obvious. Properly implemented CSR does improve one’s image, generates positive publicity, enhances one’s reputation, and disseminates information effectively.

Where early and pioneering public relations or PR, outfits or companies were merely for further successfully building up the image of their client corporations (Creamer, 2006); moreover some public relations companies specialized in strengthening specifically their client corporation’s corporate social responsibilities such as from above the example of csrnetwork especially with its work on with Mittal Steel (csrnetwork, 2007).

The Silver Anvil, the much coveted public relations award of excellence for over 50 years, is given to companies which have forged public opinion by their successfully addressing a contemporary issue with exemplary professional skill, creativity and resourcefulness through their complete programs incorporating sound research, planning, and execution. Maybe these citations could be the closest to approaching properly implemented corporate social responsibility as well (Ketchum, 2007).

Review of Literature

(Please insert the Review of Literature on CSR you have done)


Theoretical Considerations of Content Analyses

Like any other tool, the various available methods for content analyses are applied depending on what the purpose of the analyses will be (Audiencedialogue, 2004; Stemler, 2001; University, 2007).

For example, for voluminous sources of documents, it would be wise to apply more the quantitative aspects of analyses so as to determine the endpoint of what all the resources want to say. To date, there are even now new computer softwares which are able to quantify how many times a word, for example, appears in any given set of documents. However, any amount of quantification is meaningless without relating those figures to what the whole picture should be all about (Audiencedialogue, 2004; Stemler, 2001; University, 2007).

Thus, aptly put, each reference document when properly identified as to the nature of the document, what it is saying or what it does mean—and most importantly to point out the possible implications or consequences of its effect on all those concerned Lukoil stakeholders may perhaps be the whole essence and the truest exercise of the phrase content analysis. This part of the activity of correctly describing such reference documents is the descriptive phase or the qualitative aspects of content analysis (Audiencedialogue, 2004; Stemler, 2001; University, 2007).

The extent and to the degree that content analysis will be applied to a given set of documents must always return to the purpose for which such content analysis is being conducted (Audiencedialogue, 2004; Stemler, 2001; University, 2007).

Thus, this author can only consider it a brazen exercise in futility if sincere, true, and honest-to-goodness content analysis will only be shelved. Much hard work put upon a Study or Paper like this one deserves that the beneficiary be benefited so that, through that individual or entity can act/react appropriately and accordingly for the good of all.

Definition of Terms used in the Study

Corporate Social Responsibility as defined here generally is “a comprehensive set of policies, practices and programmes that are integrated throughout business operations, and decision-making processes that are supported and rewarded by top management” that represent business’ response to the expectations of the society” from “Corporate Social Responsibility of Russian Oil Companies: Driving Forces Behind Corporate Social Responsibility in Russia or Why Russian Oil Companies Behave Responsibly” of;

Content Analysis as defined here is “any technique for making inferences by objectively and systematically identifying specified characteristics of messages” from “An Overview of Content Analysis” of;

Internal Documents as defined here are all documents emanating from Lukoil;

External Documents as defined here are all documents not at all prepared by Lukoil;

Stakeholders of Lukoil as defined here are the economic agents, social groups, and state authorities that the business affects and which may in turn affect the business, from Social Code of OAO LUKOIL of;

Economic Agents as defined here are the Lukoil stockholders, boardmembers, executives, managers, and employees;

Social Groups as defined here are the people in the communities which live in the environments where Lukoil operations are located; and

State Authorities as defined here are the people in government, especially those with regulatory powers.

Procedural Flow

Given the above present historical setting of Lukoil, how best would it be to objectively source out news items on Lukoil for a study in content analysis?

Since Lukoil is a state-influenced company, obviously, news items from the Government will only be favorable to Lukoil. Even then news items must be narrowed down to those pertaining specifically to Lukoil and to CSR.

Hence, “Lukoil in Corporate Social Responsibility” was typed into the Google Search engine for results.

All resource reference documents will be broadly classified into 2 categories from the point of view of Lukoil: Internal Documents coming from Lukoil and External Documents, not prepared by Lukoil, but must still pertain to CSR of Lukoil.

Each document will be sorted out as to type of document; nature of document; issues or concerns tackled in the document; possible outcomes, positive or negative, to Lukoil stakeholders; overall document effect, favorable or unfavorable, towards Lukoil.

As the situation allows, results of only a very simple quantitative aspect of the content analyses will be undertaken.

This critical evaluation of Lukoil CSR due diligence, given the document situation and conditions, will be the qualitative aspects of this content analysis.

The presentation of the findings and results will be followed by the evaluation/analyses and discussion and finally by the Paper’s Insights or Recommendations.

Limitations of this Study

Due to sheer lack of material time, it could no longer be the scope of this Study to verify nor confirm the veracity or the truthfulness of the statements of the Lukoil Internal Documents.

Sufficeth it to say that much inference through common sense, much logical reasoning, or even justification when very necessary, were all taken into consideration in determining the value of the Lukoil External Documents.

Results and Discussion

            The results of the content analysis is divided into two parts. Part One is evaluation of internal documents, that is documents produced by Lukoil which pertains to its corporate responsibility and Part Two is the evaluation of media accounts about Lukoil and its operation.

Part One: Internal Documents of Lukoil as Type of Documents

Lukoil was able to carefully prepare the Internal Documents because they are company documents which should be mainly for the consumption of its employees. However, in the name of transparency and CSR, most company documents should be now up for very close scrutiny by all the public.

A word of caution though, that the more the company documents are carefully and beautifully worded; there then appears that one word cherished by all employees. That word is “hope”, hope in that the company will live up to what it is written towards its promises to its employees.

Could Lukoil be any different from other companies?

Document No. One

“Personnel Management Policy”, 2003, Lukoil Oil Company (Company, 2003),

Nature of Document

Document No. One coded as 1 for a Company Document, within an open website, that spells out the company policy on the human resource management aspect of its company employees or personnel.

Two Issues or Concerns Tackled by the Document

Coded as 1 – Lukoil’s highly valuing its employees

First, Lukoil rightfully relies very heavily on its very valuable 150,000 specialists working in more than 60 regions of Russia and 30 countries of the world spanning four continents to attain its company goals and objectives.

Coded as 2 –

Lukoil’s desire to become industry leader in its field of world’s largest energy companies

Second, by defining criteria for results evaluation and creating a rewards and incentives scheme within a human resources management system, Lukoil plans to become one of the leaders among the largest energy companies in the world as well as a “preferable employer” in the labor market.

Possible Outcomes, Positive or Negative, to Lukoil Stakeholders:

Economic Agents, Social Groups, State Authorities

It may not be so much sheer size alone but its multi-nationality that Lukoil is poised such a challenge. With the mission statements and systems in place, stakeholders themselves would be very happy that such policies do guide Lukoil in its many endeavors.

Over-All Document Effect on Lukoil

This document has an over-all favorable effect on Lukoil.

Document No. Two

“Social Code of OAO Lukoil”, 2003, Lukoil Oil Company (Company, 2002),

Nature of Document

Document No. Two coded as 1 for a Company Document within an open website comprehensively detailing the Social Code of conduct to be followed by the Lukoil Company.

Two Issues or Concerns Tackled by this Document

Coded as 3. – Lukoil’s management commitment to all its shareholders

The Social Code of OAO Lukoil, from the numbered sub-headings quoted here in full as self explanatory, comprehensively details Lukoil’s commitments by dividing the Code mainly into 3 parts, namely:


1.1. Socially Responsible Settlement of Issues of Labor, Employment and Labor-Management Relations

1.1.1. Socially Responsible Restructuring

1.1.2. Labor Remuneration and Motivation Policies

1.1.3. Industrial Safety; Labor and Environmental Protection

1.1.4 Social Policies regarding Young Employees

1.2. Quality of Work and Life Conditions for Employees and Their Families

1.2.1 Health Protection

1.2.2. Recreation, Sports, Physical Culture and Leisure

1.2.3. Housing Policies

1.3. Harmonizing Occupational and Family Duties

1.3.1. Additional Days of Rest and Holidays

1.3.2. Social Support of Large Families and Disabled Members

1.4. Corporate Social Security and Insurance

1.4.1 Voluntary Health Insurance

1.4.2. Non-State Pension Support

1.4.3. Corporate Personal Insurance System

1.5 Social Support of Disabled Workers and Non-Working Pensioners of LUKOIL Group Organizations

1.5.1 Social Support for Non-Working Pensioners

1.5.2. Social Support for Victims of On-the-Job Accidents and Job-Related Illnesses

1.5.3. Social Support for Non-Working Disabled Workers

PART II. SOCIALLY RESPONSIBLE PARTICIPATION IN SOCIETY 2.1. Development of Single-Industry Settlements

2.2. Environmental Protection Activities

2.3. Development of Science, Education, Technology, and Innovation

2.4. Preservation of Distinctive National Cultures

2.5. Support for Culture and Sports

2.6. Promotion of Social Groups and Public Associations in

Need of Support

2.7. Charity Activities of the Company and Its Employees

3.1. Ongoing Control over Social Expenditures

3.1.1. Mechanisms of Control over Corporate Pension Expenditures

3.1.2. Control over Consumption of Medical Services in the Corporate Healthcare System

3.2. Optimization of Social Infrastructure Maintenance

3.2.1. Forms of Participation in Maintenance of Social Facilities

3.3. Improving the Efficiency of Social Services

3.3.1. Outsourcing of Social Services on a Competitive Basis

3.4. Implementation of Joint Financing Principles

3.4.1. Employee Participation in Corporate Social Insurance and Provision

3.4.2. Joint Payments of Employees, their Family Members, and the Local Population for Using the Social Infrastructure of LUKOIL Group organizations

3.4.3. Long-Term Mortgage Lending

3.4.4. Participation in Social/Economic Development Programs Stipulated by Municipal, Regional and Federal Budgets

3.5. Increase of Intangible Assets

3.5.1. Socially Responsible Investment

3.5.2. Social Aspects of Business Reputation

3.5.3. Socially Responsible Relations with Contractors and Suppliers “ (Company, 2002).

Coded as 4 – Lukoil’s financial commitment to fund this Social Code

Here is another quote, much shorter but otherwise as packed with meaning as above

“The Company shall do its utmost to meet the commitments in this Social Code, regardless of the economic situation in Russia and the world” (Company, 2002).

The above quote is almost impossible to believe having no business sense at all.

When Russia’s economy gets into the doldrums, then it will become simply a “to see is to believe” situation here.

Possible Outcomes, Positive or Negative, to Lukoil Stakeholders:

Economic Agents, Social Groups, State Authorities

This very impressive Social Code if it can only be interpreted and applied appropriately should give everyone fulfillment of his expectations of Lukoil.

Over-All Document Effect on Lukoil

This document has an over-all favorable effect on Lukoil.

Document No. Three

“Social Report of OAO Lukoil”, 2005, Lukoil Oil Company (Company, 2005b),;; and

Nature of Document

Document No. Three coded as 1 for a Company Document, in an open website is a compilation for years between 2003 t0 2004 of the past achievements and future plans of Lukoil.

Two Issues or Concerns Tackled by this Document

Coded as 5 – Lukoil’s 2003 to 2004 accomplishments

Lukoil’s 2-year accomplishments from years 2003 to 2004 are contained in its first ever Social Report or Sustainability Report as of Year 2005.

Accomplishments in the Report have also been covered in this Paper as Document Nos. 1, 2, 4, 5, 6, 7, and 8.

From the President’s Message, he acknowledged the very heavy responsibility that an oil company carries from using raw natural resources to making consumer items end-products. In the end he is dedicating his efforts towards achieving the economic goals of Russia.

By this Sustainability Report and the coming out of the Lukoil Social Code, he declares as the realization of Lukoil ever since having believed in and already practised Corporate Social Responsibility.

Coded as 6 –

Lukoil’s future plans

Lukoil strives to improve its capabilities internally and externally, expanding more its operations yet working within the peaceful and secure bounds of civil society.

Possible Outcomes, Positive or Negative, to Lukoil Stakeholders:

Economic Agents, Social Groups, State Authorities

Outright reading the Report can allow a stakeholder to have a firmer grasp of the whole complex operations of Lukoil.

Over-All Document Effect on Lukoil

This document has an over-all favorable effect on Lukoil.

Document No. Four

“Charity and Social Activities”, 2007, Lukoil Oil Company (Company, 2007a),

Nature of Document

Document No. Four coded as 1 for a Company Document within an open website is about Lukoil’s Charity and Social Activities.

Two Issues or Concerns Tackled by this Document

Coded as 7 – Lukoil’s past involvements in its Charity and Social activities

Charity and Social Activities

Social investment programs

Support for Children’s Homes and Educational Institutions for Children

Financial, material, and equipment assistance to maintain infrastructures which serve as homes for children provided already for over 50 children’s homes. Additional support was given in the form of training materials, medications, guidance, graduates receiving their education, improving their health, mastering their profession, and getting settled in life.

Every year, summer recreation, educational tours, and winter holidays, and New Year’s gift-giving are arranged for children. Even an Agricultural Boarding School teaching theory and practice is supported. Orphan problems have not escaped the eye of Lukoil support. While many children get to be eventually adopted, many orphaned children get to graduate to professional careers. Not only handicapped and disabled children have been helped, but children‘s rehabilitation centers have been put up as well.

Educational and Scholarship Programs

Lukoil finances cooperating Universities prepare young qualified and talented specialists supported by Lukoil to be trained eventually for the Russian oil industry. This Program is further planned to begin from young people’s school years.

Teachers to Preserve the Scientific School

A name grant program to support 45 young talented teachers from the country’s leading oil universities is being supported.

Development of Material and Technical Infrastructure of Universities

Financial, material, modern textbooks, and updated equipment support were already given to Universities to strengthen them.

Support for Medical Institutions

LUKOIL assists medical services development systems and supports a number of major specialist medical research and development centers even towards reconstructing a medical building.

Social Projects Contest

Over the past five years at many sites, the Company has not only been holding corporate contests for social and cultural projects, but even funding those projects which have won.

Sponsorship and Charity Programs

Preserving Cultural Heritage

Support for Museums and Performing Arts

LUKOIL already supports and finances many major Russian museums, orchestras, the country’s leading theaters, exhibitions, constructing new concert hall, restoration operations, renovating memorial installations for dead Soviet fighters, performing arts organizations, and choreographic ensembles

Publishing Projects

LUKOIL readily publishes literature and materials for museums, publishing houses, research organizations, and individuals.

Supporting Religious Groups

Lukoil participates in rehabilitating religious and cultural traditions, restoring and developing Russian religious, spiritual, church, monastery, friary, cathedral, and temple centers, and provides special support to organizations whose activities involve civil society commitments.

Target Help

Support for war veterans, honorable ex-workers, physically challenged and

socially vulnerable groups of people

Company war veterans, alive or dead with their families yearly receive special allowances and presents from the Company.

The Company challenges the physically challenged to engage their know-how in tasks they could be productive in, such as the Company equipping sewing workshops.

Traditional Trades Rehabilitation Program

The Company for some years already has set up schools for traditional trades master classes and workshops on styling, effective retail trade channels structuring, marketing and new production lines have been organized.

Support for the people of the Far North

The Company desires that the indigenous and minority population of the Far North may graduate from charity to predominantly economic productivity activities in conjunction with special programs such as housing, material compensation for land use including money and commodities such as snowmobiles, boats, chain saws, hunting tools, fuel and lubricants and fishing tackles. Other programs include deer breeding or organizing Deer Days.

Coded as 8 – Lukoil’s company policies on its Charity and Social activities

Lukoil’s social and charity programs are part and parcel of its ongoing corporate operations viewed strategically by the company as social investment and sponsorship and traditional charity programs.

These programs are implemented in place or in situ in continuing cooperation with and jointly by the government, business community and society in the localities concerned.

Lukoil makes sure that its Charity activities do not create social dependency but such activities should lead towards productive economic activities especially for those beneficiaries concerned.

Possible Outcomes, Positive or Negative, to Lukoil Stakeholders:

Economic Agents, Social Groups, State Authorities

Although even viewed as a social investment on the part of Lukoil, the value of the assistance can be correctly deemed priceless by any beneficiary. Therefore, the goodwill that is spread rubs off on everyone especially to the stakeholders who can only be overwhelmed by these good vibes created by Lukoil’s generosity.

Over-All Document Effect on Lukoil

This document has an over-all favorable effect on Lukoil.

Document No. Five

“Sports”, 2007, Lukoil Oil Company (Company, 2007c),

Nature of Document

Document No. Five coded as 1 for a Company Document, within an open website is

Two Issues or Concerns Tackled by this Document

Coded as 9 – Lukoil’s past involvements in its Sports-related activities

Sports days

LUKOIL is particularly concerned about maintaining healthy lifestyle of its employees, that is why competitions in winter and summer sports are held in all of the regions of the Company’s presence inRussia.

Competitions in winter and summer sports were held in all Lukoil localities to maintain the healthy lifestyles of all Lukoil employees.

So far, already 3 Spartakiada Games or OAO Lukoil International Sports Competitions were already held: in Astrakhan in 2001, in Perm in 2003, and in Kaliningrad in June 2005 which were all supported by Russia’s Olympic Committee and the Federal Agency for Physical Culture and Sports of the Russian Federation.

For the third games, over 25, 000 employees according to their points of residences, first competed during qualifying rounds in the games of football, futsal, volleyball, swimming, track and field, chess, billiards, arm-wrestling, tennis, ping-pong, weight lifting and tug-of-war competitions.

“Spartak” football club, Moscow

LUKOIL as the primary sponsor of the Moscow “Spartak” football club tops the list of Russian football clubs with nine Russian championships including holder of the 2003 Cup of Russia and silver medals of the 2005, 2006 All-Russian Championship.

“LUKOIL-Dinamo”, handball

Handball sports club “LUKOIL-Dinamo”, one of the strongest Russian handball teams has a long record of outstanding victories as a gold medal winner of the 2002 Professional Handball League championship, silver medal winner of the 2003 European Handball Federation, vice-champion of 2005 Russia’s championship, champion of the 2006 professional handball league.

“LUKOIL-Spartak”, water polo

In 1994 “LUKOIL-Spartak”, a professional sports club, founded with OAO LUKOIL participation was 2004 champion of Russia, repeated Russia’s Cup winner and 1998 New York Good Will Games winner, a success with nine team members awarded with bronze medals at the 2004 Athens Olympic Games.

“LUKOIL-Bashkiria”, speedway, Oktyabrsky

“LUKOIL-Bashkiria”, for 6-years topping Russia’s speedway and global success due to Lukoil’s support towards professional technical training and company in house best technologies development, becoming 1999-2000 all-Russian champion, silver prize-winner of the European Champions Cup in cinder-track speedway, silver medal winner 2003-2004 Russia championship, champion of 2001-2002, 2005-2006Russia.

“LUKOIL Racing Team”, motor racing, Moscow

“LUKOIL Racing Team”, leader of the national motor racing sport, with nine seasons of motor racing brought LUKOIL over 60 best Russian and European titles, a record unmatched in USSR and Russian history.

With “LUKOIL Racing” involving highly professional management, school and racers’ career assistance, engineer complex providing development, construction, testing and preparation of racing cars for competitions include outstanding achievements by Mikhail Aleshin’s and Sergei Afanasyev’s second places in “Formula Renault 2.0” category at the championship in Germany and Switzerland.

“SURA” Sports Club, motocross, Penza

“Sura”, a sports club and masters’ team and organized in Penza in 1996, taking part yearly in over 40 competitions of different rank, undoubtedly the best in the country, as a 5 time champion in 1997, 1999, 2001, 2003 and 2005 and a 3 time silver medalist in1998, 2004 and 2006 of the Russia championship among masters’ teams of the Superleague, the main motocross competition in the Russian Federation.

Children’s football league

OAO LUKOIL supports Children’s Football League, one of Russia’s largest children’s sports organizations when yearly about 250 teams and over 5,000 football players compete throughout Russia’s regions. Children’s Football League since 2002 has been holding “LUKOIL Children’s International League of Champions”.

Ski racing

LUKOIL has been supporting the Russian national ski racing team, which performed well at the Nagano and Salt Lake City winter Olympics. From 2006 LUKOIL is the primary sponsor of the national ski racing team when in the 2006 World Championship the Russian national team won bronze medals as it also topped the list of nations at the Torino Olympic Games. The Russian national team can be proud of famous athletes such as Yulia Chepalova, Natalya Baranova, Evgenia Medvedeva, Larisa Kurkina, Olga Zavyalova, Vasiliy Rochev, Evgeny Dementyev, Nikolay Pankratov.

Olympic movement

LUKOIL when for many years, being an official partner of the Russian Olympic Committee, took active part in training Russian sportsmen for the summer 2004 Athens Olympic Games in 2005 the Company decided to start sponsoring the Russian Olympian Support Fund so that Russia’s Olympic national team members can fully concentrate on their training for the Olympic games.

Coded as 10 – Lukoil’s company policies in its Sports-related activities

The two key priority areas of Lukoil’s sports activities development are in:

Firstly, promoting the physical and health development and well-being of Lukoil’s employees and their family members and

Secondly, supporting Russian national professional teams and promoting Russian children’s sports.

Possible Outcomes, Positive or Negative, to Lukoil Stakeholders:

Economic Agents, Social Groups, State Authorities

Through Lukoil’s active support to Russian sports, it does make stakeholders proud that indirectly they are contributing to Russia’s future ensured success especially in winning international competitions.

Over-All Document Effect on Lukoil

This document has an over-all favorable effect on Lukoil.

Document No. Six

“Staff Retirement Plan”, 2007, Lukoil Oil Company (Company, 2007d),

Nature of Document

Document No. Six coded as 1 for a Company Document, within an open website is about Lukoil Company policy for its Staff Retirement Plan.

Two Issues or Concerns Tackled by this Document

Coded as 1 – Lukoil’s highly valuing its employees

By coming out with this staff retirement plan just goes to show how much value Lukoil considers its employees especially those the epitomes of company loyalty and hardwork.

Most companies do not give much of their attention on the future retirement of their employees.

Lukoil must know that an employee who chooses to serve his company well into his sunset years, Lukoil knows that that employee has given his best years of his life to Lukoil.

Through the Plan then, Lukoil emphatizes and shares with the employee the painful burdens which accompany compulsory retirement due to age.

Coded as 11 – Lukoil’s company policies in its staff retirement plan

If it is any indication that this Retirement Plan was judged as the best in Russia, then it must be very good.

Lukoil’s unifying the system of retirement establishes a standard by which everyone can judge situations and conditions fairly. Additional share of 2% monthly salary to the pension fund potentially increases further the possible amount and the stability that the retiree can expect to receive.

Possible Outcomes, Positive or Negative, to Lukoil Stakeholders:

Economic Agents, Social Groups, State Authorities

The end result of employees secured by their thoughts of a well-provided for future retirement are expected to work best in their environments and give Lukoil always the expected best performance output.

Over-All Document Effect on Lukoil

This document has an over-all favorable effect on Lukoil.

Document No. Seven

“Insurance Strategy and Policy”, 2007, Lukoil Oil Company (Company, 2007b), and

Nature of Document

Document No. Seven coded as 1 for a Company Document, within an open website spells out Lukoil’s Insurance Strategy and Policy.

Two Issues or Concerns Tackled by this Document

Coded as 1 – Lukoil’s highly valuing its employees

As any risk at a petrochemical plant will easily involve its employees, Lukoil has made sure its Insurance plan, strategy, procedures, and policies are very well in place as to further safeguard and protection to everyone.

Coded as 12 –

Lukoil’s company policies in its corporate insurance coverage

Insurance Strategy of and Policy of OAO LUKOIL and its Subsidiaries

The preponderance of risk associated with a petrochemical company does not deter Lukoil from its desire to become the leader in the industry. It has instituted the best risk and control management standards that can be made possible for insurance not to be called upon. A self-insurance system has even been set up for the Company itself to spend for expected calculated risks. However, beyond this precaution, it has also subjected to regular inspection and proper appraisal all Lukoil facilities should unfortunately once accidents do happen.

Insurance Policy of OAO LUKOIL and its Subsidiaries

Implementing procedures have been set up between Lukoil Management and its Board of Directors on implementing the insurance strategy which is the adoption of the appropriate insurance policies.

Insurance Protection of OAO LUKOIL and its Subsidiaries in 2004-2005

Due to improvement in Lukoil’s installations and plant safety, Insurance surveyors’ favorable findings showed that their recommendations were followed by Lukoil, as a result, insurance costs in 2005 became lower than in 2004.

Organization of insurance protection of OAO “LUKOIL” recognized the best in Russia

(same as in Document No. 18)

Possible Outcomes, Positive or Negative, to Lukoil Stakeholders:

Economic Agents, Social Groups, State Authorities

The continued safety and precautionary measures in place in all Lukoil subsidiaries reflect the stability with which Lukoil can continue to bring in the revenues for its stakeholders.

Over-All Document Effect on Lukoil

This document has an over-all favorable effect on Lukoil.

Document No. Eight

“Press Release, 27.10.05: Lukoil is a Winner of ‘Best Project Risk Management in

Companies and Financial Organizations’ Competition”, 2005,

Lukoil Oil Company (Company, 2005a),

Nature of Document

Document No. Eight coded as 2 for a Press Release, an internally-prepared Lukoil Document, within an open website explains why Lukoil won the award.

Two Issues or Concerns Tackled by this Document

Coded as 1 – Lukoil’s highly valuing its employees

This reward can only further remind Lukoil employees of the efforts made by their company to giving them the best, in that the Company’s Plans was found to be the best in all Russia

Part Two: Content analysis of selected media articles on

Lukoil’s corporate social responsibility

1.0. Lukoil corporate responsibility statement

            It was suggested that the extent and to the degree that content analysis will be applied to a given set of documents must always return to the purpose for which such content analysis is being conducted (Audiencedialogue, 2004; Stemler, 2001; University, 2007). In this content analysis several assumptions are made by the author to realize the objectives of this study.

            One assumption which guides the evaluation of the articles is that corporate responsibility is associated with corporate citizenship. As Baker (2007) phrased it:

 “… how companies respond to the agenda for corporate citizenship – the growing need to manage issues that affect their business reputation – and to respond to the growing needs and concerns of a range of different stakeholders (Baker, 2007).”

For this we need to phrase in a capsule the principles embedded in the CSR statement of Lukoil. The principles and guidelines on CSR of Lukoil is stated in Social Code Of OAO Lukoil formulated in 2002 in Moscow. According to the document the concepts and standard in the Social Code is binding to the Lukoil Group which is defined to include “the Company, its subsidiaries and the non-commercial organizations under its control.”

The general principles Social Code reflects the internal view of the company and encompasses several types of relationships.

1.1.Lukoil and Russia

            According to Lukoil, the contents of the Social Code are “predominantly supplementary to the legislation of the Russian Federation and international standards.”  There two items in this statement which needs further elaboration as it points to some leeway of self-management and even independence to the operation of the company. “Predominantly” implies that not all of the principles and concepts of Lukoil is supplementary to Russian legislation. Adherence to international standards is another clause which marks the multinational ambition of Lukoil. Operation of multinational corporations are in a grey area as defining relationship between states and corporations.

1.2.Lukoil and its employees

Lukoils statement of CSR includes major clauses on its relationship with employees and defines the rights and welfare issues. One item which could be construed as a statement of an adherence to democratic principles is the statement that the Social Code “neither abolish nor replace the results of collective negotiations with employees.”  Collective bargaining agreements are of the more popular democratic instruments available to workers and employees of companies in most democratic countries. An item for a review mechanism is also defined in this Lukoil document.

1.3.Lukoil and its shareholders, commercial partners and civil society

            The Social Code also include statement of responsibilities to shareholders and to its commercial partners. Likewise its commitments to the state and civil society are also included. The conception of CSR which was written in 2002 reflects a general trend of recognizing the partnership of the state or governments, corporations and the civil society – normatively described as being made up of social institutions like schools and churches, civic and development organizations as well as specialized organizations either by sector e.g. labor or by communities e.g. urban and rural communities.

A bold statement is also laid down by Lukoil perhaps reflective of its growing awareness of its role as a leading energy player in the Russian Federation: “the Company shall do its utmost to meet the commitments in this Social Code, regardless of the economic situation in Russia and the world.”

Such big words in the CSR statement of Lukoil we shall compare on how the media and press perceived Lukoil in relation to Lukoil performance as an emerging multinational corporate citizen.

2.0 Lukoil as perceived by the press and media

            Most of the articles reviewed in this paper are from electronic publications of respected papers and journals such as the Economist and Forbes magazines.  Each article is evaluated according to how the reports describes Lukoil according to the following criteria:  a) the performance or behavior of Lukoil on certain issues, concerns and themes; and  b) perception on Lukoil’s adherence to its stated social responsibilities.

            The content analysis is presented in the paper in chronological order. The earliest document reviewed is published in 1994. Thematic streams are identified along the way and so are major shifts as far as perception of the press and media reviewed in this study.

2.1. Review articles 1994

2.1.1.  Economist, Vagit Rockefeller, (1994 July 16)

            This article from the Economist, dated July 16, 1994 traces the rise to power of Vagit Alekperov, the first president of Lukoil. The interest of western media on Lukoil is understandable as according to this report, Lukoil in terms of proven reserves has equivalent of 15.7 billion barrels of oil comparable to Royal Dutch/Shell which has the right to proven reserves roughly equal to 17.5 barrels of oil.

            The article though quickly pointed the big difference. Royal Dutch/Shell was worth 94 billion USD or that was at that time, 5.36 USD per barrel. Lukoil was worth in 1994, in its first stage of privatization, amounting to about 850 million USD or five cents a barrel.  No wonder foreign investors and technology providers were interested in getting into the picture which may prove very lucrative indeed.

            Alekperov, appointed by the then president of the Russian Federation played a critical role in establishing Lukoil as corporation which was a result of the merger of three organizations engaged in oil production. The main task of Alekperov according to article was to convert from “ponderous bureaucracies” into profit driven companies.

            The article focused on the what it referred to as a three-part strategy to convert the reserves to oil products.

            The early years of Lukoil reflected a disarray in the oil industry in Russia. That despite of the huge reserve almost equivalent to the reserve of Royal Dutch/Shell.  Hence the first priority of Lukoil according to the article was to increase output.  Capitalization to develop the capability of the company depended on it as reflected in the following passage:

“The first priority is to increase output, which fell 15% last year and is expected to fall another 5% this year. At the-beginning of July Lukoil signed a deal to sell 70,000 barrels of oil a day to Chevron. The revenue from these sales will be used to guarantee a $700m loan from Mitsui, a Japanese trading house; this in turn will be used to finance the acquisition of equipment to get idle wells working again.”

To increase output, Lukoil, according to the article acquired other holdings mostly small oil companies operating on the lower Volga river and in Kaliningrad. It also bought 10 percent share in a consortium with British Petroleum to develop the rich oil fields of Azerbaijan.

It was apparent from the early years of Lukoil, that partnership with foreign companies was essential in its development into a true blue corporate power. That is if it could consolidate enough. According to the article, Lukoil was bent to do just this:

“Lukoil’s second ambition is to become more vertically integrated. it now operates two refineries in Russia and leases another in Lithuania. It is rebuilding the Russian ones and discussing building a new refinery near Novorossisk, on the Black Sea, with Asea Brown Boveri, a Swiss-Swedish engineering firm. Lukoil also plans to double the number of petrol stations it operates in Russia: it now has just under 1,000.”

The article pointed out that increasing output and vertical integration were not enough to complete the transformation of Lukoil. It had to consolidate control of oil trading and finance. The article cited that on July 7, 2004, Lukoil forbid its subsidiaries from selling their products independently. Lukoil became the holding company and consolidated power to its board of directors led by Alekperov.

The article pointed out that the expansion and consolidation of Lukoil required around 5 billion USD  covering a period of three years and that one half of this amount could be internally sourced by Lukoil but the rest has to come from foreign partners. Now heres, the rub according to the article, Lukoil has to turn its book from “Soviet gobbledygook” into international-standard accounts.  Lukoil hired an accounting firm to precisely do this.  The article cited Alekperov as declaring that “our goal is to make as many people as possible our investors. The company planned to sell its share to both Russian and foreign investors.

We take note that at this time, the Lukoil Social Code was not yet formally written. But the outline of stakeholders and shareholders mentioned in the Social Code were already actively involved in the operation of Lukoil. The article also pointed out that Lukoil was playing an influential role as power broker in Russian oil industry as this article suggested.

“Whatever the reason, Lukoil acts as a proconsul for the Russian government when it comes to negotiating with the other former republics of the Soviet Union. Lukoil has asked the Russian government to appoint it to co-ordinate all oil projects on the Caspian Shelf, where Russia is demanding that Azerbaijan, Kazakhstan and Turkmenistan should develop the fields on their parts of the shelf only with its consent.”

Lukoil in this article was being pictured as new corporation but with big ambitions and the clout to back up its claim for international legitimacy as corporate citizen. The article also outlined the players or the shareholders and stakeholders in the emerging company.

2.1.2.  So sue me. Forbes, 154(3), 91-91, Klebnikov, P., & Linden, D. (1994 August 1).

            This article on Forbes dated August 1, 1994 describes a law suit against Lukoil on the grounds of conspiracy, racketeering and corruption. Frankenburg Inc. according to the report was the first Western company to do workovers on Russia’s old oil wells. The gist of the accusation was that Lukoil was maneuvering to drive out Frankenburg from the Siberian market and that the Russian oil company was diverting business to another company secretly owned by top Lukoil executives.

            The article also included in its observation in this 1994 piece that corruption has been a complaint of Western companies operating in Russia. The perception glaring in this article was that Russian companies like Lukoil operates both at the level of parity and at the level of x-deals which is essentially a corrupt practice and self-serving on the part of people involved in such a scam.

            The article was essentially assessing the health of the company and it maintains that when the Soviet Union collapsed it gave way to a “whole new post-Soviet generation of wheeler-dealers” and who were essentially out to get to get their share of the emerging Russian dream of new capitalism. And the Russian oil industry was big enough to accommodate these young and aggressive wheeler dealears. The Siberian oil market is big enough.  The following passage from the article outlines how deals could go sour and how deals are sold to the highest bidder.

“In late 1991 Frankenburg signed a 300-well workover contract with a Lukoil affiliate. But in November 1992 Lukoil Vice President Vitali Schmidt informed Frankenburg that he did not know when or if he would be able to pay the balance due on it. Frankenburg stopped work, laid off its employees and later sold its equipment to Lukoil at cut-rate prices.

According to Tonisson, the cause of his troubles was that his protege, Juri Oiemets, had double-crossed him. The Frankenburg suit alleges that as early as July 1992 Oiemets secretly teamed with Lukoil President Vagit Alekperov and other Lukoil executives to form a pair of companies to transport oil equipment. Then Oiemets recruited former Frankenburg personnel into a new oil services company that was registered in the British Virgin Islands in January 1993 as L.O. Scandinavia Ltd.”

The conspiracy was according to the article completed with L.O Scandinavia was quickly given financing by Lukoil and awarded lucrative contracts. This case was ripe with intrigue as one of its protagonist, the young player Juri Oiemets was killed in a car crash in Estonia in November, 1994.

It should be noted that the article also pointed out to difficulty of doing business in Russia as it may lead to vague legal complications without clear venue for arbitration and resolution. The article definitely was not painting a rosy picture of Lukoil as a corporation socially responsible. The picture was a corporation with its executives deeply enmeshed in shadowy deals for their own benefits and gains.

2.1.3.  Moscow rules, Economist, (1994 September 24)

            If the Economist article dated July 16, 2004 outlined the genesis of Lukoil as Russia’s biggest oil company, and the Forbes’ article date August 1, 1994 delved on the wheeling dealing of its officials, this article of the Economist date September 24, 1994 focused on the bigger picture of oil politics. In this article, the Economist claimed that “Moscow wants to re-integrate the economies of the former Soviet Union on its terms.” The article added that oil is a considerable stake in the process – control of production and its market both domestic and export.

            Article on the Azerbaijan oil tackled the relationship of geo-politics and the oil industry. The article reported that a nine member consortium made up of seven western oil companies (or the seven sisters), SOCAR, the state-owned oil company of Azerbaijan and Lukoil. The consortium pledged to put up 8 billion USD to develop the Azerbaijan oil fields.

            How geo-politics and big industries influences each other was illustrated by the article. The contentious issue is the route to bring the oil to the West.  According to the paper, the oil would pass to Turkey which is the gateway to Europe. The route to Turkey became the issue and options were evaluated not on purely business terms but geo-political.

            The pipe line for example according to report could run through north of Iran to Turkey. But apparently, Russia and western companies were opposed to it. Even then in 1994, Iran apparently was a wild card in the one of the richest oil producing region of the world. The article also pointed out that another route would be via Armenia but which was rejected because Armenia and Azerbaijan were war during this time contesting Nagomo-Karabakh. This made Russia the most ideal even if it is not the shortest distance to  Europe. The plan would be bringing oil to Novorossiysk along the Black Sea coast, from to a tanker across Turkey and via another pipeline to the Mediterranean.

            It would not be difficult given the hindsight and comparing these events to current geo-political situation that all these countries mentioned in the article are currently in a critical states as affected by the instabilities in Iraq.  World powers apparently are scrambling to untangle the mess in the middle east as the stakes are high with oil the dominant energy source to fuel industrial development.

            As early as 1994, Lukoil has been playing power politics both at the micro and the macro levels.  The 1994 articles pictured Lukoil as a power broker and an acquisitive corporation very much opposite to the benevolent ideals of corporate social responsibility. This passage from the Economist (1994 September 24) clearly showed how the western press perceived the role being played by Lukoil in the Russian Federation in 1994.

“Geidar Aliyev, the Communist Partyboss of Azerbaijan under Leonid Brezhnev and now the countr}’s president, has long experience of how to deal with Moscow. With Brezhnev it was simple–Mr Aliyev once gave the Soviet leader a ring with a massive solitaire diamond in its centre and 15 smaller diamonds around it to represent the republics of the Soviet Union. He later commissioned a portrait of Mr Brezhnev which was encrusted with gems.

The art of winning favour in modern Russia has become more sophisticated. By forcing SOCAR to give Lukoil one-third of its 30% stake in the consortium, Mr Aliyev has given Russia a clear interest in ensuring that the deal works. Lukoil panics less about the Islamic threat, because its boss is from Azerbaijan. It is a pretty safe bet that in modern Russia a rich company, such as Lukoil, has more clout than a bunch of diplomats fretting about geopolitics.”

            Lukoil was not drafted until 2002 which laid down the principles and concepts of Lukoil corporate responsibility. But if its genesis and the subsequent positioning and dealing as described in the Forbes and Economist articles, the company remained sub par as far western corporate standards are concerns both at its operation and its ethics.

            But nevertheless, gauging Lukoil based on the stakes and the complicated world of energy as outlined in the three articles previously studied, the weight of corporate social responsibility could reach as high as world instability, peace and rationalization of the energy industry to benefit not only the develop industrial countries but the rest of the world.

2.2. Evaluation of media articles dated 2001-2006

            The articles reflected the growth of Lukoil as well as the perceptions of different media outlets as to events and issues which cropped up in Lukoil a corporation which has become Russia’s answer to the Seven Sisters or the major western oil companies.

2.2.1. Minority what?. Economist (2001 February 24),  Retrieved August 16, 2007, from MasterFILE Premier database Dateline: MOSCOW

            This article of the Economist, some seven years after the published articles evaluated in the previous section had this lead statement, “Business continues as murkily as usual for Russia’s tycoons.” Apparently, in the perception of the Economist,  there remained reasons or issues which had remained questionable as far as the corporate  behavior of Lukoil is concerned.

            The opening paragraph of the article was glaring in its dismay and frustration over the way the Russian companies makes deals and arrangements and which were reflected in the alleged lack of transparency as this passage suggested:

“LOSING money to a confidence trickster once is bad luck. Falling for the same scams time and again suggests wilful foolishness. The biggest companies in Russia still hide their cashflow and assets from minority shareholders, who happen mainly to be foreign, and still contemptuously brush off protests. Oddly, some outsiders still find this surprising.”

            The article alleged that Lukoil time and time again, under several pretexts was deliberately refused to publish a “western-style accounts.” This lack of transparency according to the article directly affects the rights of minority stockholders which were western investors or partners of Lukoil which had sought foreign sources funding for its expansion. Other Russian companies such as Gazprom were alleged to be ignoring outside audit, an internationally accepted legal requirement.

            The bottomline, gauging the content and tone of the Economist article was that Lukoil was remiss at this particular time in protecting the interests of its minority shareholders.  It should be noted that the Social Code of Lukoil would still be formalized by the year 2002 and by inference we could tentatively say that the Social Code would be the battering ram of Lukoil if and when there would be shift in its behavior towards global respectability as a corporate citizen.

            One passage from the article was reflective of the impatience on how difficult change could be in Russia.

“Lukoil’s failure to publish meaningful accounts is now a standing joke amongst Moscow financiers. In October, the company angrily denied media reports that it was planning to miss its promised deadline for the accounts at the end of 2000. But miss it the company did–issuing, with considerable fanfare, merely an unaudited half-year statement. It promised just one more month’s delay until the end of January. That deadline passed without even an apology. Then Lukoil said that, really, truly, hand-on-heart, the 1998-99 accounts would be released in March. Now the deadline has moved again–to June. Lukoil, incidentally, is among the best-run companies in Russia.”

2.2.2. The smell test, Economist, (2001 February 24), Retrieved August 16, 2007, from MasterFILE Premier database.

            This article is obviously sardonic and sarcastic in its presentation of what ails Russian companies. It traced the image of these companies to the Russian financial crash in 1998 when it defaulted leaving foreign investors hanging in the air and quite burned because of what the article termed as “grotesque standards of corporate governance, the abuse of minority shareholders, and contemptuous disregard for creditors.” What happened after that period according to the paper worked to the advantage of Russian investors. The article quoted a Russian investor as saying “we made our money selling crappy Russian shares to foreigners. Now we are making our money buying the same shares back and selling them to Russians.”

            There was one observation made by the article which may point to change in management preference of these companies which could be the result of greater investment participation of Russian managers but still the article was not optimistic that companies like Lukoil “meeting western standards of transparency and ethical behaviour is tricky” even with attempts at restructuring and the commissioning of western providers of professional services.

            The article cited that Lukoil’s background of shady dealings had a long history and in 1999, the article cited one such dubious arrangement involving even foreign advisers, thus this passage:

“Many local companies get into strange transactions, and foreign advisers are often involved. In 1999 Credit Suisse First Boston (CSFB) lent some $215m to an obscure Cyprus-based company, Reforma, whose beneficial owners are obscure, so that it could buy a 9% stake in Russia’s biggest oil company, Lukoil. The transaction was done at a strikingly low price. In the past, such deals have been a way for Russian bosses to siphon assets and cash from companies they run to companies they own. The Reforma case has infuriated the European Bank for Reconstruction and Development, which is trying to clarify Lukoil’s finances before lending it $150m.”

In such a context we have the corporate responsibility to investors and shareholders tied up with the question of transparency. In the last years of the 20th century, transparency was one of the biggest concern as Russian oil companies appeared to be in quagmire of not exactly above board transactions. Such examples of maneuvering for personal gains was the Economist’s  the main criticism of Russian business.

The article related a controversial issue of intervention of Russian corporations such as Gazprom-Media to control for example, NTV, the only operating national and non-state owned television network in Russia.  Such maneuverings implied that there were still many shady transactions going on even a year before the formalization of Lukoil’s Social Code and a vigilant media was not exactly favorable. From this bit of information, we take note of the special role being played by a free media in the fulfillment of Russian companies’ social responsibility. At this period, in 2001 the article stressed that “Russian laws are so woolly and so poorly enforced that legality really means having the right lawyer. Yet some westerners are increasingly uneasy about the moral climate in Moscow.”

2.2.3 Transparency Clouds Future of ‘Bad Actors’. Insight on the News, 17(28), 44 Gaffney Jr., F. (2001 July 30)

            The article centered on the Lukoil’s efforts to mobilize foreign capital by offering shares of stocks in international stock exchanges. The article reported that Lukoil opted to trade in the London Stock Exchange instead of the New York Stock Exchange.  The article cited a report of the Financial Times of London quoting Lukoil Vice President Leonid Fedun as saying that  “the move on to the London market was made ‘in order to avoid the political risk that exists [in the United States].’ He cited sanctions against Iraq, where Lukoil has been involved in oil-for-food contracts, and other countries such as Sudan and Iran where it has business.”

This contention was challenge by the article proposing instead that companies such as Lukoil which have shady international dealings were avoiding the strict requirements on transparency being imposed in New York Stock Exchange. The following passage reflects the tone and major concern of the article.

“Bad actors in Moscow, Beijing and other capitals around the world are waking up to a stunning new fact of life. It is no longer possible for them to exploit the lack of transparency that has heretofore enabled their ilk to solicit funds from unsuspecting American investors in U.S. capital markets without disclosing where their companies, parent firms and subsidiaries are doing business — and with whom they are doing it.”

            The article pointed to a complex world of international business in relation to political situations and although Lukoil was recognized as a world player, it was not in the year of the publication of the article looked upon in a positive light but rather as scheming money hungry corporation out to fleece foreign investors.

The article stressed that transparency is critical to preventing companies such as Lukoil cast in a “bad actor” image to get access to American financial market. The article has this to say, “If the only result of these developments in U.S. capital markets is to make it more difficult for global bad actors to get the funds with which to finance their odious operations around the world, the effort would be worthwhile.”

This article published in July, 2001 is definitive of how the western media viewed Lukoil in the period beginning the new millennium.

2.2.4. Slush money. (2002 June 29). Economist, Retrieved August 16, 2007, from MasterFILE Premier database.

            This June 29, 2002 article from the Economist reflected the continuing theme in Lukoil’s operation, the search for more investment to finance its growing operation. But Lukoil’s and Russian business reputation remained a glaring sore to western media as this passage suggested.

“Russia’s notoriously corrupt business environment has been a huge deterrent to potential foreign investors. But there are signs of improvement, as Russian firms take steps to upgrade their management. On June 27th shareholders in Russia’s largest oil company, Lukoil, approved the appointment of two new board members, both foreigners: Mark Mobius of the Templeton Fund, and Richard Matzke, a vice-chairman at Chevron Texaco. The move should improve Lukoil’s less than sparkling image. The company’s vice-president, Leonid Fedun, says it will also improve the way the company is run.”

            Inspite of the bad reputation of Lukoil, its importance as a world player in the energy industry could not be discounted as even at this time Lukoil was one of the leaders in bringing production of Russian oil to the level of Saudi Arabia, that was roughly 7.4 million barrels a day. OPEC’s decision at that time to maintain its production ceiling, according to the article had put to light the potential of Russian oil as an alternative source to the apparently unquenchable thirst for crude in industrial countries and the growing economies in Asia.

            But to increase production, the article noted that Lukoil need funds and one source were foreign investors. According to the article, “ Russia has only about 5% of the world’s oil and less than one-tenth of the reserves of the Middle East. But in the short term Russian oil could indeed help to push down OPEC prices and weaken the cartel. To keep the country’s flow of oil at current levels, however, let alone to raise it, Russian oil firms need to invest a lot more in exploration. For this, though, they are hoping for (relatively cheap) foreign money.”

            At any rate, the article pointed out to clear signs that Russian companies such as Lukoil showed signs of maturity and conforming to international standards as far as transparency was concerned as this passage suggested: “To their credit, for some time now the biggest Russian companies have been releasing profit reports that meet American accounting standards (yes, they’re that good).”

            We take note that several years before, the inability of Lukoil to disclose its finances to its minority shareholders was a major criticism of the secretive way Lukoil do business which implicates its top officials in self-serving deals. But apparently in 2002 a semblance of confidence was building up and western investors were playing the Russian field once again.

            The article ended in a wary note that Russian business environment was far from stable and companies may backslide into its irresponsible ways characteristic of the wheeling and dealing in latter part of the 1990’s.

            The Social Code of Lukoil was formulated at roughly the same time and may have defined more clearly its social responsibility especially to its shareholders.  Two things were pronounced from the articles which may be construed as Lukoil’s compliance to the basic principles it set in its social code. One, the inclusion of foreign minority representatives in its board of directors and two, its compliance with international standards on documentary and accounting requirements. These two items could be signs that Lukoil was a turning point in this period.

2.2.5. Putin at the Pump. Forbes, 174(12), 132-136. Orr, D. (2004 December 13).

The article is a positive view of Lukoil as it expands to the United States as part of its bid for global competitiveness. In this article, it focused on the expansion of Lukoil into retailing energy when it bought out Mobil from the Getty estate in Pennsylvania and New Jersey.

To the task of opening up a US market, Alekperov was visibly a moving force as this passage from the article suggested.

“Alekperov takes his ambassadorial role very seriously,” says Adam Landes, head of energy research at Renaissance Capital, a Russian-focused investment bank that has done work for Lukoil. The Russian energy minister and his U.S. counterpart have been meeting several times a year. “We are always a part of those meetings,” says Vadim Gluzman, chief executive of Lukoil’s U.S. unit. “The U.S. government is interested in diversifying energy sources.”

The holdings included 1,300 filling stations along the East Coast which would place Lukoil in a good position market-wise if and when it finally hurdled the challenges of bringing crude oil from Russia to American soil. Lukoil, according to the article was making profits which considerably brightens its attraction as a prime investment option.

2.2.6. The Russians are coming!. Fortune(2005 July 25). Guyon, J. (07385587), 152(2), 153-153.

The article took the financial view point and treats Lukoil as if its history of corporate shenaniganism was finally over in 2005. This three years after the Social Code of Lukoil was adapted by the company.  The article viewed the favorably Lukoil as a financial prospect for investors considering that its crude price was at that time one-tenth of most crude in the hands of other big corporate energy players. Previously in 1994, the relative value of Lukoil’s crude was a hundred times less than that of Royal Dutch/Shell as was mentioned in the earlier section of the paper.

Apparently, Alekperov was substantial in the addressing the value gap and his strategy of buy-buy and aggressive investment sourcing worked as gleaned from this passage from the article:

“For starters, Lukoil has more reserves than any company on the planet save Exxon Mobil. Profits are surging: In late June the company said its first-quarter earnings rose 44%, to $1.18 billion. And experts say Lukoil, which trades in London and over the counter in the U.S., is the safest bet in the Russian oil patch. Lukoil CEO Vagit U. Alekperov, a onetime Soviet oil minister, appears immune to the hubris that brought down Mikhail Khodorkovsky, the former oligarch owner of Yukos.”

2.2.7. Americas team on ethanol project BioEnergy International, LUKOIL, Anonymous

NPN, National Petroleum News; Oct 2006; 98, 11; ABI/INFORM Global, pg. 39


            This 2006 article essentially reported a development in bio-energy, that of ethanol with the participation of Lukoil Americas which have vigorously pursued fuel retailing in the United States. There were several items which could be of interest. One, Lukoil continue on its expansion binge and diversifying into energy and two, it was at a clear indication that the Russian oil giant was going into the direction of multi-laterally reflected by this passage:

“On August 21 (2006), BioEnergy International, LLC, Norwell, Mass., and Lukoil Americas Corporation, East Meadow, N.Y., announced the development of a 108-million-gallon-per-year ethanol project to be located in Clearfield Country, Pa. On Aug. 17, Pennsylvania Gov. Edward G. Rendell presented BioEnergy with $17.4 million of state investments to support the project and a pilot plant to assists in the development and commercialization of BioEnergy’s technology.”

            Lukoil partnered with BioEnergy International for the venture and BioEnergy was a recipient of state investment, making the state of Pennsylvania a shareholder in Lukoil’s venture. Clearly from the article, Lukoil was gaining respectability and presumably exercising its corporate social responsibility in a manner acceptable to an American company and the state of Pennsylvania.

2.2.8. LUKOIL: IT’S RUSSIAN FOR ‘FILL ‘ER UP’  Business Week , (2006 October 23) Bush, J.. Retrieved August 16, 2007, from MasterFILE Premier database.


            The article followed the previously discussed theme of Lukoil’s expansion into the USA. It reported the announcement of Lukoil of its aims to invest 100 billion USD on refineries and gas stations to double its business in the US.

            The paper was essentially reportorial except for seemingly harmless phrase “details are sketchy” in describing the grand plan of Lukoil. The article also raised the question of how Lukoil would ultimately bring Russian crude to the US for processing. The following passage showed the possible development of Lukoil’s enterprise in the US:

“Can Lukoil pull it off? One key may lie in Lukoil’s rich assets in Russia’s far north, where it is working on a field that could produce 200,000 barrels per day by 2009. The plan is to ship that crude to the U.S. for refining and sale. Although Lukoil doesn’t yet own a U.S. refinery — Fedun says they’re too pricey right now — the company hopes to buy one eventually. Says Fedun: “We’re planning to approach the level of the world’s major energy companies.””

2.2.9. Russian Federation: At Lukoil, an Executive’s Death Exposes Network of Inside Deals; Son Seeking Father’s Estate Traces Trusts Benefiting Officers of Energy Giant; From Siberia to Isle of Man, Wall Street Journal, Dec 6, 2006,  Glenn R. Simpson.. (Eastern edition). New York, N.Y.: pg. A.1 2006 Dec

            This a feature article from the Wall Street Journal published on December 6, 2006, which looked like a reprise of earlier articles going back to the beginning of Lukoil, which was  a serious blow to the emerging image of Lukoil as dynamic socially responsible oil company. History apparently had a way of haunting the present.

            The article as the title suggested was about a court case filed by a son of Vitaly Schmidt, one of Lukoil’s pioneers to recover hundreds of million dollars his father hold in trust in one of the banks in the Isle of Man. The relationship of Schmidt with Alekperov dated back to their oil digging days in Siberia in the early 1990s. The court case according to this article became a window to the wheeling and dealing side of Lukoil executives who were essentially forming an interlocking directorate of relevant companies engaged in doing with business Lukoil.

            The article was highly critical on how Lukoil conducted its business more so the financial side wherein it appeared that Lukoil officials in collusion with accountants, bankers, state officials have formed an elaborate financial structures to manage funds – transfer funds from one company to another and ultimately into their private accounts.

            The article carried comments from Lukoil officials denying the allegations and their explanation that the interlocking directorate was in trust and that it was necessary considering the unique stage of Russian Federation financial system which had undergone an overhaul when then Union Soviet of Socialist Republic collapsed in the late eighties.

            The article though posed a serious question as to the integrity of the Lukoil leadership at a time when Lukoil was emerging as an attractive investment option of western capital. The tone of the article was highly critical as exemplified by this passage:

“Lukoil’s latest annual report said. It said management “has appropriate procedures in place to identify and properly disclose transactions with related parties” and has disclosed all that are significant. Yet as recently as two years ago, top Lukoil executives engaged in transactions with their own company, and with only limited disclosure. Around 2004, a previously unknown firm began to manage Lukoil’s pension fund, bought a bank from Lukoil and became Lukoil’s main insurer. The firm turned out to be majority-owned by Lukoil’s president, Vagit Alekperov, and his top lieutenant, Leonid Fedun — ownership that wasn’t disclosed until this year.”

            But nevertheless, apparently it could be gleaned from some items mentioned in the articles, the controversy involving the holdings of Schmidt and how the court cases would turn out, the business prospects of Lukoil remains strong as could be seen from this passage referring to the reaction of one of Lukoil’s major partner in the United States,  “As for ConocoPhillips, it said it had “no knowledge of the allegations. Our experience with Lukoil has been positive.”

Next: Articles dated year 2007

2.3. Articles 2007

            The articles covered in the year 2007 mostly delved with the expansion of Lukoil and its aggressive bid to acquire petrol stations in the EU and North America, oil concessions in Iraq and refineries from Europe.  In the year 2007 the image of Lukoil as “bad boy” of the oil industry was fast disintegrating and shining corporate image has emerged.

2.3.1. The Russia 50, Fortune, (2007 February 5), Prasso, S.).. (07385587), 155(2), 52-53.

This article is mainly descriptive of top Russian companies with Lukoil for the first time taking the top position in Fortune’s ranking of Russia’s top 50 companies.  The article took note that Lukoil displaced Gazprom and according to the article:

“The world’s unquenchable thirst for oil means that Russian energy resources have been in continual demand-disruptions and disputes involving pipeline deliveries to Europe aside. Lukoil, for the first time, took the top position in our ranking of Russia’s 50 largest public companies, displacing Gazprom. The reason: Higher prices for crude boosted Lukoil’s 2005 revenue by 65%, to $56 billion.”

The article painted Lukoil as an stable and dynamic oil company that had shown considerable profit gains in the last several years. Apparently, the company since the 1990’s have steadily build up its reputation as good investment not only mainly due to its vast reserve but due to its improving image.

2.3.7. Moscow backs Lukoil’s Iraq foray,  Financial Times, (Apr 25, 2007),


This article highlights the global dimension of Lukoil’s operation which has extended into the Middle East, particularly West Qurna in Iraq. West Qurna is one of world’s biggest fields with the potential of one million barrels a day with a reserve of 11bn-15bn barrels of recoverable oil reserves.

According to this report this move had the blessings from Moscow which encouraged Lukoil in its bid to become the “first big international energy group to develop a main Iraqi oilfield following the 2003 US invasion.”

From the same report, the Russian company was very keen in getting a piece of the action in oil exploration in Iraq and was only waiting for the approval of the Iraqi parliament. Although the political and security situation in Iraq remained unpredictable, Lukoil was positioning itself as one of the active players as this passage suggests:

“”We have no problem starting operations right after the passage of the hydrocarbon law and once we have the necessary approvals,” Alekperov said. Iraq’s parliament aims to pass the law next month. Energy companies have been waiting for security to improve before developing fields, and analysts believe conditions in the southern region where West Qurna is located are unpredictable.”

            We take note that this thrust of Lukoil was previously defined and supported by its behavior towards acquisition of new assets with the end of view of making Lukoil a leading corporate player in the world.

2.3.2. Lukoil deal sets pricing benchmark, Trade Finance (May 2007), London:. pg. 1 »

The article was mainly reportorial focused on a loan facility for Lukoil. There were some items though that has pointed out a significant change on how Lukoil was being perceived in spite of issues of wheeling and dealing of its officials. This passages is highly suggestive:

“The success of this unsecured facility reflects the financial growth and stability of the Russian corporate over the past decade. It has now an investment grade rating from both Moody’s and Fitch, and following this transaction, it no longer has any secured debt at the holding company level. “

According to the report, ten banks participated in the loan syndication including banks such as Sumitomo Mitsui Banking Corporation, Dresdner Kleinwort, Bank of Tokyo-Mitsubishi UFJ,  Barclays Bank, DekaBank, Fortis Bank, HSBC Bank, ING, Intesa Sanpaolo, and  Mizuho Corporate Bank.

If this report is any indication, it appeared that Alekperov and company are successful in gaining respectability. The article also showed some items which could be construed as signifiers that the Social Code of Lukoil could possibly working. The participation of these banks have expanded the stakeholder’s base of Lukoil.

2.3.3.  Lukoil to gain sway with  Gazprom venture; Financial Times [LONDON 2ND EDITION], (May 28, 2007), CATHERINE BELTON.. London (UK):. pg. 20

The article looked into what appeared to be a realignment of corporate power in the Russian oil industry sector.  From the article, the major stakeholders in the Russian energy industry – the government, Russian companies and foreign investors are positioning according to their specific interests and priorities.  The government’s action if using the article as basis appeared to be motivated in its desire to strengthen the position of Russian investors as manifested by this passage from the article:

“Valery Nesterov, energy analyst at Troika Dialog, said that, without teaming up with Gazprom Neft, Lukoil risked being further outstripped by Rosneft. New laws on developing strategic new fields will limit access to companies that are majority Russian-owned, he said.”

Apparently the Russian government is increasing its role in the oil the industry which prompted Lukoil and Gazprom to forge alliance.  It would be remembered from the previous sections of this paper, that Lukoil has been active in seeking foreign investors targeting up to 50 percent of new money source from Europe and North America. Apparently the move of the Russian government towards protecting the state run oil company Rosneft impacted on the Lukoil and other companies which have high foreign participation.

The items described in the article showed the dynamics between state and corporations in a strategic industry such as oil as this passage suggests:

“The agreement comes as the state increases its sway over the energy sector, limiting Lukoil’s room for growth, and as both Lukoil and Gazprom Neft face increasing competition from state-controlled Rosneft.”

The article was keen on the interplay of forces in the Russian oil industry and took note of developments which could give illumination to how the industry was faring in Russia and how the forces were maneuvering to gain strategic advantage:

“Rosneft this month overtook Lukoil as Russia’s number one oil producer after it snapped up the remains of Mikhail Khodorkovsky’s Yukos oil empire in a series of bankruptcy auctions the state-run group dominated.”

Yukos was a company that went bankrupt when the Russian government imposed back taxation reaching a backbreaking amount of some 33 billion USD.

It is then very difficult to discern the tone or how this particular media perceived Lukoil in particular and the oil industry in general.  It did however pointed out that foreign partners appeared to be being left out in the division of the vast oil resource of Russia.  The article took note that ConocoPhillips which has a holding of 20 percent stake in Lukoil was excluded from the joint venture of Lukoil and Gazprom.  How big is the stake in Russian oil industry is reflected in this passage:

“It also faces the strengthening growth of Rosneft and ahead is a battle for the major new oilfields that remain undistributed in Timan Pechora,” Mr Nesterov added, referring to the oil-rich province in northern Russia that is up for grabs.”

It is easy to grasp at this point in the discussion of media perception in the context of corporate social responsibility that Lukoil as far as protecting the interest of share holders was in some sense remiss as far as its treatment of its foreign partners. It was as if the clock was turned back to the turn of the 21st century when many foreign investors were burned and left hanging because of the realignments of major players in the Russian oil industry.

From the previous article, Lukoil remained aggressive in opening up ventures in major parts of the globe including the Middle East and maybe the Russian battering ram in the global field while Rosneft as the consolidator of Russian interests at home.

2.3.4. Lukoil International Finance BV, Euroweek. London, (Jun 1, 2007) and Gush of interest for Lukoil gets pricing flat to  Gazprom as CS, DB pull $6bn of demand

Euroweek, (Jun 1, 2007), London

These two article were mainly a presentation of Lukoil’s credit sourcing to the tune of 500 million USD through bond flotation to raise additional capitalization.  The article appraised the potential of Lukoil’s offering as good  and that the offering was a “solid trade, ambitiously priced and with a strong bid for duration. The deal sends a strong message to the market, reflective of Lukoil’s credit quality and that the company is “going to do well , Lukoil is a good credit.”

The article was mainly focused on the financial viability of Lukoil and none of the political angles presented in the previous article with almost the same dateline as this passage from the article suggests:

“We conducted a comprehensive roadshow with two teams touring the US and Europe and spent a lot of time talking people through the credit. The management were impressive on the roadshow and we educated investors about the oil sector in Russia generally and more specifically about why Lukoil is so good. “

Thus far, Lukoil appeared to be being perceived under two possibly diametrically opposed parameters that of corporate ethics and politics on one hand and profitability on the other.

2.3.6. Calyon and EBRD close Lukoil’s green loan, Trade Finance, (Jun 2007) London:. pg. 1

The article detailed the environmental loan package availed by Lukoil from the European Bank for Reconstruction and Development (EBRD).  There were other financial institutions which participated in financing the 300 million USD loan package including Bayerische Landesbank,  Societe Generale, Handelsbanken, Fortis Bank, Mizuho Bank, Caixa Geral de Depositos and Intesa Sanpaolo.

Again, this article was reflection on the perception of Lukoil as a viable venture and gauging from the number of participating financial institution the Lukoil group appeared to successful in projecting respectability and that it would be able to honor its obligations under the terms and conditions of green loan deal.

Taking note of the purpose to which the funds will be used, that is to finance Lukoil’s environmental program, it is apparent that as far as toeing the line of responsibility towards maintaining environmental integrity that Lukoil is essentially exhibiting traits of a corporate citizen aware of its impact on the nature and is willing to do something about it.  Siberia which is one of the sources of crude oil, for example is considered one of the most ecologically fragile environment and which the impact of global warming and extensive exploitation could damage an already stressed fast changing landscape.

2.3.8. Lukoil seeks bigger presence in EU, Financial Times Online, (Sep 12, 2007), Ed Crooks in Vienna. London:. pg. 1

This article of the Financial Times outlines the European Union play of Lukoil in expanding its market share of the global oil industry.  The Times reported that the main priority of Lukoil was to get into refinery operation and EU countries are the targeted suppliers and partner in such an endeavor. The EU blitz of Lukoil is aligned with its laid goals of becoming a globally competitive player.

The article was mainly reportorial without much editorializing or processing of information reported. Nevertheless there were items which could be meaningful given the emerging themes and context of other articles which were reviewed in this paper.

One such item was the reference to an interview of Leonid Fedun, Lukoil’s vice-president for strategy, who was quoted in the article as saying that, “Until recently, it was not a good situation for acquisitions, be-cause stock markets were going up and the oil price was high, so sellers had very high expectations as to prices. Now the stock markets are much healthier.”

According the report, Lukoil declared that it would invest upwards to 9 billion USD to acquire downstream businesses in Europe, including refining, distribution and retailing. Lukoil operate up to 2000 petrol stations in Europe.

The article also showed some signs of oil business as politics when Lukoil according to the article, “Lukoil showed its increased market power in July, when it slowed deliveries of oil through the Druzhba pipeline as part of negotiations to win a better price from refineries in Germany.” Another political dimension in oil industry aside from using oil as leverage is what Mr. Fedun was quoted as saying that “Of course we are interested in Mol, but what we are seeing in central and eastern Europe is nationalism, and this nationalism is getting stronger in other European countries as well.” Mol was engage in refining business which is based in Hungary a former satellite of then USSR.  If Fedun is correct in his assessment, politics remains embedded in the business environment especially in such strategic sector as oil.

The best bet for Lukoil according to the article was to go into a strategic alliances with EU based companies as big companies such British Petroleum, Royal Dutch Shell and ExxonMobil have been selling refineris in EU countries minus the political angst.

2.3.10. Lukoil denies failing to meet export targets in Q2, Q3, Russia & CIS Business and Financial Newswire, (Oct 1, 2007)

The article published the denial of Lukoil that it failed to meet export targets in second and third quarter of this year.  Though it acknowledged the shortfall, the company explained that cutting delivery to Germany was a business decision as it redirected “redirected available oil volumes to other, more profitable export routes and paid the corresponding export duties to the Russian budget.” In such a situation, Lukoil claimed according to the article to have met its quota of exports.

The problem plaguing Lukoil according to the article was that the reduction of oil shipments to Germany by about a third was because the “to a deterioration in the economics of shipments in this direction (Germany). Some of the oil intended for Germany was rerouted to Primorsk.

As reported in previous articles several years ago, transporting the crude oil from Russia to Europe remains a critical factor in the stability of Lukoil and which may affect its long term viability if not given an appropriate solution.  Given the volatile political environment and positioning different forces in Russian oil industry, time will tell if an when Russian supply of oil to Europe would have stabilize.


Internal documents generally favorable to Lukoil

Just from the sample of one internal documents and Western media accounts on Lukoil, we can gauge two important trends which becomes the thematic lines in the life of Lukoil as an emerging corporate giant playing a critical role Russian economy particularly strategic oil industry.

The code of conduct of Lukoil was formulated in the 2002 and hence an evolving document. Related statements taken from internal documents evaluated generally delve with Lukoil activities which were in essence implementation of the Lukoil’s stated principles of corporate responsibility hence focus on for example sponsorships of Lukoil including educational and sports activities. Sponsorships are  major system through which corporations show their corporate responsibility and Lukoil apparently follows this line as well.

One other thread in Lukoil’s internal documents is focused on its bid to become a major player reflective of its stance as Russian global juggernaut for economic ascendancy. With its huge oil reserve, internal documents asserting the critical role of Lukoil in Russian economy is not entirely unfounded.

Generally, as expected the internal documents of Lukoil could be taken as chronicle of Lukoil’s good deeds and reinforcement of the idea that Lukoil plays a critical and strategic role in Russian economic development.

Western press generally critical of Lukoil

            From the Western press articles reviewed dating back to 1994, the development of Lukoil followed a path towards a binge of acquisitions in Europe and North America laying out a network of thousands of petrol stations to prepare of the eventuality of full exploration and transporting oil to its target market.

            There were two priority areas which appeared to be the standing stumbling block to the full development of Lukoil as a major player comparable to the operation of the so-called seven sisters – a pipeline from its oil fields in Russia and Siberia to Europe and a refineries to process crude into gasoline and usable fuel.

            As far as social corporate responsibility is concerned, it was taking a backseat to the aggressive move of Lukoil. In its early years, minority investors were deliberately being kept in the dark which was a clear a violation of the transparency clause operative in most corporations. It was only in the early 2000s that Lukoil commissioned western service providers to systematized its accounting processes at par with international standards.

            It was also only recently, just this year, after more than a decade that Lukoil was setting up an program to protect the environment despite the fact that its oil fields are located in one of the world’s fragile ecology. Siberia remains relatively pristine and unexplored.

            Apparently between ethical and business imperatives, business priorities remain to be the driving force and even western investors were willing to look the other way and risk getting burned mainly because Lukoil promises to be a lucrative proposition.

            As a whole, Lukoil remains on track in its aggressive drive for world dominance and one consequence of this is that Lukoil is aiming for respectability as well. Its Social Code formulated in 2002 remains a document stating the basic principles of Lukoil with respect to its shareholders and stakeholders which in recent years included the state of Russia, banking institutions, Russian and western investors and western companies considered as its partner in Europe, North America and the Middle East.

            Obviously, doing business in a multinational setting would necessitate that Lukoil operates above board and be conscientious enough to implement the provision of its Social Code.

            The western media reviewed in this paper generally perceived Lukoil as a corporate giant with a shady history but with a great potential. Some articles were highly critical and focused on the experiences of western companies which have been burned by doing business with Lukoil. Some articles though perceive Lukoil as the thing of the future wherein the gains outweigh the risks.

The Western media press is not so mild with its treatment of Lukoil ignoring the nice corporate activities such as sponsorships but focusing instead on the what the media essentially referring to as the power play in Lukoil and its inter-locking directorates.  Particularly questioned was Lukoil’s handling of minority shareholders especially at the period just before the turn to the 21st century.  Transparency or the dubious maneuverings of Lukoil appeared to be a thematic thread.

Nonetheless, in spite of the generally negative press Lukoil received, there are some signs that the assertion of Lukoil that it intends to perform as world class corporation is making an impression or favorable review from recent articles such as Lukoil’s environmental program and its desire to provide a top class service to its clients which included thousands of gas stations in Europe and North America.


Lukoil relatively very early in its history, has already determined that as its business base expands, eventually its revenues will depend not only on its oil-based products, upstream to downstream and wholesale or retail but also on the non-oil potentials associated with forecourts or gasoline stations.

For Alekperov to have successfully weathering himself the uneasiness of facing the questioning of his personality and character in the bar of public opinion over a “simple” award just reflects how important the stakes are in being respectable to be able to capture the retail market.

Properly implemented CSR must go hand in hand with honest-to-goodness PR. For Lukoil, one cannot go without the other.

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Appendix A

Documents Summary Pertaining to Lukoil’s Corporate Social Responsibility:

Doc. No. 1: “Personnel Management Policy”, 2003, Lukoil Oil Company (Company, 2003),;

Doc. No. 2: “Social Code of OAO Lukoil”, 2003, Lukoil Oil Company (Company, 2002),;

Doc. No. 3: “Social Report of OAO Lukoil”, 2005, Lukoil Oil Company (Company, 2005b),;;;

Doc. No. 4: “Charity and Social Activities”, 2007, Lukoil Oil Company (Company, 2007a),;

Doc. No. 5: “Sports”, 2007, Lukoil Oil Company (Company, 2007c),;

Doc. No. 6: “Staff Retirement Plan”, 2007, Lukoil Oil Company (Company, 2007d),;

Doc. No. 7: “Insurance Strategy and Policy”, , Lukoil Oil Company (Company, 2007b), and;

Doc. No. 8: “Press Release, 27.10.05: Lukoil is a Winner of ‘Best Project Risk Management in Companies and Financial Organizations’ Competition”, 2005, Lukoil Oil Company (Company, 2005a),;

Doc. No. 9: “New Report: Oil Companies Using Ethical Transparency to Great Promotional Effect”, 2006, Management & Excellence SA (SA, 2006),;

Doc. No. 10: “Partners for Financial Stability or P.F.S. Program Survey of Reporting on Corporate Social Responsibility or C.S.R by the Largest Listed Companies in 11 Central and Eastern European or C.E.E. Countries: First-time Comparison with Peers in B.R.I.C. and Ukraine”, 2006, United States for Agency for International Development or U.S.A.I.D. (Program, 2006), center/editorials/2006/PFS_Program_-_Survey_of_Reporting_on_CSR_


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