Remarks by Willard A. Workman, Vice President
Center for International Private Enterprise And U.S. Chamber of Commerce
February 28, 2000

Thank you, Mr. Golubitsky for that kind introduction. It’s a pleasure to be here in Yekaterinburg.

Let me thank the Ekaterinburg Center of Collective Investment and the Committee for Shareholder Rights for hosting this event with us. I want to express my appreciation especially to Galina Dronova and Victor Dronov for all their help.

Let me begin by explaining that I wear two hats. I am Vice President of the U.S. Chamber of Commerce. The Chamber is the voice of business, representing nearly three million companies, 3,000 state and local chambers, 775 business associations and 85 American Chambers of Commerce abroad.

I am also Vice President of CIPE, the Center for International Private Enterprise. CIPE is an affiliate of the Chamber. CIPE has been working in Russia for nine years, and we have a Moscow office. CIPE’s mission is to promote economic and democratic development around the world.

The theme of our discussion is the corporate governance. Corporate governance is critical both to CIPE and to the businesses that the Chamber represents. From the business and investment point of view, good corporate governance builds market confidence and encourages more stable, long-term international investment flows.

Good corporate governance is also important from the point of view of building a prospering market-based democracy. Corporate governance involves accountability, transparency, and fair rules of the game — the same elements that make for strong democracies.

Let me make clear my role in this discussion. I know that many of your fellow countrymen have grown weary of Western talk and advice. I’m not going to advise you on how to change Russia. This is your country, and these decisions are yours to make. Instead, I’m going to give you a sense of what businesses in America look for when they make their investment decisions.

Twelve Commandments of Investment

We asked our business members what they looked for when they choose where to invest. We came up with a list of 12 guiding principles that multinational corporations use to evaluate direct investment opportunities. We call this the 12 Commandments of Investment. I’d like to share this list with you, and invite you to think about where Russia stands.

1. First, companies look for stable and sensible economic policies. Business must have confidence that the economy in which investment takes place will be managed in a competent and predictable way — that the rules of the game will not change in the middle of a contest.
2. Second, the size and potential for growth of the country's domestic market, especially the purchasing power of its consumers, are critical. Companies won’t invest in areas where there’s little potential to make a profit.
3. Third is the freedom of access to the market. Investors will gauge the degree to which domestic and foreign governments will interfere with the company’s ability to enter the market and compete. The freer the market, the more attractive it becomes as an investment opportunity.
4. Fourth, what about the labor force and raw materials? While the investor brings capital, technology and management to the table, the quality of the local work force and the availability of in-country raw materials are also important ingredients in the recipe for success.
5. Fifth, is there protection from currency devaluation? You have all seen first-hand what happens when investments are made in dollars, but the local products are sold in rubles, and then the ruble is devalued. Businesses are wary of currency devaluations and other financial juggling. They won’t make an investment in dollars if they suspect that local assets (valued in the local currency) will be devalued, and they will lose part (or possibly all) of the original dollar-based investment.
6. Sixth, there must be remittance of dividends, interest, royalties and technical assistance payments. Investors will not put their resources into countries that confiscate them. If you can't get your money out of the country when you want to, then why invest there in the first place?
7. Seventh — property rights protection. It’s difficult to overstate the importance of government protection of property and asset rights. By property, I mean not only real assets, but also intangible ones like patents and copyrights. Companies must feel that their property — from patents to plants — is secure. The question of property rights is closely related to the issue of corporate governance. Corporate governance ensures that the owners of a company and all its stakeholders get their fair share.
8. Eighth, is there export potential? A business won’t necessarily locate in a particular region solely to manufacture there. For example, companies value the ability to source from an operating unit in one market to serve nearby markets.
9. Ninth, what about the regulatory burdens? Companies seek markets with sensible regulatory regimes — ones that don’t impose undue burdens and impede the ability of the company to grow and create more opportunities.
10. Tenth — favorable taxation and tax incentives. While tax incentives geared to attract initial investments are important, governments have to think long term. The final investment decision is usually based on how a country's taxation will affect the normal operating environment.
11. Eleventh, capital tends to flow toward environments with low political risk. An investor's ability to rely upon the integrity of the host government, and its ability to maintain local law and order, are both essential to any long-term investment.
12. And finally, companies need reliable infrastructure to function properly. The ability to complete transactions and get products and services to market depends upon the presence of reliable transportation services, power generation, insurance and accounting services, a competent financial system, and other basics. Investments cannot yield reliable returns without them.

As I said from the start, I am not here to tell you how to change Russia. I invite you to consider how your country and your region measure up against the 12 commandments of investment. And I look forward to hearing your views.

In closing, let me say that American businesses want to be here. You launched the first man into outer space. You have enriched the world’s culture with great literature, music, and ballet. We recognize that you have an educated workforce, vast natural wealth, and strong potential for demand and business growth. So American business wants to form serious, productive, mutually profitable business partnerships and relationships.

We realize that we will not change the world with a one-day conference. Let me emphasize that both CIPE and the US Chamber have a long-term commitment to Russia. We are confident that steps like this will strengthen corporate governance practices, build a better business climate and, in the end, lead to prosperity from which all of us — Russians and Americans alike – will benefit.

Thank you.