Creating trust in institutions in Russian forest localities

Russia is a country with a low level of trust. In consequence, companies working in Russia have to emphasize the development and maintenance of trust with all their interest groups. In this paper we study how trust is built up at the local level with municipalities and local communities. Local level interest groups, however, seem to be less significant for companies in contemporary Russian countryside. This paper will provide an analysis of why local level interest groups are weak and what the consequences are. The paper also discusses legislation and regulations affecting social structures in the Russian countryside showing why and how much social responsibility is transferred to companies. In addition, the paper discusses whether private governance regulation, such as forest certification, will help local communities to be heard.The paper applies Douglass North's approach to economic development with formal and informal institutions, and also the literature on trust and the social responsibility of enterprises. Formal institutions such as national legislation and international privately controlled rules of FSC certification are compared with informal practices at the local level.Cooperation with companies and environmental organizations has complemented traditional Russian social responsibility and increased cooperation between the different interest groups. NGOs can also help local communities to be heard, but since companies are more concerned with the trust of their clients, weak municipalities remain humble receivers of aid. Globalization also makes companies pay more attention to their competitiveness, which will exert pressure on the government to arrange social security and strengthen municipalities. Structural changes in Russia will, however, take time, since Russia not only has to tackle the construction of new formal institutions but it must also deal with the increasing effects of globalization as it changes the traditional structures of democracy and a market economy.

► Local communities in Russian countryside are dependent on companies' social responsibility.
► Russian government has not been able to provide municipalities with adequate financial resources.
► FSC certification has complemented CSR in the Russian countryside.
► Global competition calls for both functioning formal institutions and market-oriented companies.
► Cooperation between interest groups is essential in developing credible institutions.