Sustainable Success Stories: Interview with Jakub Karnowski, Ukrainian Railways

Viesturs Liegis: In a period of crisis the focus of organizations shifts to the immediate survival of the business - it is the management of the company that finds itself on the frontline. However, in order not to lose sight of the future, the Supervisory Board is even more hard-pressed to fulfill its strategic mission - in this case, to think about what will happen when the conflict is over.

Can you please share some insights about the processes which the Supervisory Board of Ukrzaliznytsia (Ukrainian Railway) has put in place and initiated with regards to the aftermath of the war?

Jakub Karnowski: Of course, I cannot go much into details, but I’ll try to describe a general perspective.

Being a Supervisory Board member of two logistical companies in Ukraine - Ukrzaliznytsia and Ukrposhta - and having experience in these fields from the pre-war times, I’d like to admit that generally the corporate governance of Ukrainian state-owned companies is very brave and smart, from the Ukrainian government perspective.

Perhaps, that is also the reason why Vladimir Putin, in his infamous speech he gave two days before he launched the invasion, said that foreigners are making strategic decisions in Ukrainian state-owned enterprises, and, according to him, that is another reason to treat Ukraine as a non-state territory.

Of course, I am also a beneficiary of the fact that the Ukrainian government has decided to transfer such responsibilities (strategic decision-making) to the wider area of ​​corporate governance. And I believe that it actually works really well, especially in such difficult times. The Supervisory Board can support the management team with making daily decisions and help them to manage the company from outside of Ukraine, as it would be a much more difficult task for the respective government ministries to do on their own. In other words, during a time of war the government definitely has other crucial things to do, rather than focus on the strategic decisions of their companies.

And indeed, it has been beneficial. For example: I’m operating from Warsaw, and Poland is also an important hub for the railways – both for humanitarian aid and for other important activities. So, I believe that it’s good for the company that I can operate from the Ukrzaliznytsia office in Warsaw, which will be a more and more important part of Ukrzaliznytsia. Such an approach creates a win-win situation between the company and government.

Viesturs: I’m familiar with Ukrzaliznytsia’s strategy as it had been developed before the war – there were ambitious goals which included the unbundling and developing of a number of businesses within the group.

How does Ukrzaliznytsia’s strategy look now, when management needs to simply fight for the company’s survival?

Jakub: It is definitely an “on time” question, because just last week we had a three-day Board meeting in Warsaw. Some members were physically there, some joined us online from Kyiv and other parts of Ukraine. We devoted one of the days to a regular meeting of the Supervisory Board, but then we also had a two-day strategic seminar, where a few of my Polish colleagues had been invited, who are veterans of reforming the Polish State Railways and who had experience in utilizing European Union funds for that purpose before and during the accession process of Poland into the EU in the 1990s.

So, yes, we are taking the time and effort to think about the future even during the war – about how Ukrzaliznytsia should be reformed after Ukrainians have won the war. Both the management and the supervisory boards are thinking about the next steps within what seems to be the only viable future scenario for Ukraine, I mean accession into the European Union. And when it comes to the context of the European Union, we’re not talking about the urgent unbundling of Ukrzaliznytsia, but about what are the necessary steps for the Ukrainian Railways, as part of the Ukrainian economy, should be taken to make sure that the EU pre-accession funds are utilized.

Viesturs: On the one hand, the war, of course, stopped many restructuring processes, but, on the other, probably there are processes which will now develop much faster than was previously planned.

Jakub: You are right. Of course, the war itself and the post war damages make life more difficult. Implementing previously planned reforms will be an even more complicated task in future, because some parts of the tangible assets are destroyed.

But, again, from a political and economic perspective now it’s even more clear that Ukraine will join the EU. I’m not saying it will happen overnight or that there will be any shortcuts, but I know for sure that for Ukrainians there is no other option – the other option is “Russkij mir” (Russian world), which, of course, is not an option anymore.

Thus, we are preparing for the country's accession to the EU, we are working on convenient border crossings between Ukraine and the EU, as well as all other issues of future European integration. And when I say European integration, I don't mean what will happen after the accession which might take 10 or 15 years from now – I mean, what we’re doing right now.

Viesturs: It is sometimes said, using military terminology, that in times of crisis, managers are the field officers, while the Supervisory Board operates as the headquarters, implying that the relationship between the two becomes very clearly defined.

Could you please talk a bit about how, in your experience, the current crisis reflects on the on-going communication between the supervisory board and the management team in both Ukrzaliznytsia and Ukrposhta - how has the cooperation changed? Is the board more actively involved in operational management?

Jakub: In both companies where I’m a board member, we have a good mixture of independent members, mostly from other countries, and non-independent members – the government representatives. As I already mentioned, I think it’s very good to have the outside perspective of the independent members, as they can help the government to manage the strategic decisions.

I think that Ukrzaliznytsia is probably the most important company in Ukraine right now because of all the humanitarian and economic support it gives to keep the country moving as much as possible.

In my opinion we work very well in this mixture of independence and dependence within the boards. There are definitely a number of decisions which we’re not trying to be too deeply involved in, as foreigners, but what I see as a huge benefit is that we are focusing on things where we can directly raise the change - on aspects that are important for corporate functioning.

Viesturs: Could you offer a couple of examples – could you compare process-wise and task-wise how your work changed? What were your duties on the board in 2021 and how did they change in 2022?

Jakub: First of all, it's obvious that we began to meet more often. In the case of Ukrposhta, for instance, it’s happening online. I think it's better to compare changes in this company, because I joined Ukrzaliznytsia only in January 2022, just before the war started.

Speaking about Ukrposhta, I effectively hosted the Ukrposhta office at my home in Warsaw from March until late May last year – so, I think, it's hard to reach a higher level of cooperation than we had. The beginning of the war were the most difficult weeks. During this period, we worked closely with the management and still we meet very often, obviously more often than before the war.

Generally, the difference from the pre-war times is that now it is clear to us that some decisions need to be made very quickly, without waiting for any deadlines and other such formalities as: submitting documents for a certain number of days ahead or etc.. We all need to understand that the situation is not a usual one, and adapt. So, we have to be in the moment, so to speak, and in my opinion we are dealing pretty well with that.

Viesturs: And, when you look at the human factor – the relationships between the Supervisory Board members and the management board members, do you see a difference now compared to the regular times?

Jakub: Of course, there’s the emotional aspect. Me and my family hosted an Ukrpshta employee with her family – mom, daughter, even the dog, so you cannot really get closer than that.

Also at the Warsaw School of Economics, where I teach, I have brought together a group of Ukrainian and Polish students, with whom we are working on a Ukraine recovery plan – we plan to present it to President Zelensky.

I have also been to Ukraine about eight times since the war started – even in Kherson, just eight days after its liberation in November.

It’s completely different because there are emotions involved and the fact that we are participating in a very tragic, but, on the other hand, very important moment in history. So, today, for me it’s not just being a Supervisory Board member of a strategic company in a neighbouring country – it is a lot more, and something to be really proud of.

Viesturs: It’s definitely a life-changing experience.

Jakub: It is, for sure. I also never could have imagined that I would be trying to be something like a PR representative of Ukraine in Poland, but here we are. I’m frequently being asked by journalists about the situation in Ukrzaliznytsia and even the military situation, which I don’t comment on because I don’t have any expertise on that. However, since I’m visiting Ukraine every month, I can speak about, for example, how the Ukrainian people live and how companies operate.

Viesturs: I recently had a conversation with Tomasz Magda, the Founding Partner at Amrop Poland, about the Great Reconstruction of Ukraine and the massive contribution of Poland in help that goes towards Ukraine, and he said that in Poland you are perceived as one of the main representatives of Ukrainian interests, you’re seen as a leader in this process.

Jakub: I wouldn’t describe myself so generously, but somehow, by pure coincidence I’m a Supervisory Board member in not just one but two logistical companies in Ukraine at the same time.

And yes, as I mentioned, I have my group of students working on the Ukraine recovery plan, although I’m pretty sure there are many other groups working on documents like ours, we are still very proud of the work we’re doing.

Viesturs: It’s quite clear that the question of governance is very important in the context of accepting and organizing the funds which most probably will flow into Ukraine – and there are signs indicating that the country’s government is aware of that too. And it’s not just about corporate governance but governance in general, which until recently wasn’t really Ukraine’s strongest suit.

How do you see it, considering also the work you’ve been doing with your students – how, in your view, should the structure, organization and the processes around accepting and utilizing these funds take place?

Jakub: I’m very positive about it. Of course, this war brings tragedy and destruction. But, after the war, and I don’t think it’s just my wishful thinking, I don’t really see a scenario where Ukraine could lose.

There are so many countries supporting Ukraine in various aspects, and they see that after the war, politically speaking, Ukraine has no other option. There won’t be any discussions like in 2014, there won’t be what we call “Finlandization”: treating Ukraine as a buffer zone between Russia and the EU, or moving more towards Russia. From that perspective, rebuilding Ukraine, treating it as a future part of the EU is the only logical political scenario, and that in itself is not an issue.

The issue is always in the execution – it is a long-term process, but the rebuilding of Ukraine needs to be done with that in mind.

That means, for example, connecting the railways as far east as possible, and moving from 1520 mm Russian gauge to a European railway network with 1435 mm gauge. This is something which, I think, also has symbolically meaning for Ukrainians.

Then it’s also about taking advantage of the Ukrainian economy, like cheap energy, agriculture and commodities in its territory. This is an enormous, historical opportunity – the first opportunity across the last 400 years for Ukraine to join the Western world. I know it might sound like wishful thinking, but I don’t think so – it’s just about the implementation, and from that perspective corporate governance is an issue.

A lot of countries across the EU – the Baltic states, Poland, Romania, Germany, France – will be interested in setting high standards in Ukraine, which will allow for substantial reconstruction of a modern economy. This, of course, is not easy, but we have examples and specific organizations to rebuild devastated countries, such as it was after the Second World War - and there is the World Bank, whose official name is the International Bank for Reconstruction and Development.

So, in other words, there are institutions which have "envelopes" of money waiting for the conditions which will allow them to invest, so, in the long run, I’m very optimistic about it. But, of course, the war needs to be finished first.

Viesturs: In a situation of crisis the priorities of shareholders can change, and their interests may even come into conflict. Considering the fact that the management team is in no position to manage the shareholders, while they're dealing with the immediate crisis, this task seems to naturally fall on the supervisory board.

Can you share insights into how shareholder management is happening within your organization during this crisis?

Jakub: Now I am in closer cooperation with the minister and deputy ministers - we meet quite often, regularly discuss significant issues, and we also were in Kherson together.

Again, from my point of view, it is very beneficial for the country as a whole that we can make some decisions that in normal times would probably be made at the ministerial level. Of course, I'm talking about purely business decisions that we can make. A big practical plus, for various reasons, is also the ability to work from outside the country - for example, now in Kyiv there is not always access to a good Internet connection.

And although in my opinion, and based on pre-war experience, I can say that independent supervisory boards with foreigners are more suitable for peacetime, in practice we see that they work really well in such difficult circumstances.

Viesturs: It might be more beneficial for the whole organization, having someone in this relatively neutral position. Perhaps, when it comes to cash flow-related decisions, which for the more immediate management team might be more urgent, are ones where you can give a more long-term perspective?

Jakub: Yes, that is exactly my experience, though I must avoid detailed discussion and giving examples. But yes, you’re absolutely right.

Viesturs: The role of Ukrzaliznytsia both in ensuring as normal as possible life for the civilians and in supporting the Armed Forces of Ukraine, is enormous. And, of course, we can only imagine the danger that the railway system as an absolutely critical infrastructure is in when it comes to potential attacks by the aggressor.

How would you assess the work of the management team in these times and how did they manage to rebuild their modus operandi, adjusted to the times of war?

Jakub: On a scale from 1 to 10, since February 24 last year, I would assess the work of the management team as 10. I would highlight the role of the CEO Aleksander Kamyshin.

But it’s also important to mention that, ironically, the fact that Ukrzaliznytsia had not yet been reorganized – unbundled, divided into regions before the war, actually has helped a lot during the war.

In the communist times, the Ukrainian railways were a part of the Soviet Union railways, which at those times was a quasi-military organization. And the fact that they had not yet undergone too much change, allowed us for a relatively easy shift from normal operation of passenger trains to the delivery of humanitarian aid, being able to quickly fix the destruction of the infrastructure when and where it is necessary.

Another important aspect - the excess employment in Ukrzaliznytsia, which actually allowed us to repair and restore infrastructure, for example, restore bridges, in a way and in such a timeframe that, perhaps, would have been impossible with a shortage of people.

In sum, all this helped, but I also believe that the people in the management of Ukrzaliznytsia and Ukrposhta, who found themselves in these very difficult times, were really born and went through the path in order to become the leaders of these great organizations. So I really have a very good opinion of them, which maybe I shouldn't have, since I'm a member of the Supervisory Board. (laughs)

Viesturs: It’s really interesting how these aspects, possibly unrealized overdue plans, turn out to play such an important role right now. But, I guess, even after the end of the war the defense element in the railways probably would and should still remain as a significant part of the after-war strategy.

Jakub: Yes, it should. Of course, we will have to reckon with certain requirements from the EU regarding how the Ukrzaliznytsia organization should look like, but, depending on peace conditions and further weighed risks, this potential, definitely, must be taken into account.

Viesturs: Definitely. And it right away brings to my mind a comparison with the situation in the Baltics and the Rail Baltica project. Before the war I had talked to many people about this project and the majority of them were quite skeptical with regards to the business plan for the project. And now – now they have a business plan. (laughs)

Jakub: I know a thing or two about Rail Baltica and we talked a lot about it at the seminar last week. It is clear to me that while from a purely economic point of view, Rail Baltica may not make much sense for the Baltics, it is far from being just an economic project.

And the same could be said about a potential high-speed railway, let’s say, 10 years from now, connecting Berlin, Warsaw and Kyiv. Such a project also would not be just economic or something that works only for profit.

Here is another example. I’m a macroeconomist and there’s a lot of discussion about introducing the euro in countries such as my home country Poland. And in my opinion, when it comes to making decisions, such as joining a common currency, especially after we experienced this brutal clash with Russia, no one will see this from a purely economic perspective - these are all also political issues, because such decisions will be part of the creation of an economic zone, which in the future will have both political and defensive purposes.