Companies That Stay in Russia Ignore Warning Signs at Their Own Risk

When Russia launched its unprovoked war against Ukraine on February 24, 2022, hundreds of businesses in the U.S. and around the world quickly cut ties with the rogue nation. Now some of those that stayed are beginning to risk the consequences of inaction. Their experience underscores the importance of maintaining consistent corporate values in the face of threats to global stability.  

Lesson 1: Corporate values have bottom line value

In some quarters, it has become politically fashionable to question the appropriateness of corporate values and ESG (environmental, social and governance) principles. But a growing body of evidence demonstrates the financial merit of value-based action.

Researchers at the Yale School of Management are among the analysts who are building a data-driven case in support of the corporate social responsibility movement. “Across many fronts, we have shown in quantitative analysis of business performance that doing good for society is not at the expense of doing well for shareholders,” the Yale team wrote in an update on their work published last month.  

Despite concerns that ESG has become politicized and weaponized, analysts also make a demographic case for corporate social values as companies compete for talent in the up-and-coming workforce of Generation Z.

Lesson 2: Long-term benefits outweigh short term risks 

As an example of businesses that are doing good, the Yale team cited businesses that exited Russia to protest the invasion of Ukraine. Some businesses saw the writing on the wall and announced their intention to exit Russia almost immediately after the invasion began. Others soon followed.

The Yale team compiled a dataset of 1,200 businesses over the next three months, enough to reach a conclusion. “We find that equity markets are actually rewarding companies for leaving Russia while punishing those that remain behind,” they summarized in an updated report on May 31, 2022.
 
The tendency of media and analysts to focus on initial losses may have created the impression that companies took a permanent hit when they left Russia, but that is not what happened.

“Despite disproportionate focus on asset write-downs and lost revenue from Russia, we demonstrate that the shareholder wealth created through equity gains have already far surpassed the cost of one-time impairments for companies,” the team reported.

Lesson 3: Think globally

In addition to protecting their own brand reputations, businesses that left Russia helped to build public support for a multinational effort to help defend Ukraine with military aid as well as stepped-up economic sanctions against Russia.

In that context, leaving Russia reflects a broader awareness of the power of brands to defend against global threats.

When Russia invaded Ukraine, it upended a 70-year period of relative economic stability in Europe and raised the threat of a cascading effect on other nations, including several members of the European Union as well as the U.S., Canada and the U.K. through their membership in NATO, the North Atlantic Treaty Alliance. Russian President Vladimir Putin upped the threat level by suggesting that Russia was willing to deploy nuclear weapons. 

All in all, leaving Russia was not simply a matter of leaving some business assets behind. It was also a matter of preserving assets in other parts of the world.

Lesson 4: Read the room

Some companies that stayed in Russia may have been lulled into a false sense of security by the usual ebb and flow of public opinion and corporate reaction. For example, corporate outrage over the 2018 murder of the journalist Jamal Kashoggi was quick to explode, but the outrage flamed out just as quickly, along with the media attention.

Some companies may have also been misled by the reaction to Russia’s initial actions against Ukraine in 2014. That resulted in government sanctions, but a Russian propaganda campaign muddled the response within Ukraine and globally.

The invasion of 2022 was different in kind and scale. The fact of an unprovoked invasion, the potential for spread across Europe, and reports of Russian atrocities combined to feed a news cycle that continues to this day. 

That difference is reflected in the corporate response to the invasion of 2022. In a report on April 7, 2022, Yale team leaders Jeffrey A. Sonnenfeld and Steven Tian recognized the significance of the strong response against Russia. They compared it to the successful boycott against South Africa in the 1980s.
 
“The corporate exodus … was a remarkable display of the power that companies have,” they observed. With Russia, there is another “chance to draw a line … and make a difference," they added.

Leave, before it’s too late

Companies that stayed in Russia failed to maintain consistent corporate values, failed to measure long-term benefits against short-term losses, failed to acknowledge their power to influence international affairs, and failed to recognize the once-in-a-generation significance of a corporate response.

The Yale team has criticized companies including Heineken, Unilever and Mondelez for dragging their feet on their pledges to leave Russia, CNN reported last week. 

They may come to wish they had acted more quickly. As of Monday, the Russian subsidiaries of Danone and the Danish brewer Carlsberg are now under state control, following a decree that provides the Russian government with the authority to seize foreign assets, CNN reported in a follow-up. 

Another company reported to be dragging its feet is the U.S. oilfield services firm SLB (formerly Schlumberger). On Tuesday, the Associated Press reported that SLB continued to export equipment to Russia, up until last week.

This week the Yale team also scored 224 companies with an “F” grade for their ties with Russia. Many are located in China and other sympathetic nations. The list also includes the U.S. companies Carl’s Jr., Cloudflare, Guess, Sbarro’s Pizza and TGI Friday’s, among others.

With the war dragging on, Russia appears to be playing a waiting game, banking that support for Ukraine will be exhausted. At this critical juncture, companies that have remained in Russia can sit on their hands and wait to see what happens next, but they still have a chance to take action, join the exodus and help make a difference.

Image credit: Yohan Marion/Unsplash