Attachment #15: Corporate Response: Exiting Russia Plus A Future Test Regarding Stakeholder Values
For business emerging from this war is a future test of emphasizing stakeholder values regarding the countries in which they operate. Trust has been shattered and the impact will be long term. The corporate world was betting that this invasion wouldn’t happen. But now that it has, the world of international business has lashed out, halting operations, breaking off joint venture partnerships and unwinding investments. They don’t want to be caught on the wrong side of history.
Over the past 30 years since the collapse of the Soviet Union, it seemed possible that a new era of stability and opportunity for Western companies had arrived. But with the invasion everyone is scrambling. It also matches a new mentality in stakeholder responsibility, and in particular to environmental, social and corporate governance. Companies that continue to maintain ties to Russia will pay the price. Trust has been shattered, and for some, it may never come back.
The president of the American Chamber of Commerce in Ukraine tweeted on March 4th: “I call on US companies and multinationals to immediately shut down all operations in Russia. US companies must stop profiteering in a pariah state that murders innocent women and children and attacks a nuclear power plant in 21st century Europe.”
The CEO of Purpose Investments has pledged to isolate “Russian leadership by unwinding commercial relationships and divesting Russian holdings.” BP is dropping its one-fifth stake in Russian oil company Rosneft based on fiscal and moral grounds. Shell will no longer buy oil and natural gas from Russia. BP, ExxonMobil, Norway’s Equinor, likewise. Progress, also, on Russian oil development projects is likely to slow significantly as Western contractors leave the country. One example is the gigantic Vostok oilfield development in Russia’s north, which is expected to produce two million barrels per day.
More and more companies are suspending or drastically curtailing operations, e.g. Boeing, IKEA, Marriott, Apple, Microsoft, Adidas, Coca-Cola, KFC, Pizza Hut, and Starbucks have closed their Russian operations. McDonald’s, the company that first opened Russia to the western franchise world just after the fall of the Berlin Wall, have temporarily closed nearly 850 locations. Some like Burger King have had problems controlling their franchise operations, many of whom wish to remain open.
Most major automakers have put production on hold, e.g. Mercedes-Benz, Renault, Volkswagon, Toyota, Ford. Other automakers have vowed to cut off vehicle sales (GM, Porsche, Harley-Davidson). Boeing and Airbus have halted support services for Russian airlines. Delta suspended it’s code-sharing partnership with Aeroflot. Visa and MasterCard have suspended operations. Goldman Sachs was the first broker to pull out, followed by JPMorgan. Disney, Sony and Warner Bros announced early on that they would suspend their new cinematic releases in Russia. As of March 21, over 400 companies have acted, according to a list compiled by Yale University. The job losses from the corporate exodus alone are staggering, with layoffs numbering in the tens of thousands, and likely to climb much higher.
Canadian companies, Shopify, Kinross Gold Corp, McCain Foods and Canada Goose, Alimentation Couche-Tard are exiting or suspending operations. Bombardier (which does 6% of its private-jet business in Russia) has cut off all ties to its Russian clients, including technical assistance. Those that continue to do business there will face hard questions (Magna International, for example, equivocated, but then suspended operations). The managing partner of McKinsey & Company was blasted for having “blood money on your hands” for failing to exit. They subsequently stopped accepting client work in Russia, and will cease consulting for state-owned enterprises. History will not be kind to those who choose short-term profits over principles and values.
Russia’s future as host for foreign business is grim. Canada’ former deputy director for trade and investment development in the Soviet Union said: “It won’t come back unless Russia pays reparations, unless the Hague gets involved and war crimes are adjudicated…There will have to be a sea change in Russia’s political positioning before anybody with big money would bother.”
One long term outcome of this war is a business test of values in the countries in which they operate. The pressure on companies to adopt a social purpose and take a stand on the sociopolitical problems of the days is more and more intense. A survey conducted last May for the Canadian Centre for the Purpose of the Corporation revealed that between 63% and 75% of Canadians support corporations taking a stand on such issues. The idea of embedding “purpose” into a company’s operations is critical and implies balancing the interests of a business’s stakeholders.
One Canadian asset manager company, AIMCo, the provincial pension and government fund manager in Alberta, in addition to divesting all of its Russian holdings, has decided to make a values check on all of their business. The CEO Evan Siddall has said that they will review their whole portfolio “to make sure it’s consistent with values and values across the board.“ That means looking at whether investments are in countries “where there’s concern about rule of law, and the investibility of those jurisdictions.”
A side-bar value question is emerging: should ordinary, uninvolved Russians be made to sufferer Putin’s actions? Pharmaceutical companies such as Pfizer, Bayer and Eli Lilly have said they plan to continue supplying medications for diseases such as diabetes and cancer. They feel they serve an essential humanitarian need.
Russia will try and counter the exodus. They have put in place new capital controls to prevent Western companies from selling Russian-based assets. Putin has said that Russia will seize assets of companies that abandon their operations in the country. Some companies have been warned that their employees could face arrest if they shut down production of essential goods.