Companies’ flight from Moscow sets some hard precedents

“Companies should not rush [to change strategy] based on a collective craziness scenario, and [should] focus on a long-term view. ‘Let the storm pass’ and keep the balance.”

That was the verdict of one group of young executives during a private webinar on strategy I took part in last week for a European multinational.

Sometimes, though, "collective craziness" is hard to resist. It may not even be crazy. As webinar participants were discussing when, whether, or how to change strategic course, companies were scrambling out of Russia and Belarus in response to Vladimir Putin's invasion of Ukraine.

If this proved anything, it was that it is easier for a company to react to the hard edges of a real war than to the polarising nuances of a culture war.

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Russian aggression ought to have set "the lowest possible bar" for an ethical decision, says Jason Miklian, a political scientist at the University of Oslo's Centre for Development and the Environment. But as he points out, "companies don't necessarily have a good track record for clearing that bar".

And even this apparently black-and-white scenario has shades of grey, poses complex operational difficulties, and sets up some potentially sensitive dilemmas for when the storm has passed.

Boardroom debate

Consider first the many cross-cutting elements in the debates that have been raging in boardrooms. Whether it was legal to trade with Russian partners or in Russia under a previously unimaginably strict sanctions regime. Whether it was practical to do so, given the disruption to supply chains. What global customers and – more important, according to some companies – staff would think if they stayed? What might happen to Russian customers and staff if they left?

A senior executive on last week's webinar pointed out that the multinational cancelled a project to buy a company in Russia in 2008, after Putin invaded Georgia. But it is easier to scrap a plan than unravel an existing strategy, as the stuttering corporate withdrawal suggests.

Some of the biggest brands – Coca-Cola, PepsiCo and McDonald's – were not in the first exodus, for example. They withdrew just as calls for a global boycott became audible.

Danone, the food company known for its commitment to doing the right thing, is staying, having put its "responsibility to the people we feed [and] the farmers who provide us with milk" in Russia first. The French group will not make any new investments in Russia.

Uniqlo at first took a similar stand, arguing that "clothing is a necessity of life". But on Thursday its owner Fast Retailing reversed course, blaming increasing "operational challenges". Its customers will have to source their necessities elsewhere.

Professional services firms such as Deloitte are separating Russian operations from their global federations, which leaves open the possibility of reconnecting at a later date. Others "paused", or suspended, work.

Financial cost

I deliberately left one element out of my initial list of questions that boards will have considered, but it undoubtedly loomed larger than many of the others. How much would pulling out, or staying, actually cost?

Russia is more a military than an economic superpower. Not as much is at stake financially for most of these companies that decided to withdraw as it would be if China went to war. Yet any board with investments in other potential conflict zones that did not consider whether it was setting a precedent by fleeing Russia was shirking its duties.

Alison Taylor, executive director of the Ethical Systems unit at New York University's Stern School of Business, put it this way: "If you're pulling out of Russia why aren't you pulling out of China? I don't see a qualitative or ethical difference. If we're saying human rights is the issue [in Russia], it's very hard to justify being in China right now."

Oslo university's Miklian and John Katsos of the American University of Sharjah have written about the need for companies to make consistent, principled political choices in uncertain times. Miklian says he is encouraged that companies that were prepared for the possibility of Russian aggression honoured those principles.

But if and when it becomes feasible to re-enter the Russian market, the pressure to flex the ethical framework in order to sell the first postwar Coke, Big Mac, or blue-chip consulting contract will be enormous.

While Putin is killing Ukrainians, it seems obscene even to discuss such plans. It may be years before they can be enacted, for reputational or even practical reasons. But strategy is nothing if not the art of imagining a future and preparing for it. So there is another question boards must ask themselves having set an ethical benchmark for leaving Russia, and that is: “What would the conditions need to be for us to return?”

– Copyright The Financial Times Limited 2022