Companies Around the World Are Saying “Nyet” to Doing Business in Russia After the Invasion of Ukraine

“The answer to all your questions is money…”

—- Don Ohlmeyer, as told to Tony Kornheiser

Introduction

All too often, as a strategic management professor and consultant, we talk in abstract terms about companies and their top management “doing the right thing” when it comes to really tough issues involving corporate ethics and social responsibility. In many classes across the business curriculum, the ethics chapter is put off to be the last one on the reading list. And if there’s a snow day, a professor sick day, or these days, maybe a COVID-19-related class cancellation, well, it’s okay if we never even get to talking about business ethics in class! Talking about ethics can make students - and yes even their professors - feel uncomfortable, as ethical issues are often intertwined with what are often controversial - and many times highly personal and highly charged societal, political, environmental, sexual, religious, etc. matters. Beyond the classroom and even the corporate training room however, we know that acting ethically is even harder, and oftentimes, making the ethical decision is not just hard - but it can also be very, very costly.

And when reality hits and a very real - not just hypothetical - ethics issue arises, more often than not, we see the folks who run large companies that have a “C” as the first letter in their acronym title, who have a plush office in the “C” suite, and who pull down the salaries and enjoy the perks of being a “C-level” executive make what is, in essence, a money-based, bottom-line protecting decision. Time and time and time again, companies will announce that they are doing what might be perceived by most as being the “right thing to do,” only to reverse themselves when their leaders come to realize that in doing so, they would be costing the company money - perhaps big money - by taking the morally-right stance and acting as such.

Take for instance what happened in the wake of the January 6th Insurrection at the United States Capitol, which has been rightly termed as being one of the darkest days in all of American history…

In the aftermath of the attack on the capitol building and on American democracy itself, many leading American companies announced that they would no longer contribute to the political campaigns of those U.S. Senators and Congresspeople who voted to overturn the results of the 2020 election. Major trade associations also joined in the withholding of political contributions from those who seemed to support the insurrection. Some firms and industry groups even went so far as to suspend all of their contributions to anyone who held or was a candidate for a federal office. And while initially a substantial portion of the Fortune 500 - even the U.S. Chamber of Commerce - took such actions in response to the events of January 6th, most of these organizations rather quickly resumed their political donations, even to members of the so-called “Sedition Caucus” that voiced their outright support for overturning the will of the voters in the 2020 Presidential Election.

Call this a case of executives waking up to the reality that they needed to continue their political donations to retain their influence on lawmakers - and hence policies that could have a significant impact on their companies and their industries. Call this a case of top managers following the famous Michael Jordan adage that “Republicans buy sneakers, too!” and not wanting to cause a consumer backlash against their firms and their products and/or services for staking out a political position. Call this a case of C-level executives walking back what could have been a powerful statement on the state of affairs in America, simply out of a fear of what it might cost their companies in sales, market share, consumer perception, even their market valuation and growth prospects. Whatever you call it, looking back more than a year after the January 6th insurrection, the actions of most corporate leaders in America in the aftermath of the event cannot be labeled as a “profile in courage.”

And again and again and again, we have seen instances mirroring what happened in the wake of January 6th, where corporate leaders have either failed to do what is the “right thing” in the first place, and even if they do take a moral stance with their company’s influence in the marketplace and in the media, they quickly retreat from doing what is ethically right to doing what will yes, make them the most money! From climate change to workers’ rights to LGBTQA+ issues to womens’ rights and on and on and on, we see corporate leaders either take just symbolic stands on controversial issues - maybe issuing a press release or holding a town hall with their employees on the subject, rather than taking tangible, meaningful actions, actions that might cost their company “bigly” in terms of sales revenue and lost market opportunities.

The Corporate Response to the Russian Invasion of Ukraine

Sadly, the biggest news story of the year, and one that could potentially, in time, even overtake the horrors of the COVID-19 pandemic and become the biggest news story of this decade is the Russian invasion of Ukraine that started in earnest less than two weeks ago. In what is the largest land war in Europe since World War II - and the first war to really be fought in the Social Media Age, all of us in America have been impacted by the events that have transpired in recent days. We have seen - often in real-time and in 4K - images of heroism and hope…

…of fear among ordinary Ukrainians…

…of death and destruction…

…and of Russian atrocities - and perhaps even war crimes, such as when their army actually bombed a nuclear power plant…

… along with indescribably sad scenes of seemingly random bombings of high-density residential areas across Kyiv and the other major cities in Ukraine that may well be war crimes committed by Russia.

Already, almost a million and a half Ukrainians have fled their country for neighboring nations like Poland, Slovakia and Hungary, making this the largest migration of people - in an incredibly short period of time - in Europe since World War II!

Now, the geopolitics of the Russian invasion of its neighbor are far beyond the scope of this article. And while the overall outcome of the war is in some doubt as of this writing less than two weeks into Russia’s military action against Ukraine, one thing seems for certain. Much of the world has become united in opposing Vladimir Putin’s decision to invade Ukraine, with not just governments, but people all around the globe - even on the streets of Russia - united in protesting the invasion.

The Russian war against Ukraine also poses what could be the ultimate test for corporate leaders in terms of doing the right thing in how to address the present, rapidly unfolding situation. It is in fact almost the perfect hypothetical final exam question over ethical decision making in business, except in this instance, it is very real - and if you are the head of a major company today, it is a decision that has to be made very quickly - and one that could have far-reaching implications. Russia has a population of just under 150 million people today, and it represents the world’s eleventh largest economy, with a GDP (Gross Domestic Product) of approximately $1.5 trillion U.S. dollars. The Russian people had been steadily becoming a good consumer market for goods and services of all types over the past three decades, attracting many large Western companies to their marketplace. So, if you are a top executive at an American company, in a European company, or even in a Chinese company, how can - and should - you respond to the unprovoked Russian invasion of its neighbor?

While all too often it is easy to criticize corporate leaders for prioritizing profits above all else, in this instance, it does appear that many of the world’s top companies are indeed “passing the test” and taking a firm stand against the Russian aggression. As world leaders seek to isolate Russia diplomatically, financially, and economically with unprecedented levels of sanctions against the country, top executives are - by and large - major corporations across many consumer and even industrial sectors are “stepping up to the plate” and taking actions to withdraw their presence - and often quite significant investments - in the Russian economy. The list of companies having taken such actions to date is indeed impressive. They include companies across a wide variety of sectors, headquartered all over the globe.

Energy

With the energy sector being the primary driver of the Russian economy (many have described the country as basically being “a gas station with nukes”), corporate action has been swift against the Russian state and partner firms for global oil and gas companies - even at the risk of billions of dollars for these firms. To date, we have already seen the following moves by major, global energy companies in the Russian market.

• Shell has determined that it will end its cooperation and investment in a number of Russian ventures, most notably ending its joint ventures with Gazprom, the giant state-controlled energy company. Additionally, Shell has announced that it will withdraw its $1 billion in financing for the troubled and controversial Nord Stream 2 pipeline to supply natural gas from Russia to European markets. Finally, Shell will also withdraw from exploration efforts in Siberia and sell the company’s interest in the giant Sakhalin 2 Russian LNG (liquified natural gas) facility.

“We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security.”

— Quoting Shell CEO Ben van Beurden

• In like fashion, BP ("BP to ‘exit’ its $14 billion stake in Russian oil giant in stark sign that Western business is breaking ties over Ukraine invasion"), ExxonMobil ("Exxon to exit Russia, leaving $4 bln in assets"), and the Norwegian oil and gas giant Equinor ("Norwegian energy firm Equinor to exit Russia amid invasion of Ukraine") have each announced that they were withdrawing from their Russian energy operations and joint ventures. In the case of BP alone, the company risks a loss of its investment that could be as high as $25 billion - or more - for its decision to cease operations in Russia.

Aerospace

As many countries around the globe close their airspace to Russian aircraft, the actions of Boeing and Airbus to suspend their support for Russian airlines will likely impact the ability of even Russian domestic air carriers to be able to continue their operations. Without their maintenance and technical support, as well as the availability of spare parts, aviation industry analysts have projected that domestic airlines in Russia may only be able to operate for a few weeks at best since Boeing and Airbus aircraft make up over two-thirds of the Russian airlines’ fleet.

Additionally, Russia’s civil aviation agency has suspended all international flights for the country’s airlines (those that could be made, given the closure of many countries’ airspace to Russian aircraft), with the exception of one to Minsk, Belarus. This action was taken out of fear that Russian airlines’ aircraft could actually be “repossessed,” as the aircraft leasing companies that actually own these leased airliners could act on their home countries’ (most notably Ireland) sanctions against Russia.

Automotive

Automakers from around the world have likewise announced that they would withdraw - or at least suspend operations - in the Russian market in the wake of the Ukraine invasion. An example of this is the German automaker BMW has halted exporting vehicles to Russia and has also announced that it will cease assembling BMW vehicles in the country, as it had been doing for two years under a partnership with the Russian domestic car maker Avtotor. In like fashion, most leading global car manufacturers, from GM and Ford in the U.S. to Volkswagen and Renault in Europe to Honda and Toyota in Japan to Volvo (which is today owned by the Chinese conglomerate Zhejiang Geely), have all suspended shipments to and/or their operations in Russia.

Even the iconic American motorcycle maker Harley Davidson has announced that they are suspending shipments to Russia. According to Cycle World, the company’s bikes are highly sought after in Russia and sales there represent a considerable part of Harley Davidson’s approximate third of its total corporate revenue that comes from its sales in its Europe, Middle East, and Africa division.

The Rest

Across almost all sectors of the Russian economy, international companies are indeed withdrawing their presence - and in many cases their quite significant investments - in the country. In the tech sector, Apple, Microsoft and Dell and more are leaving the Russian market. In the retail world, H&M, Ikea, Nike, Adidas and more are leaving the Russian market. In the entertainment sector, Disney, Warner Brothers, Netflix and more are leaving the Russian market. In the social media world, TikTok, Facebook, and Google and more are leaving the Russian market. And in the payments sector, Visa, Mastercard and American Express, along with a bevy of international financial firms, are leaving the Russian market, which will make it harder for other companies to continue to do business in the country.

Analysis

In the end, while there are big dollars (and Euros and Yen, etc.) involved, this would seem to be a relatively easy decision for top executives to make to exit Russia in light of the Ukrainian invasion. Indeed, each and every day, more and more corporate leaders are making the decision to leave the Russian market, in order to try and be on the right side of history.

Why is this an easy decision, even if companies are having to abandon years of work in developing their presence in the Russian market and, in many cases, leaving behind billions (and billions) in investments that will have a huge impact on their short-term corporate financials? The answer is simple: There is waaaaaaaayyy too much downside risk in not doing so at this unique moment in time. You simply do not want to be THAT company and THAT CEO that trends on Twitter for not doing so! And we are seeing that happen with increasing frequency today, as users take to social media to call out firms and their executives for NOT withdrawing their presence - and their wares and services - from the Russian market.

And you do not want your company to be associated - in any way - with images such as this:

Today, we see trending topics on Twitter with hashtags like:

• #BoycottCocaCola

• #BoycottPepsi

• #BoycottMcDonalds

• #BoycottBurgerKing

• #BoycottStarbucks

And in fact, based on the events of recent days, all of these companies - and more - have reconsidered their positions and chosen to withdraw from the Russian market - for now!

Now, there can be arguments made on both sides of the question of whether or not withdrawing from the Russian marketplace is the “right” thing to do for individual companies, based on the nature of what they are selling and how their leaving the Russian market will impact the Russian population, as opposed to the Russian government and the Russian military in particular, both as consumers of their products and/or as having their employment depend on the firm’s continued presence there. Indeed, there are already stories of just how harsh an impact the sanctions are having on ordinary Russian citizens. As Dr. Philip Nichols, a professor of social responsibility and ethics in business at the Wharton School of the University of Pennsylvania, someone who has actually worked with businesses in both Russia and Ukraine, put it bluntly in a recent interview with Fast Company:

“Someone who provides critical medicines or basic foodstuffs is in a different position than a firm that provides high-end handbags. As every company decides what to do they need to take into account the extent to which they are abetting or propping up a regime that’s doing bad things. A business cannot excuse itself simply by saying we’re a business firm. Business is not distinct from the rest of society.”

However, Professor Nichols went on to caution that the impact felt by the Russian people may not translate into political pressure on Putin, as we in the West might expect:

“In the past decade, Putin’s administration has undertaken a lot of things that either insulate the administration from public opinion or manipulate public opinion. So when the Russian people are hurt by all of these things, it kind of dulls the effect that that will have inside of the Kremlin. On the other hand, just because it dulls it doesn’t mean it is not felt.”

Yet, the power of ordinary Russians, especially the younger population that has been accustomed to easy access to information, travel, and yes, Western goods, should not be underestimated. From the perspective of veteran political consultant James Carville, the Russian consumers could just prove to be Putin’s undoing:

“They (the Russian people) are very consumer oriented, and they love Adidas and Levis and they love Apple phones. Well guess what? You won’t be able to buy any of that because you’ve got to pay for it in Euros and Dollars and sell it in Rubles. And right now, it’s 112 Rubles to 1 dollar! Now I don’t buy that all of this can’t really can’t undermine his (Putin’s) domestic position in Russia!”

Now, at this early, yet critical point in what will likely be a protracted story that is yet to fully play out from the Russian invasion of Ukraine, this management expert would caution companies and their executive teams to think in the long-term on the matter. As highlighted earlier, specifically in the case of how much of Corporate America reacted to the January 6th Insurrection, companies and their executives were quick to take public stands and do the right thing initially, only to reverse course when “the dust (and media attention) cleared” and go back to doing business as they had before the precipitating event occurred. Thus, I think the real test for corporate leaders in regards to the Russian Crisis will come down the road - a month, two months, six months, a year from now. Will they persevere and “stick to their guns” (no pun intended, especially under the present circumstances) and continue their particular company’s withdrawal from the Russian market, or will they go back to “status quo ante bellum?”

This will be the true test for corporate leaders all around the world. The great writer C.S. Lewis once famously said that: “Integrity is doing the right thing even when no one is watching.” And the modern day comic-philosopher Jon Stewart put it even more bluntly: “If you don’t stick to your values when they are being tested, they’re not values: they’re hobbies.” How those in the C-suites of the Fortune 500 and Global 1000 not just react in the present, but how they move forward in regard to their Russian business connections will go a long, long way toward making - or breaking - their corporate reputations, both now and in the future! The world is watching. And I believe the world will be watching companies and their top executives for a long time to come in regard to how they respond to the Russian aggression against Ukraine. And yes, sometimes the right answer to the question is not money, especially if it involves Rubles these days…

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About David Wyld

David Wyld is a Professor of Strategic Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, publisher, executive educator, and experienced expert witness. You can view all of his work at https://authory.com/DavidWyld.

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