Volodymyr Zelensky’s message was direct. Western companies must leave Russia immediately “because it is drenched in our blood,” Ukraine’s president told the US Congress last week. Those who remained, he said, would fund Russian President Vladimir Putin’s war.
Multinationals have withdrawn from Russia with unprecedented speed and scale. Some, like Danone, stopped new investments but insisted they would stay, citing responsibility to “the people we feed [and] the farmers who supply us with milk.
Many are exploring more radical options. Jeffrey Sonnenfeld, a Yale School of Management professor who has tracked the “corporate blockade”, estimates that more than 400 have now pledged to scale back, suspend operations or pull out altogether.
Behind the volley of ads, “the execution is very complicated,” he noted.
Interviews with executives, advisers and academics suggest that even companies that have announced plans to pull out of Russia completely face dilemmas about their people, their assets and liabilities, and their short and long options. term in the country.
The people problem
“It would be quite easy for me to say we’re leaving Russia – that’s what we all want to do,” said UniCredit chief executive Andrea Orcel. However, he said, the bank employs about 4,000 people there.
Some companies, like Spotify, have taken people out. A few closed their businesses in Russia despite being a sizable local employer, like Accenture, whose exit affects nearly 2,300 jobs. After suspending its St. Petersburg plant, Toyota is gradually letting its expatriates and their families, 48 people in total, return to Japan.
Most employers struggle to find a balance between distancing themselves from a suddenly toxic market and protecting employees.
“You have places like McDonald’s and IBM with [large local] labor and they don’t want to come across as punitive to people who have been part of their family,” Sonnenfeld said.
Even though McDonald’s has suspended operations in its 850 Russian restaurants, it has promised to continue paying its 62,000 employees there.
But Sonnenfeld noted: “The question is how much longer can McDonald’s and IBM continue to pay people to do nothing: how long will they put up with it and how long will the general public appreciate that they’re pumping money into a rogue economy.”
Privately, leaders are expressing concern about possible retaliation. Russian prosecutors have warned that business leaders who criticize its government face fines and jail time, while companies that suspend operations could be found guilty of “fraudulent or deliberate bankruptcy”.
Another auto executive said: “We deliberately cited supply chain issues as a reason to stop [production]. We purposely don’t get into the politics of that, whatever we think, because the situation is very, very delicate. If you stop [the plant] for whatever reason, you are on their radar.
A few companies cited staff concerns as a reason to stay. Dave Robertson, chief operating officer of Koch Industries, noted that it employs about 600 people at two glass factories in Russia. “We will not abandon our employees there or hand over these manufacturing facilities to the Russian government so that they can operate and benefit from them,” he said.
The threat of expropriation
As Robertson has hinted, some Western companies fear suspended operations could be seized by the state. Putin warned that the Kremlin would find “legal solutions” to transfer the assets of multinationals fleeing Russia “to those who really want to work”.
An executive from another automaker said: ‘If we are seen to be shutting down the operation for no good reason, we could face nationalization, bankruptcy or administration and then seizure of the assets. if you don’t restart the operation.”
Alberto Alemanno, a law professor at HEC Paris, said companies “now pay a lot of lawyers to assess what they can do to protect their investment”.
Their concerns reached the White House, where press secretary Jen Psaki tweeted that “lawless” seizures would result in legal action. The Russian Embassy in Washington called the fears “Russophobic hysteria”.
Sonnenfeld said the risk was limited because most non-industrial companies had few hard assets in Russia.
When Disney said it would “suspend” all operations in Russia, it added that “contractual complexities” meant it would need time to extricate itself from others, such as its TV channels.
McDonald’s also has ongoing commitments, such as restaurant leases. In total, CFO Kevin Ozan said this month that would keep its costs in Russia at around $50 million a month.
Some companies may decide the reputational risks of continuing to pay counterparties in Russia are too high, said Derek Leatherdale, managing director of geopolitical risk consultancy GRI Strategies.
“In theory, companies that pull out would retain legal obligations and financial obligations in Russia,” he said. “Presumably, some calculate that even if the Russian authorities tried to enforce them, there is nothing to be done. This falls into the category of theoretical risks outweighed by the PR benefits of going out.
Western companies seeking professional advice are facing new challenges as international law and accounting firms close their local subsidiaries themselves or at least temporarily uncouple them from their global networks. Legislation designed to prevent sanctions “circumvention” limits the advice they can provide to companies with Russian counterparties and obligations or seeking to sell assets or collect payments.
A lawyer warned that while companies could legitimately stop doing business with organizations that had been sanctioned, those that voluntarily suspended their contractual obligations faced significant exposure. “Going beyond sanctions is extremely risky,” he said. “There will be numerous claims from suppliers, joint venture partners and investors that will be heard in the English courts.”
Can sellers find buyers?
Companies such as BP and Shell have announced plans to sell Russian assets. For some, existing partners or franchisees are logical buyers. But they are struggling to find buyers who are not on Western sanctions lists and wondering how to repatriate the proceeds of the sale.
The cigarette manufacturers Imperial Tobacco and British American Tobacco transfer their activities to Russian companies. BAT’s chief marketing officer, Kingsley Wheaton, told the Financial Times he had been aware of a “real possibility” that the “fake bankruptcy” regulations being debated in parliament could lead to criminal prosecution.
But he said negotiations could take months because transferring the management of BAT’s 2,500 employees in Russia, its manufacturing plant and its supply chains to St Petersburg was a “complicated undertaking”.
“It’s not your typical M&A book,” he said. “A merger and acquisition of this nature would take a long time in itself. Add to that the idiosyncrasies of the current environment, it will only make this an even more convoluted and complex situation.
Keep options open
Companies that have retained some or all of their original operations in Russia, more than 80 by Sonnenfeld’s count, face a declining economy, broken supply chains and a devalued currency. Some are struggling to access cash to support their operations.
As James Peters, Whirlpool’s CFO, put it: “You’ve got demand going down, you’ve got penalties that are now in place that will make it difficult to get components. We don’t know what the long and medium term looks like. like for that.
The Ingka Group, whose 17 Ikea stores, nine planning studios and distribution center in Russia employ 12,000 people, said it was assuming its suspension of operations would last several months.
“We want to provide long-term employment stability to all of our colleagues and recognize that the situation in both countries is dynamic and rapidly changing. We are working on a six-month plan, but since our announcement of a temporary break, we have guaranteed three months of salary in Russia,” the company said.
The risk of a return
Even as companies rise to the challenge of meeting their retirement promises, those hoping to one day return to Russia need to think about how they would do so, says Michael Useem, a Wharton professor who specializes in risk management.
“If I’m at McDonald’s headquarters, I think ‘one day we’ll be back. . . What would be the context, the circumstances, the moment, the political climate that would allow us to legitimately return there? “, he said.
Boards were to oversee a strategy for how their companies could re-enter Russia in a way acceptable to their stakeholders, Useem said. “It has to be [informed by] dedicated analyses.
A number of companies are exploring ways to go offline but stay, such as using call options to buy back assets temporarily divested to trusted local partners. But as one lawyer said, “Selling is never easy and finding a buyer is very difficult. If you are selling to a trusted third party, applying a call option is not straightforward. If you let go of an asset, you may never see it again.
By Andrew Edgecliffe-Johnson and Andrew Jack with Peter Campbell, Philip Georgiadis, Ian Johnston, Richard Milne, Michael O’Dwyer, Antoni Slodkowski and Eri Sugiura