Well over 1,000 companies have withdrawn from Russia, albeit to varying degrees, since the outbreak of the Ukraine invasion. However, some 200 foreign businesses have done absolutely nothing, according to the authoritative list of businesses leaving Russia (or not) compiled by the Yale School of Management.
The university’s research is led by Professor Jeffrey A Sonnenfeld, under whom a team of 42 researchers (speaking 12 languages) continue to track whether or not companies make good on their pledges to leave Russia.
After four months of ongoing research, Sonnenfeld writes that, on the one hand, companies have shown how quickly they can take political action and divest from Russia, both for ethical and business reasons. On the other, it has shown the very opposite. “Yawning gaps in global governance” have been revealed, alongside “massive gaps in management’s ability to decide on and take appropriate action regarding doing business with and in Russia, as well as boards’ abilities to provide effective oversight of those actions,” says Sonnenfeld.
All manner of excuses
Yale contends that companies are using “diversionary delays” to avoid actual withdrawal from Russia. Committing, therefore, to a clearly articulated course of action is the solution.
“Indefinite, insincere ‘reviews’ and ‘evaluations’ do not help [a] company,” says Sonnenfeld. “It is also obvious to investors, consumers and media that these are nothing more than stalling techniques.”
For example, a huge US paper company claimed to have only a passive interest in a Russian partner company in Russia when, in fact, it owned 50% of the business, with nearly half the partnership’s operational oversight board made up of its own company executives.
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By GlobalData“When this came to light, the US company promised a ‘strategic review of options’ to divest the Russian operations in early March – yet all substantive operations are continuing,” explains Sonnenfeld.
Ethically spurious companies are also denying documented activity. For example, a leading audio headset company publicly announced that its stores were “essentially closed” in Russia, but Yale’s researchers were able to call Russian stores and complete purchases a month after this statement.
“Meanwhile, a major shoemaker claimed to have quietly shut down its business in Russia, yet its merchandise was still in Russian stores, branded with their marquee signs,” says Sonnenfeld. “The CEO of a global car rental company claimed during a CNBC interview to have shut down all of its Russian operations, yet we were able to rent a car from a Moscow operator the very next day.”
Stalling and smokescreens
Strategic smokescreens are another go-to strategy for dilly-dallying companies. In short, even after pledging to take action, management teams sometimes stall or make excuses in the hope that the situation will blow over.
“Companies that release misleading public statements boasting about plans to curtail never-before-mentioned future investments, or that do the bare minimum to comply with global sanctions, risk appearing hypocritical,” says Sonnenfeld. “For example, a major chemical company still claims, with no justification, that its employees would be at greater risk than millions of idled employees from other firms.”
Meanwhile, some franchisors have argued that they lack the contractual arrangements and, as a result, the legal control to shut down locally owned franchises. However, many others, including Starbucks, resolved this by financially supporting Russian-based franchises in order to live up to their commitment to shut them down.
It seems, therefore, that some companies are just too afraid to take a financial hit. However, according to Sonnenfeld, this thinking is likely to backfire, incurring reputational harm and stakeholder wrath that will only build the longer the company fails to take action.
Indeed, markets are rewarding companies for leaving Russia while punishing those that remain, with consumers taking a similar stance. It pays off, it seems, for Western companies to leave Russia.
