Dozens of companies are still in Russia. It is increasingly difficult for them to leave.

The business dilemma is testing the mettle of some of the world’s most powerful brands, and the long-standing business credo that countries that trade together don’t go to war.

“I would say to any business leader, you have to do what you think is right,” said James O’Rourke, professor of management at the Mendoza College of Business at the University of Notre Dame. “Ultimately, you have no control over what [President Vladimir] Putin or the central government will do. But if you want to continue doing business in the rest of the free world, you have to be careful what they [the rest of the free world] think of you.

“This may be one of the times in history where proactive divestment is the best option. You’re invested in it now. You hope it remains a stable and predictable nation, but what I would say to anyone who does business in Russia right now is that it’s really hard. If you can’t get money in and out of Russia in a convertible currency, what’s the point of being there?”

The issue is underscored by the now-viral spreadsheet compiled by Yale professor Jeffrey Sonnenfeld and his research team, which had CEOs racing to avoid being added to the list of ‘companies that stay in Russia with exposure’. significant”. As of Friday, about 35 of those companies had made no public statement signaling their intention to leave the country. And even those who have pledged to leave have partial ties to Russia that will be hard to break.

“The calculation of risk the last few days has been on your reputation scores,” O’Rourke said. “It now appears to many of these large companies that the compute is now in your assets, and you just have to realize that you are no longer in control.”

Food producers such as PepsiCo and Mondelez, the brand behind Oreo cookies, Ritz crackers and other snacks, say they don’t want to deprive Russian citizens of basic foods and drinks. Goldman Sachs, JP Morgan and Deutsche Bank say they want to end their activities, but they are bound by complicated customer relationships. Others like Burger King and Marriott are bound by complex legal agreements as they struggle to reconcile two conflicting legal regimes.

Manufacturing companies face daunting prospects if they pull out of Russia, experts say. The Kremlin has threatened to nationalize the assets of companies leaving the country following its assault on Ukraine.

Consumer goods makers face an even tougher challenge: simply because they have closed factories, retailers can continue to sell their products. This leaves these companies open to continued reputational damage while missing out on profits and risking their high-priced assets.

Korean automaker Hyundai announced on Friday that it has suspended operations at its St. Petersburg plant. But sales could continue at independent dealerships in Russia, Sonnenfeld said.

LG Electronics said in a statement that it was “deeply concerned for the health and safety of all people suffering during this time of conflict, but did not say whether the company would change its business practices in Russia.”

It presents a similar situation to fast food restaurants, Sonnenfeld said, which are often operated by franchisees.

“Concessionaires are like hotel and other franchises. The arrangements give them almost no control,” he said. “Branding and marketing is all automakers and fast food companies can do.”

This lack of control, however, further incentivizes companies to sever ties with Russia, experts say. Putin’s threats to corporations make it clear that leaders cannot trust the Kremlin to support the Russian economy or protect private property rights. Companies should consider writing off their Russian assets as lost causes, O’Rourke said, and exit the region.

“If Vladimir Putin thinks he can do a better job at the fryer, let him. If he can flip burgers, great,” Sonnenfeld said. “What exactly are they grasping that is so valuable? A small part of this is physical assets.

Several major banks have announced plans to scale back operations in Russia, citing both investment priorities and moral duty. But experts say their fiduciary responsibility to clients may prevent them from severing ties entirely, and none have provided a firm date when they will leave.

A spokesperson for Deutsche Bank told The Washington Post on Friday that it was “terminating” its remaining operations in Russia while helping international customers reduce their investments in the country. “There will be no new business in Russia,” the spokesperson said.

A day earlier, Chief Financial Officer James von Moltke told CNBC that leaving Russia was not an immediate option because “we are here to support our customers.” Nor would it be the right thing to do, he added, to “help them deal with their situation”.

Although Goldman Sachs says it will “reduce” its business in Russia, its statement announcing the withdrawal leaves open the possibility that some clients may choose to “manage” their pre-existing obligations there rather than close them.

“We are focused on supporting our clients around the world in the management or closing of pre-existing obligations in the [Russian] market and ensure the well-being of our people,” a Goldman Sachs spokeswoman said in an email Thursday.

JPMorgan is “actively unwinding” its business in Russia and is not pursuing any new business there, a spokesperson said. But it remains committed to helping clients “address and liquidate pre-existing obligations”, manage Russia-related risks and “act as a custodian” for clients doing business there.

Putin on Thursday approved a plan to nationalize foreign companies leaving because of the invasion. But in some cases it may not be needed. Some companies are linked to Russia by complicated franchise agreements whereby Russian owners operate the stores.

Subway and Burger King both said they don’t own any of their Russian stores, which are owned and operated by local franchisees. In both cases, the stores are managed by an independent “master franchisee”.

Restaurant Brands International, the US-based corporate entity behind Burger King, took steps to cut the company’s support for its franchisees, but did nothing to shut them down. He committed $3 million to support Ukrainian refugees and distributed $2 million in Whopper meal vouchers to refugees leaving Ukraine. Subway also promised to redirect all profits from Russia to humanitarian aid.

“They are not war profiteers and they are not exploiters in any way,” O’Rourke said.

“If McDonald’s pulls out of Russia and closes its 850 stores, those stores won’t be empty indefinitely or even for very long. If the government nationalizes these stores and turns them over to friends of the government to run, the people of Chicago can’t bring down the golden arches.

PepsiCo and Mondelez have pledged to stop manufacturing and distributing certain luxury items in Russia, including soft drinks, cookies and candy.

In a letter to PepsiCo employees, CEO Ramon Laguarta wrote that the war meant “we must stay true to the humanitarian aspect of our business,” suggesting that halting company operations on items such as baby food, infant formula and dairy products would create unnecessary difficulties. for ordinary Russians.

Mondelez CEO Dirk Van de Put said his company would help “maintain the continuity of the food supply during the difficult times ahead”. The company also manufactures Halls cough drops and a range of baked goods.

The statements were widely met with approval on social media, and some pundits said the stances provide stable common ground: they could protect brands from consumer feedback, prevent ordinary Russians from suffering the consequences of the war and protecting Russian workers from wage losses and public criticism.

“At the moment, it feels noble,” O’Rourke said. “If they want to appear fully noble, they can donate excess profits from these business lines to humanitarian causes in Ukraine.”

But these positions also risk blunting the effectiveness of Western sanctions, the aim of which is to isolate Moscow and make Russian public opinion feel the effects of the invasion. The goal, Sonnenfeld said, is to create enough financial chaos in Russia for the public to hold the country’s leaders accountable.

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