Future risks?
Jeffrey Sonnenfeld, the founder of Yale’s Chief Executive Leadership Institute, believes companies choosing to stay in Russia amid the ongoing invasion of Ukraine will not be viewed kindly by the public.
He compares it to the PR disaster faced by companies that ran German operations during the Third Reich. “When the war ends, they’re going to be seen as Nazi collaborators were seen,” he says.
He argues the decisions to continue German operations by companies including Woolworth, Royal Dutch Shell and Texaco did not benefit their bottom lines in the end. All three were forced into stopping their activities in Nazi Germany due to pressure, adds Sonnenfeld. Texaco’s chairman, Torkild Rieber, was forced to resign in 1940 due to public outcry over his pro-fascist sympathies and dealings with Gerhard Westrick, a Nazi official who represented US companies operating in Germany.
However, not every business in this position sustained harm: IBM, which currently has a market cap of $134bn, supplied technology to the Nazi regime itself; while Volkswagen, the original producer of Hitler’s so-called ‘people’s car’, is currently the largest automotive group in the world.
As for the current conflict, Rasche believes the long-term consequences for companies choosing to stay in Russia depend on investors’ appetite for risk. After all, he says, companies in Russia could have their assets seized, as was the case with Carlsberg, or kicked out of the country. If the war escalates further into Russia itself, workers, factories and other assets might be caught in the crossfire.
Businesses may also face blowback from consumers around the globe. Myriad boycotts aim to galvanise foreign companies into leaving Russia, including the KSE Institute’s Leave Russia project, which tracks the company exits. These campaigns often produce negative attention for lingering firms, yet some businesses may be fine weathering the storm – Rasche says the financial implications for companies caught in scandals are usually short-lived.
“Nike had all these sweatshop scandals in the 1990s,” he points out. “Nowadays, people still buy their products. So, I think there is a tendency for people to forget and maybe just keep on going and revert to business as usual.”
The ongoing deterioration of Russia’s economy, in the face of international sanctions and condemnation, may still give remaining companies increasing reason to bail. While the Russian economy is large, it still underperforms the US, China and the European Union. Ultimately, Sidortsov expects the country’s business environment will eventually look like North Korea’s: very isolated, with only a handful of business links to the outside world through staunch allies like China.
“I think there will be a point in time,” he says, “when there will be very, very few foreign companies left.”
