The Washington PostDemocracy Dies in Darkness

Dozens of corporations are still in Russia. It’s getting harder for them to leave.

Several multinationals have stayed despite public blowback, and experts say they are running out of time to protect their assets and reputations.

PepsiCo, which introduced American cola to the Soviet Union during the Cold War, has continued to operate in Russia since the invasion of Ukraine. (Mario Tama/Getty Images)
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Hundreds of multinational corporations have cut ties with Russia as its military assault on Ukraine intensifies, bolstering the effects of western economic sanctions and redirecting their operations to serve desperate Ukrainian refugees.

But for the dozens of companies that remain in Russia, it’s getting increasingly difficult to leave, experts say.

Consumers watching the horrific humanitarian toll of the invasion have registered their disapproval of the businesses that remain in Russia, vowing boycotts on social media. But companies that leave now, experts say, could be seen as pandering, or worse: prioritizing profits and shareholders above human suffering.

The corporate quandary is testing the mettle of some of the world’s most powerful brands, and the long-held business credo that countries that trade together don’t wage wars with one another.

“I would say to any corporate executive, you have to do what you think is right,” said James O’Rourke, a professor of management at University of Notre Dame’s Mendoza College of Business. “In the end, you have no control over what [President Vladimir] Putin or the central government will do. But if you want to keep doing business in the rest of the free world, you have to pay attention to what they [the rest of the free world] think of you.

“This may be one of the moments in history in which proactive disinvestment is the best option. You’re invested there now. You hope that this remains a stable, predictable nation, but what I would tell anyone still doing business in Russia right now is that it’s really hard. If you can’t move money in and out of Russia in a convertible currency, what’s the point of being there?”

The question 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 roster of “Companies That Remain in Russia With Significant Exposure.” As of Friday, roughly 35 such companies have made no public statement signaling any intent leave the country. And even those who have committed to leaving have partial ties to Russia that will be hard to sever.

“The risk calculus in recent days has been to your reputation scores,” O’Rourke said. “It appears now for many of those large businesses that the calculus is now to your assets, and you just have to realize that you’re no longer in control.”

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Food producers such as PepsiCo and Mondelez, the brand behind Oreo cookies, Ritz crackers and other snacks, maintain they don’t want to withhold food and beverage staples from Russian citizens. Goldman Sachs, JP Morgan and Deutsche Bank say they want to wind down operations, but they are bound by complicated client relationships. Others like Burger King and Marriott are tied down by complicated legal agreements as they struggle to reconcile two conflicting legal regimes.

Manufacturing companies face frightening prospects if they pull out of Russia, experts say. The Kremlin has threatened to nationalize assets of corporations that leave the country over its assault on Ukraine.

Consumer goods manufacturers face an even steeper challenge: Just because they shut down factories, retailers may continue selling their wares. It leaves those corporations open to continuing reputational damage while missing out on profits and risking their high-priced assets.

Korean automaker Hyundai announced Friday it had suspended operations at its factory in St. Petersburg. But sales may 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 the people who are suffering during this period of conflict, but did not say whether the company would change its business practices in Russia.

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

“The dealerships are like the franchises of the hotels and things. The arrangements give them almost no control,” he said. “The branding and the marketing is all the automakers and the fast-food companies can do.”

That lack of control, though, provides even greater incentive for companies to cut ties with Russia, experts say. Putin’s threats toward businesses make a strong case that executives can’t trust the Kremlin to backstop the Russian economy or to protect private property rights. Companies ought to consider writing off their Russian assets as lost causes, O’Rourke said, and get out of the region.

“If Vladimir Putin thinks he can do a better job at the deep fryer, let him have it. If he can flip some burgers, great,” Sonnenfeld said. “What exactly are they seizing that is of such great value? A small part of this is physical assets.”

Tech companies race to extract employees from Russia

Several major banks have announced plans to draw down their Russian business, citing both investment priorities and moral duty. But experts say their fiduciary responsibility to clients may prevent them from fully cutting ties, and none have provided a firm date by which they will leave.

A Deutsche Bank spokesperson told The Washington Post on Friday that it was “in the process of winding down” its remaining business in Russia while helping international clients reduce their investments in the country. “There won’t be any 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’re there to support our clients.” Nor would it be the right thing to do, he added, in terms of “helping them manage their situation.”

Although Goldman Sachs says it will “wind down” its business in Russia, its statement announcing the pullout left open the possibility that some clients might choose to “manage” their preexisting obligations there as opposed to closing them out.

“We are focused on supporting our clients across the globe in managing or closing out preexisting obligations in the [Russian] market and ensuring the well-being of our people,” a Goldman Sachs spokeswoman said in an email Thursday.

JPMorgan is “actively unwinding” its Russian business and is not pursuing any new business there, a spokesperson said. But it remains engaged in helping clients “address and close out preexisting obligations,” and manage Russia-related risk and “acting as a custodian” to clients with business there.

Putin on Thursday endorsed a plan to nationalize foreign-owned businesses that leave because of the invasion. But in some cases he may not need to. Some corporations are bound to Russia by complicated franchising arrangements through which Russian owners operate the stores.

Biden, European allies move to strip Russia of trade status

Subway and Burger King have both said they don’t actually 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 U.S.-based corporate entity behind Burger King, has taken steps to cut off corporate support for its franchisees but has made no move to close them. It has committed $3 million to support Ukrainian refugees and gave out $2 million in Whopper meal vouchers for refugees leaving Ukraine. Subway also promised to redirect any profits from Russia to humanitarian aide.

“These are not war profiteers nor are they exploitative in any way,” O’Rourke said.

“If McDonald’s pulls out of Russia and closes its 850 stores, those stores are not going to remain empty forever or even for very long. If the government nationalizes those stores and hands them to friends of the government to run, the folks in Chicago are not going to be able to make them take down the golden arches.”

PepsiCo and Mondelez have pledged to stop making 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 the company’s operations on items such as baby food, formula and dairy products would create unnecessary hardship for ordinary Russians.

Mondelez CEO Dirk Van de Put said his company would help “maintain continuity of the food supply during the challenging times ahead.” The company also makes Halls cough drops and an array of baked goods.

The pronouncements were largely met with approval on social media, and some experts said the positions were a stable middle ground: they could protect the brands from consumer blowback, prevent ordinary Russians from suffering the consequences of the war and protect Russian workers from lost wages and public criticism.

“For the moment, that looks noble,” O’Rourke said. “If they want to appear fully noble, they can donate the excess profit from those lines of business to humanitarian causes in Ukraine.”

But those stances also risk blunting the efficacy of western sanctions, whose aim is to isolate Moscow and make the Russian public feel the effects of the invasion. The purpose, Sonnenfeld said, is to create sufficient financial chaos in Russia that the public holds the nation’s leaders accountable.