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Hiltzik: The companies that decided not to leave Russia

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Hundreds of Western companies and corporations have received praise for pulling out of Russia, even at the cost of a slump in their sales and profits.

Now let’s look at the other side of the coin. We are talking about companies that have decided to continue operating in Russia.

the “Hall of Shame,” as described by Yale economics professor Jeffrey Sonnenfeld and his colleague Steven Tian the list of corporate responses Russia’s invasion of Ukraine, which they maintain, includes 24 companies that are “digging in and resisting calls to exit or reduce their operations.”

These brands…thought they represented western values ​​and a spirit of freedom and global harmony. They were blind to the signals due to the perestroika ideology and free market religion.

Jeffrey Sonnenfeld, Yale School of Management

The list also includes 80 companies that are scaling back some, but not all, activity or shelving new investment.

Among the consumer businesses identified as “digging in” are fast-food chain Subway; Reebok; Bacardi (maker of its namesake rum, Dewar’s Scotch, and Gray Goose vodka, among other brands); electronics companies LG and Asus; and Natura, owner of Avon Cosmetics.

Some of these firms, and others that have scaled back operations, have claimed they are staying put to avoid harming their innocent Russian employees.

That is the argument of Dave Robertson, President and Chief Operating Officer of Koch Industries, known for its support of far-right politicians in the US

Robertson said Koch’s Guardian Industries subsidiary employs 600 workers at two glass factories in Russia that continue to operate.

we won’t go away by our employees there, or turn these manufacturing facilities over to the Russian government for them to operate and benefit from,” he said in a statement on Wednesday. “That would just put our employees there at greater risk and do more harm than good.”

Others say business models that involve licensing or franchise deals preclude immediate or full closure.

That is the Story told by Subway, which says it has about 450 restaurants in Russia, “all independently owned and operated by local franchisees,” Subway says. “We do not directly control these independent franchisees and their restaurants, and have limited visibility into their day-to-day operations.”

Sonnenfeld does not buy these excuses. Allusions to the welfare of their employees are “a cover for cowardice,” he told me. “This isn’t a real humanitarian impulse, it’s just reworded that way. These are empty, cynical messages about giving Ukrainian refugees pennies and saying your heart and mind are with them.”

As for franchise companies, Sonnenfeld argues that they could buy out their franchisees or licensees and leave Russia that way.

The change in political mood in Russia under Putin seems to have taken Western business leaders by surprise. That should not have happened. It was always clear that Russia’s post-Soviet economic and political landscape was unstable at best. Mikhail Gorbachev’s perestroika, or restructuring, led to financial lawlessness and the rise of a privileged class of oligarchs akin to organized crime kapos.

Corporate managements did not know how to react when Putin’s behavior began to add to the Russian environment even worse instability. “Putin had his pouts and tantrums, but they figured they could just slide right through, that they wouldn’t pose a serious threat,” says Sonnenfeld.

“The spirit of perestroika was extremely optimistic,” he says. “These brands – Levi Strauss and Pepsi and McDonald’s – thought they represented western values ​​and a spirit of freedom and global harmony. They were blind to the signals because of the perestroika ideology and free market religion.”

The harvest was a sudden rush to exits that could spell the loss of billions of dollars in long-term investments.

How the sanctions will affect Putin’s politics is unclear. in the a video speech on WednesdayPutin acknowledged that the sanctions have caused difficulties for the Russians.

He portrayed it as a foreign attempt to weaken Russia: “The collective West is trying to fracture our society, speculating on the socio-economic consequences of sanctions and provoking a civil confrontation aimed at Russia’s annihilation.” The experience, he said, “will only strengthen our country.”

Some Western companies have not been very specific about the future of their Russian operations. Food giant Mondelez, which makes Oreo cookies and owns Cadbury chocolate, has said it is “reducing all non-essential activities in Russia while helping to maintain continuity of food supplies in the challenging times ahead.”

Mondelez ended up in Sonnenfeld’s reduction category, but he doesn’t quite accept her words. “Oreo cookies and Cadbury chocolates are important staples in my household, but they are not needed to sustain life in Russia,” he says. “Even if they were, they should be restricted – this is not about a soft landing for the Russians.”

The status of some Western companies in Russia is also unclear. Reebok’s Website in Russian has not taken any orders since March 9, although customers can still view product offerings. However, individual retail stores will remain open until further notice, the website said.

The most notable companies identified by Sonnenfeld as “digging in” are three major oilfield service companies, all based in Houston: Halliburton, Baker Hughes, and Schlumberger.

Russia’s oil and gas industry is not currently subject to the full range of international sanctions, but is dependent on these firms for drilling and production. The US has banned imports of Russian petroleum products and banned US companies from making new investments in Russian industry; the European Union has also banned new capital investments.

Neither the US nor the EU has ordered the oilfield companies to withdraw, but little would stop them from ceasing operations in Russia or suspending their partnerships with Russian oil companies.

Of the three, only Halliburton has publicly commented on the sanctions. The comments came during a meeting with securities analysts on Jan. 20, when Chief Executive Jeffrey Allen Miller was asked if the prospect of sanctions would affect “the development of business in Russia.”

Miller replied, “These are things we’ve seen and done before. Always unfortunate in many ways for so many people. But from a business standpoint, we’ve been handling this type of thing for, I hate to say, almost 100 years on and off. So those are the things we would get through.”

More than 400 companies have taken decisive steps to withdraw from the Russian market.

Among them are 150 who have had clean breaks, suggesting they may not return. These include law, consulting and accounting firms that would not normally have held capital assets in Russia and could therefore easily emigrate. But they also include BP and Exxon Mobil, which have severed ties with Russian oil partners and may find it difficult to restore the severed ties.

Another 178 companies have ceased operations. These include European aircraft manufacturer Airbus; financial companies such as American Express, Mastercard, Visa and Deutsche Bank; automakers Ford, GM, Nissan, Mazda, Toyota and Hyundai; and entertainment companies Walt Disney, WarnerMedia and YouTube.

Implicitly or explicitly they have left open the possibility of a return, but a re-entry point will be elusive as long as the Russian attack on Ukraine continues and possibly as long as Putin remains the Russian leader.

Among the companies leaving or ceasing their Russian operations are some closely associated with the opening of the Russian consumer market to the West in the 1990s – McDonald’s, which started the gold rush with the opening of its first Moscow restaurant in 1990 triggered, is closing its more than 840 stores for now.

Pizza Hut, which soon followed and even aired a commercial starring Gorbachev, the former Soviet leader, in 1998 (shot in Moscow but not screened in Russia), is also ceasing service in 50 stores. Pizza Hut is owned by Yum! Brands.

As Sonnenfeld and Tian noted in Fortune, it seems increasingly untenable to continue operating in Russia.

“The leadership and constituency of at least 400 global companies should be very proud of their exit from Russia,” they wrote. Then there are the other 24.

https://www.latimes.com/business/story/2022-03-17/these-businesses-havent-left-russia Hiltzik: The companies that decided not to leave Russia

Adam Bradshaw

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