Dilemmas of divestment in Russia: the case of business education

In the year Large groups including Siemens, McDonald’s and Starbucks have withdrawn. A wave of corporate promises to distance themselves from Russia followed. Not all companies have lived up to those promises.

The Yale School of Management’s CEO Leadership Institute (CELI) is tracking how more than 1,600 companies with ties to Russia have responded to the conflict.

By April of this year, a third had stopped being engaged or had left altogether; The third is temporarily limited but return options; And 15 percent continued business as usual.

These mixed responses show that many companies are still struggling to decide when and how to exit the Russian market.

For some, the decision is easy, because their exposure is limited. Others, such as Austria’s Raiffeisen Bank International, which has been operating in Russia since 1989 and are still operating in the country, are said to be in talks with parties interested in selling their Russian arm as of April. .

Many Western businesses struggle to sell property because new regulations make moving more difficult and expensive. In the year In December 2022, the Kremlin forced companies that wanted to leave to have state-owned assets and sell them at a 50 percent discount. In many sectors, there are few, if any, rulers, as many are under Western government sanctions.

Tobacco group Philip Morris has admitted it will “continue” its Russian business rather than sell it on the Kremlin’s terms. CEO Jacek Olzak pointed out the obligation to shareholders to protect the assets of 2.5 billion dollars. Other companies face similar problems: Carlsberg, which joined Heineken by bypassing Russia, has had trouble finding a buyer.

Background

Discussions about the exit will heat up. Proponents say the companies that remain in Russia pay taxes to a repressive regime and fill Putin’s war chest. In doing so, they create a paradox: while many Western governments support Ukraine with bilateral aid, the rest of the companies indirectly support Russia’s war effort. An international coalition of civil society organizations, B4Ukraine, estimates that companies that choose to stay could pay about 18 billion dollars in taxes.

Others argue that if companies stay in Russia, they will have less permission from society to operate anywhere. If businesses don’t stand up, they give legitimacy to the regime and implicitly tolerate a one-sided war.

In the year Widespread condemnation of the raids creates moral pressure for companies to leave. Doing business in Russia poses a reputational risk, as it creates the impression that a company ignores human suffering.

Some businesses are directly affected by government sanctions. Siemens, for example, cited “comprehensive international sanctions” and their impact on rail services and maintenance as one reason for pulling out of Russia.

Many companies in the “Leave” camp emphasized moral obligations or political interests, while others made economic calculations. If a quick fix is ​​unlikely, these companies face significant risks in a country with significant sanctions. In most cases, supply chains are disrupted and resources are unavailable.

An analysis by Yale scholars of the combined effects of government sanctions and trade relocation decisions found that “trade withdrawal and sanctions are crippling the Russian economy”—for example, because Russia cannot find substitutes for certain products it imports (also titled).

The economic risk argument is confirmed by an analysis by Tetiana Baliuk and Anastasia Fedik, which showed that companies with the worst stock price reaction to the war were more likely to leave Russia afterwards. Those who experienced only mild outcomes were more likely to stay.

Some businesses argue that they should at least stay in Russia if the conflict doesn’t escalate. They have a social responsibility for the local workers, especially by causing great damage to the Russian economy. An assumption behind this argument is that the Russian people are not responsible for the war and the actions of the government.

Companies in the “remain” camp emphasize that selling at deeply discounted prices is a gift to Putin’s regime, especially if bought by oligarchs close to the Kremlin. French bank Societe Generale sold its Russian business to Vladimir Potanin, who served as deputy prime minister under Boris Yeltsin and maintains ties to Putin.

Other businesses are concerned about providing essential goods such as medicine or basic foodstuffs. “Food is a basic human right and should never be used as a weapon,” says food company Cargill. Some critics argue that Russia is violating this human right by stealing Ukrainian grain and destroying storage facilities. Others point out that Russia is a major food producer and can maintain basic supplies without Western aid. Pharmaceutical and agricultural firms are among the slowest to leave, with more than four-fifths continuing to do business in Russia.

For the remaining businesses, then there is the question of where to draw the line. Should they stay in Russia regardless of the conflict? The CEO of Danish insulation material producer Rok Wall said the “red lines” included direct NATO involvement or an all-out escalation of the war with a nuclear attack.

Andreas Rasche is Professor of Business in Society at the Center for Sustainability. Copenhagen Business School (CBS), and associate dean for the CBS full-time MBA program