War in Ukraine: the corporate reputation test

By Philippe Riboton, Managing Director at HR Partners International Executive Search.

International companies are under growing pressure from all sides (markets, consumers, opinion leaders) to take a stand in the face of the war in Ukraine, and especially to make a statement regarding their future presence or withdrawal from Russia. Is it enough to say they are “pausing their investment” or, worse, that they are “revisiting their portfolio” in Russia? As expressed in a New York Times article published on Monday, March 14th, “companies partially pulling out of the country are under pressure to make a cleaner break: all or nothing, in or out.”

Let’s start by noting the different lines of communication major international investors in retail, consumer goods, consulting or banking have taken on the issue over the past two weeks – and look at the wording they chose when making a statement on this sensitive topic.

Retailers “pause” operations

Quite interestingly, major international retail companies with significant investment in Russia have remained strangely silent in the past few days, with the notable exceptions of McDonald’sStarbucks and IKEA.

The long awaited reaction was obviously the one of McDonald’s, whose presence in Russia dates back to January 1990. Every person of my generation remembers that eating a Big Mac on Pushkinskaya Square tasted like the end of the cold war. Chris Kempczinski, President and CEO of McDonald’s, made it very clear in his statement on March 8th sent via email to all McDonald’s employees and franchisees: “McDonald’s will temporarily close restaurants and pause operations in Russia”, ensuring salary continuation for all 62,000 McDonald’s employees in the country. He added that “it’s impossible to predict when we might be able to reopen our restaurants in Russia”, pointing at the fact “we are experiencing disruptions to our supply chain along with other operational impacts.”

Right after the announcement of McDonald’s, Starbucks followed suit, announcing on the same day the coffee chain would be suspending all business activity in Russia and that its licensee will temporarily shut down all of its 130 outlets in the country.

Prior to McDonald’s and Starbucks, IKEA had announced on March 3rd that the company’s groups had decided to “temporarily pause all operations in Russia”. This means that, on the one hand, Inter IKEA Group has taken the decision to pause all export and import in and out of Russia and Belarus. On the other hand, Inter IKEA Group will also pause all IKEA industry production and retail operations in Russia.

Consumer goods companies “suspend” or “end” new capital investment

So how do things look with the retail supply chain – food producers and consumer goods companies?

Let’s start with some of the food majors: Nestlé and Unilever seem to have taken a similar stance on the issue, declaring they would “suspend” or “end” new capital investment in Russia. They also stated that they would no longer advertise in Russia. It’s worth noting though that it is one thing to “suspend” new investment and something very different to “end” it.

Reuters reports that Unilever has suspended all imports and exports of products into and out of Russia. Reuters also states that Nestlé will continue supplying essential food products in Russia.

There is a similar approach at Mondelez whose CEO Dirk van de Put declared on March 9th the company would be “scaling back all non-essential activities” in Russia, “while helping maintaining continuity of the food supply during challenging times ahead”. He further stated that the company will “focus our operation on basic offerings, discontinue all new capital investments and suspend our advertising media spending.”

It is a similar story with the French cosmetics giant L’Oréal who said on March 8th they “decided to temporarily close all our own stores and directly operated counters in department stores and to suspend all industrial and national media investments”, whilst still taking care of their 2,200 Russian employees.

Consulting companies “cease business with state-owned companies and government entities”

When it comes to the service industry, and especially the consulting industry, lots of professionals were waiting on the statement from McKinsey, one of the largest global advisory companies, and a perceived ‘intellectual authority’ in the industry.

Bob Sternfels, Global Managing Partner at McKinsey, issued a statement on March 3rd saying “we have continued to review our work in Russia in the light of the unfolding tragedy.” He stated that “effective today we will not undertake any new client work in Russia. We will cease existing or with state-owned entities and as previously announced have stopped all work for government entities. After our remaining engagements in Russia conclude, all client service in the country will be suspended.”

McKinsey’s top competitor Boston Consulting Group, issued a similar statement. On March 4th its CEO Christoph Schweizer stated that “BCG has decided to suspend our work with Russian clients. We have already started to wind down work where possible and will not take on any new work.” He stated that BCG’s office in Moscow will stay open: “some of our colleagues will continue to support clients outside of Russia. We have initiated and are pursuing temporary and permanent mobility solutions.”

There’s a similar approach (but extended to the private sector) from Bain, the third major player in this group of strategic advisory companies. Manny Maceda, Worldwide Managing Partner at Bain, declared Bain “will no longer work with any Russian business (state owned or private)” adding they would “put a moratorium on new work of any kind”, stating their office in Moscow would “remain open for now, allowing our people who choose to remain in Russia to serve other global clients while a remote working model remains feasible.”

Major investment banks are “winding down”

It did not take long to see Wall Street banks follow suit.

Goldman Sachs became the first Wall Street bank to send the pull out message. David Solomon, the Chairman and CEO at Goldman Sachs made it perfectly clear in a one-line statement issued on March 10th: “Godman Sachs is winding down its business in Russia in compliance with regulatory and licensing requirements”, he said.

Following that statement JP Morgan Chase, the biggest US bank by assets, declared it is “stepping away from Russia”. A company spokeswoman said: “we have been actively unwinding Russian business and have not been pursuing any new business in Russia”. She added that the bank’s dealings with Russia were “limited” to “helping global clients address and close-out preexisting obligations.”

Similar move at Deutsche Bank who (one day after its chief financial officer said “it wasn’t practical to shutter the unit”) said on March 11th it was winding down its operations in Russia. “There won’t be any new business in Russia”, said a US based spokesman for the German bank quoted by CNBC.

A slight milder position was expressed by Citigroup: on March 9th, Edward Skyler, Citigroup’s executive vice president of global public affairs, wrote that “the company is working toward exiting its consumer banking business in Russia”. He added: “as we work toward that exit, we are operating that business on a more limited basis given current circumstances and obligations. We are also supporting our corporate clients in Russia, including many American and European multi-national corporations who we are helping as they suspend or unwind their business.”

But some companies will continue selling normally

Some international companies don’t have the problem of deciding to “pause”, “suspend” or “end” their operations: they will simply continue selling. This is the case of British American Tobacco, the London based Rothmans maker, who was quoted in The Guardian saying it will abide by sanctions instead of halting operations in the country. On the one hand it says it will suspend capital investment, scale back marketing and business activities but on the other hand it will continue to operate and as a result will continue selling cigarettes in Russia.

Similar feedback with a variety of companies including Otis Worldwide, which manufactures elevators and escalators, who has yet to pull out of Russia, where it has several joint ventures and partnerships. One spokesperson told the website Insider: “we are monitoring developments carefully and will continue to adjust our operations and procedures in compliance with applicable laws and in order to continue to best serve all of our stakeholders in this challenging context”.

Another such example is Whirlpool, one of the world’s largest appliance makers, whose spokesman declared to Insider: “the company is limiting production in Russia to provide essential goods for families who need our appliances to clean, cook and provide proper food and medicine storage in their homes.”

A threat on the horizon?

Whether they are “pausing their investment”, “winding down their operations” or “ceasing business with state-owned companies and government entities”, international investors in Russia face the same phenomenon: some of their current or past top executives are already distancing themselves in their reactions publicly (notably on Linkedin) from the corporate communications of their current or past employer. As the war continues and the death toll rises in Ukraine, it will become a serious challenge for them to deal with the growing call, even among their top representatives internationally, for a cleaner break in Russia.

One thing is for sure: the war is becoming a major test of corporate reputation for international companies, challenging them to stand up for the values they say they fight for. And not only in Russia.