(Bloomberg) — Moves by Nestle SA and Renault SA to scale back their Russian businesses leave a dwindling handful of holdouts resisting the corporate exodus. Those companies, while decrying the invasion of Ukraine, insist staying put is the least bad option.
Nestle deepened its pullback this week, suspending the majority of its sales and manufacturing in Russia, while French automaker Renault halted its operations and said it might quit a longstanding venture there. The moves are sure to pressure other multinationals still operating in the country, which include Danone SA, PepsiCo Inc. and Procter & Gamble Co. But with billions in investments, tens of thousands of employees and valuable factories scattered across the country, a complete exit is fraught with risks, challenges and unintended consequences.
Companies that choose to scale back but remain in Russia walk a fine line between the western world’s moral outrage and the demands of their business. A campaign to name and shame firms that are still operating in Russia intensified this week, with Ukraine MP Lesia Vasylenko tweeting that “every euro spent in/on Russia buys bullets that kill Ukraine’s children.” While those who advocate for a complete withdrawal say the issue is black and white, those making the decisions see shades of gray.
Take France’s Danone, which has 13 factories and about 8,000 employees in Russia. It has stopped investments and the shipment of non-essential products like Evian bottled water and Alpro dairy alternatives, but continues to sell dairy products and baby food. A full departure wouldn’t pressure president Vladimir Putin to stop the war, Danone’s international chief Veronique Penchienati-Bosetta wrote in a memo to colleagues seen by Bloomberg News. Rather, the company’s assets “would be seized and controlled by the Russian administration and the benefits would fall to new Russian-only ownership,” she said.
Such a scenario would “be a gift to them,” Penchienati-Bosetta concluded. Similarly, the Russian holding company of French home-improvement chain Leroy Merlin said Wednesday that suspending business in its 113 stores there could open the door to “an expropriation that would strengthen Russia’s financial means.”
The Russian reckoning comes at a time when employees, consumers and activists are increasingly pressuring corporate leaders to take public stands. Such appeals have bubbled up before, like the 2010 campaign to get Nestle to stop buying palm oil from suppliers linked to rainforest destruction, but they’ve gained momentum in recent years with the Me-Too and Black Lives Matter movements.
Six out of ten workers said they expect the CEO of a company they’re considering working for to speak publicly about controversial social and political issues they care about, according to the Edelman Trust Barometer, an annual survey from the public relations firm. That’s up from 55% who said so in 2019. Walt Disney Co. CEO Bob Chapek sparked protests this month from staffers for initially declining to comment on Florida’s bill barring schools from discussing sexual orientation with their youngest pupils, prompting him to later apologize.
Firms that make food, drugs and household items have long produced, sold or licensed their products in politically isolated countries. Nestle operated in South Africa, for example, during apartheid. In Russia, where Nestle has six factories, the Swiss giant has now pledged to provide only essential items such as baby food and medical nutrition products and stop making snacks like Kit Kat chocolate bars.
“While Nestle I think is right to suspend what they’re doing, they’re also right to support their employees,” Christopher Rossbach, London-based chief investment officer of J. Stern & Co., said in a phone interview. The Stern family has been investing in Nestle for decades.
Drugmakers including Pfizer Inc., Johnson & Johnson, and Merck & Co. continue to send medicine and other health supplies there, although they have halted recruitment for clinical trials.
While scores of companies have been lauded for pulling out of Russia, it’s easier to do for some than for others. Shutting stores or deciding not to ship products to the country is less complicated than closing factories that employ thousands of people.
For example, the food supply chain is complex and locally intertwined, and involves a build-up of stocks of raw materials. Companies would need to figure out where to store large amounts of food, and risk it spoiling and creating food waste — or even a potential health hazard.
The World Health Organization has said that Russian citizens have the same rights to access necessary food and medicines as citizens of any other country. Food products are also exempt from international sanctions leveled against Russia and its oligarchs following the invasion.
Yet the horrifying images and stories emerging from Russia’s invasion of Ukraine have hardened public sentiment. Multinational companies with operations in Russia are being bombarded on social media, in political speeches and even by their own employees to pull up stakes.
“Is this a business decision? No. This is a moral one,” says Wharton management professor Witold Henisz. “You need to be out of Russia. Don’t be the last one in there.”
As for corporate assets in the region, “they need to write them off,” says Jeff Sonnenfeld, a professor at the Yale School of Management who has compiled a list of what companies are doing with their Russian interests.
“Whatever it costs them to leave, it’s nothing compared to what it cost BP,” he said, referring to BP Plc’s move to dump its shares in oil giant Rosneft and take a financial hit of as much as $25 billion.
Sonnenfeld’s list as of March 23 included 36 companies that are “digging in,” or “defying demands to exit or reduce their activities,” including retailers Auchan, Decathlon and Leroy Merlin, which are controlled by France’s Mulliez family and have a total of about 77,500 workers in Russia. Nestle, Unilever, P&G and Danone, meanwhile, are among the 56 companies that are “buying time,” in Sonnenfeld’s estimation, by halting new investments but remaining in business there.
Renault’s decision to suspend operations in its second-biggest market upgraded its position on Sonnenfeld’s list, but forced the company to cut its financial outlook and flag a 2.2 billion-euro ($2.4 billion) writedown for mid-year. The carmaker’s presence is Russia, where it has about 45,000 employees, is politically sensitive because the French government is its most powerful shareholder and the other partner in its AutoVaz venture is Rostec State Corp., headed by a Putin ally. Ukrainian President Volodymyr Zelenskiy, in a speech to French lawmakers on Wednesday, said companies still operating in Russia must “stop financing murder of children, women and rape.”
Meanwhile, Russian authorities are said to be checking on companies’ local sites on a regular basis, to see if they’re still operational. That adds to the pressure companies face from the Russian government, which has threatened the possibility of asset seizures. A major reason for companies maintaining some activities in Russia is to minimize that threat. Even for companies looking to leave, it’s not clear who would buy their operations there, especially given that some Russian businesses are under sanctions.
As they weigh their options, the holdouts in Russia face increasing opprobrium. Vasylenko, the Ukrainian politician, has urged her followers to boycott Pepsi, Unilever and Auchan. Leroy Merlin’s decision to stay in Russia has reverberated in Poland, where the majority of Ukraine’s more than three million war refugees have landed. Poland’s biggest commercial television station TVN SA and state Polish Radio are increasingly reluctant to cooperate with the brand.
The longer the war persists, the harder it will be for companies to make nuanced distinctions between Putin and his regime versus ordinary Russians, said Pushan Dutt, a professor of economics at INSEAD. “Companies, in my opinion, should plan for their eventual exit.”