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Foreign companies continue to prop up the Kremlin

Some companies are only making vague commitments to get out of Russia

- April 7, 2022

Global outrage over Russia’s invasion of Ukraine widened this week after new evidence of atrocities committed by Russian troops. Yet many foreign multinational companies continue to operate in Russia. Although scores of companies have left Russia in recent weeks, many others have made public statements of concern about Putin’s invasion — while preserving their commercial interests in Russia.

The continued business operations of multinational companies in Russia benefit the Russian government directly through tax revenue, and by supplying goods and services essential to the Russian economy. Will these companies quietly resume regular operations in Russia, banking on the fact that public attention in the West to Putin’s war will fade?

Indeed, my research with Anna Tuchman and Xinrong Zhu — as well as other evidence — shows that public pressure and threats of boycotts in response to a major incident are short-lived, and tend to dissipate rapidly. When news outlets shift their focus to the next big story, business typically returns to normal. When Russia annexed Crimea in 2014, for example, activists and consumers called for a boycott targeting Russian interests, but as attention faded, businesses and even governments renewed cooperation with Russia.

Twitter chatter data — shown in the graph below — indicates that public attention to the war in Ukraine is already waning. So what can we predict about foreign companies’ plans for their Russian operations?

Daily tweets that contain specific words and/or hashtags related to Ukraine conflict, measured using Academic Twitter API.
Daily tweets that contain specific words and/or hashtags related to Ukraine conflict, measured using Academic Twitter API.

Company commitments vary greatly

Our analysis of foreign companies’ public statements reveals a range of commitments. Many show signs of what we call “bluffing” — making weak statements that amount to few permanent or significant commitments. Companies like Cargill, JTI and Henkel announced they would cease making new capital investments — a move some might view as a minimal commitment, and perhaps a prudent business decision, given the current uncertainty in Russia.

Other companies, including car manufacturers Hyundai, Nissan and Toyota, bundled their expression of concern for Ukraine with a pledge to temporarily suspend operations — something that probably was necessary in any case, given the supply-chain disruptions or financial impediments.

Companies such as Mondi and CreditSuisse pledged to “reevaluate” their dealings with Russia. And companies including Metro, SocieteGenerale and Koch issued statements expressing concern, but held fast to their operations in Russia. As 600 or more foreign companies have exited Russia in recent weeks, it’s possible that those that remain stand to benefit from the diminished competition in the Russian market.

Foreign operations contribute to the Kremlin’s budget

A closer analysis of statements by tobacco companies operating in Russia sheds further light on what’s happening in this market segment. A British American Tobacco (BAT) statement suggested the company would make a strong commitment to follow through: “We have concluded that BAT’s ownership of the business in Russia is no longer sustainable” and “upon completion, BAT will no longer have a presence in Russia.”

On the other hand, Philip Morris International committed to “suspend planned investments and scale down its manufacturing operations,” while it works on “options to exit the Russian market in an orderly manner.” Japan Tobacco International (JTI) similarly vaguely vowed to “suspend all new investments and marketing” and “assess the long-term implications of the situation.”

But international companies that continue to operate in Russia effectively enable the Russian military — they contribute tax dollars to the Russian government, and support value chains linked to the military. The JTI website, for instance, notes, “In 2020, the company’s tax payments provided 1.4% of the total revenue of the Russian Federation state budget.”

Investors and consumers are watching

A growing body of research on corporate posturing, including greenwashing, finds that without external monitoring and verification, companies structure their commitments to maximize the perception of social responsibility. But they may not actually follow through.

Currently, publicly traded U.S. companies can categorize their foreign operations by self-defined geographic segments, obscuring their business dealings in specific countries. For example, according to SEC filings data, fewer than 1 percent of companies declared their operations in Russia, while others operating there used self-created segment labels of “other,” “rest of the world” or just “Europe.”

If investors or governmental regulators required companies to transparently disclose their business connections with Russia, that could help to prolong companies’ commitments beyond the initial news cycle. Heightened transparency would enable stakeholders — socially conscious investors, social responsibility rating companies, antiwar consumers, employees, suppliers, rivals and governments — to make more informed choices on whether to maintain business or investment relationships with firms that remain involved with Russia. Such a system could extend to any countries that violate human rights, raising stakeholders’ awareness of the full scope of firms’ global operations.

While sanctions are a vital part of imposing financial ramifications on Russia, consumers and investors also play a key role by holding companies accountable for their relationships with Russia, even those that fall outside of official sanctions. Public pressure campaigns have proved effective, depending on whether there is long-term and deep commitment. Advocacy campaigns for divestment from South Africa in the 1980s, for instance, helped generate stigma around company decisions to operate there, and global pressure helped bring down the apartheid regime.

Public pressure continues against companies active in Russia — and companies such as Danone, Decathlon and TotalEnergies recently increased the scope of their withdrawals from Russia. In the U.S. and across Europe, publics overwhelmingly support isolating Russia economically to end Russia’s invasion and occupation of Ukraine.

It remains to be seen whether public pressure for companies to exit Russia will continue. Our research suggests that rapidly shifting news cycles may leave a limited window for public pressure on companies that have only suspended or scaled back their Russian operations before the uptick in attention to revelations of Russian atrocities in places like Bucha fades.

Jura Liaukonyte is Dake Family Associate Professor at the Dyson School of Applied Economics and Management, Cornell University. Follow her on Twitter @JuraWho.