Volodymyr Zelensky’s message was blunt. Western companies must leave Russia immediately “because it is awash with our blood,” the Ukrainian president told Congress last week. Those who stayed, he said, would fund Russian President Vladimir Putin’s war.

Multinationals have withdrawn from Russia with unprecedented speed and scale. Some, like Danone, have halted new investments but insisted they stay, citing a responsibility to “the people we feed [and] the farmers who provide us with milk”.

Many are exploring more radical options. Jeffrey Sonnenfeld, a Yale School of Management professor who is tracking the “corporate blockade,” estimates that more than 400 have now pledged to scale back, suspend operations, or withdraw completely.

Behind the salvo of announcements, “the execution is very complicated,” he noted.

Interviews with executives, advisors and academics show that even companies that have announced plans to pull out of Russia altogether are faced with dilemmas about their people, their assets and liabilities, and their short- and long-term options in the country.

The people problem

“It would be pretty easy for me to say we’re leaving Russia — it’s what we all want to do,” UniCredit chief executive Andrea Orcel said. But, he said, the bank employs about 4,000 people there.

Some companies, like Spotify, have taken people out. A few have closed their Russian branches despite being a sizable local employer, such as Accenture, whose departure will affect nearly 2,300 jobs. After the shutdown of the St. Petersburg plant, Toyota is gradually allowing its expatriates and their families, 48 ​​people in total, to return to Japan.

Most employers struggle with balancing distance from a suddenly toxic market and protecting people on their payroll.

“You have places like McDonald’s and IBM with” [large local] employees and they don’t want to come across as punitive to people who were part of their family,” Sonnenfeld says.

Even when McDonald’s suspended operations at its 850 Russian restaurants, it promised to continue paying its 62,000 employees there.

But Sonnenfeld noted, “The question is how long McDonald’s and IBM can keep paying people to do nothing: how long will they put up with it and how long will the general public appreciate that they’re pumping money into a rogue economy.”

Privately, executives express concern about possible retaliation. Russian prosecutors have warned that business leaders who criticize the government could face fines and jail time, while companies that shut down could be found guilty of “fraudulent or intentional bankruptcy”.

Exterior of the Toyota car factory in Saint PetersburgAfter the shutdown of the St. Petersburg plant, Toyota is gradually allowing its expatriates and their families, a total of 48 people, to return to Japan © Anatoly Maltsev/EPA-EFE/Shutterstock

Another car manager said: “We deliberately cited supply chain problems as a reason to shut down [production]† We are purposely not going into politics here, no matter what we think, because the situation is very, very delicate. if you stop [the plant] for whatever reason you are on their radar.”

A few companies cited staff concerns as a reason to stay. Dave Robertson, chief operating officer of Koch Industries, noted that about 600 people were employed at two glass factories in Russia. “We will not walk away from our workers there and not transfer these production facilities to the Russian government for it to operate and benefit from,” he said.

The expropriation threat

As Robertson suggested, some Western companies are concerned that suspended operations could be seized by the state. Putin has warned that the Kremlin would find “legal solutions” to transfer assets from multinationals that shun Russia “to those who really want to work”.

A director of another automaker said: “If we are seen as shutting down the operation for no good reason, we could face nationalization, bankruptcy or administration, and then asset seizure if you don’t restart the operation.”

Alberto Alemanno, a HEC law professor in Paris, said companies now “pay a lot of lawyers to assess what they can do to protect their investment.”

Their concerns have reached the White House, where press secretary Jen Psaki tweeted that “legal” seizures would provoke legal claims. The Russian embassy in Washington has dismissed such fears as “Russophobic hysteria”.

Sonnenfeld said the risk was limited because most non-industrial companies had few hard assets in Russia.

When Disney said it would “pause” all of its operations in Russia, it added that “contractual complexity” meant it would take time to detach from others, such as the television channels.

McDonald’s also has ongoing obligations, such as restaurant rent. In total, finance director Kevin Ozan said this month that these costs will be about $50 million per month in Russia.

Some companies may decide that the reputational risks of continuing to pay counterparties in Russia are too high, said Derek Leatherdale, director of geopolitical risk consultancy GRI Strategies.

“In theory, the companies that withdrew would retain legal obligations and financial obligations within Russia,” he said. “Presumably, some calculate that even if the Russian authorities try to enforce them, nothing can be done about it. It falls into the category of a theoretical risk that does not outweigh the PR benefits of getting out.”

Western companies seeking professional advice face new difficulties as international law and accounting firms are closing their local branches themselves or at least temporarily disconnecting them from their global networks. Legislation designed to prevent any “circumvention” of sanctions limits the advice they can give to companies with Russian counterparties and liabilities or looking to sell assets or collect payments.

A lawyer warned that while companies could legitimately stop doing business with organizations that had been sanctioned, those who had voluntarily suspended contractual obligations were significantly exposed. “Going beyond sanctions is hugely risky,” he said. “There will be many claims from suppliers, joint venture partners and investors that will be heard in the English courts.”

An elderly couple walks to an Ikea store in MoscowIngka Group, whose 17 Ikea stores, nine planning studios and distribution center in Russia employ 12,000 people, said it expected the suspension of operations to last for many months © Maxim Shipenkov/EPA-EFE/Shutterstock

Can sellers find buyers?

Companies, including BP and Shell, have announced plans to sell Russian assets. For some, existing partners or franchisees make for logical buyers. But they’re having trouble finding buyers who aren’t on Western sanctions lists and asking about repatriating any sales proceeds.

Cigarette manufacturers Imperial Tobacco and British American Tobacco transfer their activities to Russian companies. BAT’s chief marketing officer Kingsley Wheaton told the Financial Times it was aware of a “real possibility” that the “false bankruptcy rules” being debated in parliament could lead to criminal charges.

But he said negotiations could take months as the transfer of management of BAT’s 2,500 employees in Russia, its St. Petersburg plant and supply chains was a “complicated undertaking”.

“It’s not a classic M&A coffee table book,” he said. “Mergers and acquisitions of this kind would cost a lot of time in themselves. Add to that the idiosyncrasies of the current environment, and it only becomes an even more complicated, more complex situation.”

Keep options open

The companies that have kept some or all of their original operations in Russia, more than 80 by Sonnenfeld’s count, face a weakening economy, broken supply chains and a devalued currency. Some struggle to access cash to support their operations.

As James Peters, Whirlpool’s chief financial officer, said: “You have declining demand, you now have sanctions that are making it difficult to get components in. We don’t like what the long and medium term looks like for that.”

Ingka Group, whose 17 Ikea stores, nine planning studios and distribution center in Russia employ 12,000 people, said it expected the suspension of operations to last for many months.

“We want to provide all our employees with long-term employment stability and recognize that the situation in both countries is dynamic and changing rapidly. We are working on a six-month plan, but since our temporary hiatus announcement, we have been guaranteed three months’ salary in Russia,” the company said.

The risk of a return

Even as companies face the challenges of fulfilling their withdrawal promises, those hoping to return to Russia someday need to think about how they would do it, says Michael Useem, a Wharton professor who specializes in risk management.

“When I’m in McDonald’s headquarters I think, ‘Someday we’ll be back in… What would be the context, the circumstances, the moment, the political climate that would mean we can legitimately go back?’” , he said.

The boards of directors had to oversee a strategy for how their companies could re-enter Russia in a way palatable to their stakeholders, Useem said. “It has to be like this” [informed by] dedicated analytics.”

A number of companies are exploring ways to disconnect but stay, such as using call options to buy back assets temporarily sold to trusted local partners. But as one lawyer said, “Selling is never easy and finding a buyer is very difficult. If you are selling to a trusted third party, enforcing a call option is not easy. If you let go of something, you may never see it again.”

By Andrew Edgecliffe-Johnson and Andrew Jack with Peter Campbell, Philip Georgiadis, Ian Johnston, Richard Milne, Michael O’Dwyer, Antoni Slodkowski and Eri Sugiura


This post Leaving Russia: the key questions facing multinationals was original published at “https://www.ft.com/content/86144c9c-2258-4b9c-a0ad-ea8d63b7000f”

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