Analysis: Western Companies Are Fighting Russian "semi-exits"

March 18 – Western companies that maintain a presence in Russia to supply essential goods such as food and medicine are trying to strike a balance between President Vladimir Putin’s government and Ukraine’s supporters pushing them in opposite directions.

According to a list compiled by Jeffrey Sonnenfeld, a professor at the Yale School of Management, more than 400 companies have left Russia since its February 24 attack on Ukraine. They left behind assets worth hundreds of billions of dollars before the invasion, which Russia calls a “special military operation.”

However, about 80 companies have maintained their presence even though they have suspended new investment and business ventures. Many consumer and pharmaceutical companies argue that withdrawing from the project will cause significant damage to the Russian population. Some are also concerned about the legal consequences for their employees in the country if the Russian government retaliates.

“Companies feel they can’t easily abandon small Russian businesses and the consumers who rely on them,” said Bruce Haynes, global co-chair of crisis communications at public relations firm SVC+FGH, who has advised companies on their exit. From Russia.

Consumer goods giants such as PepsiCo Inc (PEP.O), Procter & Gamble Co (PG.N) and Nestle SA (NESN.S) have said they will maintain a presence in Russia to supply essential food and hygiene products. such as milk. and diapers.

As the number of casualties and refugees from the conflict in Ukraine rises, pressure is mounting for a complete withdrawal from Russia.

“Unless there’s a turnaround that we’re not seeing right now, pressure (to exit) will mount,” said BSR chief executive Aron Kramer, who advises companies on environmental, social and corporate governance (ESG) issues.

Cathy Denis, head of communications and research at the Consumer Brands Association, a trade group that includes Pepsico, Coca-Cola and P&G, said its members generally do not support Russia’s actions in Ukraine but do not engage the Russian people. should not be made to suffer for it.

Pharmaceutical companies such as Pfizer Inc (PFE.N), Germany’s Bayer AG (BAYGn.DE) and Eli Lilly (LLY.N) have said they will stop non-essential operations in Russia but plan to continue supplying drugs to treat conditions such as diabetes. and cancer. They noted that prescription drugs have been excluded from the scope of international sanctions because they serve a vital humanitarian need. However, even these products have come under scrutiny in recent days.

Ukrainian President Volodymyr Zelensky this week urged pharmaceutical companies to join conglomerates pulling out of Russia entirely. Sonnenfeld, whose list has been used by human rights activists to force global companies to leave Russia, also called for such a move.

Some pharmaceutical companies enjoy the support of their shareholders. Josh Brockwell, for example, chief executive of investment firm Azzad Asset Management, said he supported Pfizer’s decision to continue deliveries to Russia. “I don’t think people should suffer because of the actions of the (Russian) government,” he said.

Many US drug companies say they don’t manufacture drugs in Russia, but some European counterparts, including Bayer and Switzerland’s Novartis SA (NOVN.S), maintain manufacturing facilities in the country.

RECOVERY OF PROFIT FROM RUSSIA

Putin said last week that Russia could seize the assets of companies that cease operations in the country. Russian prosecutors have also warned some Western companies that their employees could face arrest if they stop producing essential goods, a source familiar with the matter said.

British American Tobacco (BATS.L) marketing director Kingsley Wheaton told Reuters last week that going out of business or stopping the sale or production of its products would be treated by Russia as a criminal bankruptcy that could expose its employees in the country to prosecution.

Other issues facing consumer companies still operating in Russia are processing transactions under bank sanctions and securing raw materials, said Jack Martin, fund manager at Oberon Investments, which owns stakes in Unilever (ULVR.L), Diageo (DGE .L), Burberry. (BRBY.L), GSK (GSK.L), Eli Lilly and Nike.

“The risk premium for investing in companies doing business in Russia has increased,” Martin said.

Companies are trying to come up with ways to appease all parties. Novartis, Bayer, Pfizer and Eli Lilly, for example, said they would donate any profits from sales in Russia to humanitarian aid.

Some companies remain in Russia, looking for parties to buy or take over their local operations. Wheaton of British America Tobacco said his company is trying to make it “fast”. Interested parties could include his 30-year-old Russian distributor, Wheaton said.

Many companies are also concerned about what will happen to their facilities in their absence. For example, an abandoned food factory could be repurposed by Russia to supply troops fighting in Ukraine.

Some investors want companies to think about how they can fund the war indirectly by paying taxes. Hanna Schuesmith, director of communications for property management company Federated Hermes, told Reuters last week that companies need to “thoroughly think” about any taxes they pay to the Russian government and whether the products and services they provide are worth it. such a risk.

Companies that have left Russia may find it difficult to recover their property and assets once they have been expropriated. Tiffany Compres, a partner at law firm FisherBroyles, said companies can sue Russia in international forums such as the International Investment Dispute Resolution Center, but such cases can drag on for years and Russia cannot be forced to pay.

“Even if the company wins the lawsuit, Russia has a reputation for not paying,” Kompres said.

Reporting by Richie Naidoo in London and Jessica DiNapoli in New York. Additional reporting by Ross Kerber and Caroline Huemer in New York and Uday Sampat Kumar in Bangalore. Editing by Greg Rumeliotis and Richard Chung.

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