The Consequences of the Unprecedented Rush of Companies Leaving Russia

Some four hundred and fifty corporations have scaled back business in the country, a powerful condemnation of Putin’s regime. The campaign could have severe repercussions for the Russian people.


Article by Sheelah Kolhatkar for the New Yorker – 21.03.22


In 2016, Amit Khandelwal, the chair of the economics division at Columbia Business School, started working on an experiment to analyze the effects of new policies of economic liberalization in Myanmar, and of the lifting of sanctions there. The country had been ruled by a brutal military dictatorship since 1962, and decades of autocratic rule combined with international sanctions had left it almost completely cut off from the outside world. In 2011, the military junta dissolved, and the country began a relatively peaceful transition to a democratic government.


Foreign companies established outposts in Myanmar and helped to fuel a homegrown startup scene; prices of things like SIM cards plummeted as people were suddenly connected to the global, digital world. There was a general sense of optimism there, Khandelwal said, and he brought several groups of business-school students to Myanmar to witness the changes firsthand. Then, somewhat suddenly, in February, 2021, the military seized control again, arresting and jailing Aung San Suu Kyi, the country’s newly elected leader, and throwing the country back into military dictatorship and economic isolation.


Khandelwal remembers the last phone call he had with several talented young workers in Myanmar who had helped administer his surveys. “Things were going great,” he told me. “They had a sense that the next year would be brighter than the previous year. That keeps you investing in your own future.” Many of them were in their twenties and had come of age during an evolving democratic government; they were filled with hopes and aspirations. “The day after the coup, you could hear that something they had been envisioning, a brighter future, was just gone,” Khandelwal said. “It was very sad, and there was nothing you could do.”


In the past few weeks, as the wave of foreign companies leaving Russia has turned into a torrent, Khandelwal says that he has found himself remembering his calls to workers in Myanmar, how tragic the situation had seemed, and its unintended consequences for average citizens. “When you think about a business, you think about the owners of the capital and the owners of the labor,” he said. “A lot of these companies have employees in Russia, and these actions also affect the Russian people.”


The geopolitical situations of Russia and Myanmar are very different, but there are some parallels. On February 24th, Russia launched a full-scale military attack on Ukraine, and faced a wall of global outrage. Three days later, British Petroleum announced that it was abandoning its stake in the Russian oil giant Rosneft, at a cost to the company of up to twenty-five billion dollars.


The next day, Shell announced that it was leaving, too, withdrawing from a partnership with Gazprom and the Nord Stream 2 natural-gas pipeline. The following day, Exxon announced that it would leave as well. Shell’s C.E.O., Ben van Beurden, seemed to speak for more than just himself when he said, “We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security.”


The fossil-fuel giants lobbed some of the earliest salvos in what has since amounted to a private-sector declaration of war on Russia, which has now seen an astonishing four hundred and fifty companies announce a withdrawal, suspension, or scaling back of business in Russia.

“The oil companies acted with such moral outrage that you have to do a triple take,” Jeffrey Sonnenfeld, a dean at the Yale School of Management, said. “Not that they’re mean, nasty people, but you don’t usually see them on the leading edge of social-change movements. They also have such enormous stakes that it wasn’t just perfunctory and flak-driven.”


Sonnenfeld was so astonished by the swiftness with which some of these corporations made moves that might cost them real money that he started keeping a list, which has since become a definitive account of business departures from Russia.


“How this happened so fast and decisively was really impressive,” he said. After the oil giants, the next big surprise, Sonnenfeld said, was the “head-spinningly fast” decision by major consulting firms such as Bain & Company, B.C.G., and McKinsey & Company, to pull out, too. “They would usually rather jump off a cliff than get involved in political conflict or geopolitics,” Sonnenfeld said. “They just don’t like a spat.” They were followed by the major accounting firms, and a long list of global law firms.


“And then you had big tech companies, who are not on our list of the most responsible outfits today,” he went on. Dell, I.B.M., Apple, HP, Google, Meta, and Twitter suspended some or all operations in Russia. “A lot of tech critics will say that there’s the right way to do something and the Facebook way to do something,” Sonnenfeld said. “But, in this case, they were at the front of the line.”


All this activity created pressure on the companies that still hadn’t taken action and helped to bolster C.E.O.s who might have wanted to leave but were facing resistance from their boards. Given the remarkable unity demonstrated by corporate leaders, Sonnenfeld was confused about why some major brands at first chose to dig in their heels; McDonald’s, Coca-Cola, and Starbucks, for example, withstood more than a week of criticism before announcing their own departures from Russia, on March 8th.


Sonnenfeld said that some of this might have been due to complicated franchise agreements that made it difficult to make a clean exit. But he also speculated that nostalgia played a role, and the sense that certain American brands had, in an earlier era, become important emblems in the push to spread democracy and prosperity around the world. He recalled that, after the Berlin Wall came down, in 1989, he saw a photograph showing a UPS truck on the other side of the Brandenburg Gate, which had previously divided East and West Germany. Sonnenfeld was working with UPS at the time.


“They were so proud,” he said. “These brands represented a pathway to global harmony. They were a symbol of freedom and democracy. Levi Strauss and Pepsi, and, later, Starbucks, were more than just fun goods. It was more than just a fad or style. There was a political statement attached to those brands.”


The global business exodus from Russia serves as a powerful condemnation of Russian President Vladimir Putin. It also, sadly, underscores the fact that his military invasion of Ukraine is not only going to devastate that country but will also have severe economic consequences for the Russian people. Sonnenfeld wonders whether, after years of grappling with the ill effects of globalization—the offshoring of jobs, the growing dependence of the U.S. economy on manufacturing in countries like China—this war will prompt us to rethink the costs of such an economic system.


He added that the private sector’s war on Russia might create more support for businesses that factor social welfare more heavily into their decisions, and less skepticism of such campaigns as being overly “woke.” “When companies want to do the right thing, their critics often say, ‘This is a private corporation, not a government entity. We’re not in business to solve all the problems in the world,’ Sonnenfeld said. “This is the excuse for cowardice.”


Sheelah Kolhatkar is a staff writer at The New Yorker, where she writes about Wall Street, Silicon Valley, economics, and politics. She is the author of “Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street.”


More on Russia’s Invasion of Ukraine

  • How significant is Russia’s partial ban from SWIFT?

  • Why sanctions often fail.

  • Can Russia’s conduct in Syria and Libya predict what’s in store for Ukraine?

https://www.newyorker.com/business/currency/the-consequences-of-the-unprecedented-rush-of-companies-leaving-russia/


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The Swedish furniture retailer IKEA is one of the businesses suspending its operations in Russia.Photograph by Pavel Pavlov / Anadolu / Getty

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