It’s not about the money: multi-national brands exiting Russia

Since Russian president Vladimir Putin declared war on Ukraine last month, big brands have been leaving the country in droves — either pausing operations or shutting down entirely.

From banks to fast food chains, the exodus has been swift amid pressure from consumers and fear of boycotts and social media “cancellation.”

Starbucks, Ikea, McDonalds, Burger King, Microsoft and Apple are among the numerous multi-billion dollar names that have chosen to either temporarily or permanently pull up stakes, even though they will likely suffer some financial losses.

There are more important things than money

Political science expert Dr. Wayne Petrozzi says the decision to exit Russia for most companies is likely influenced by a desire to protect something much more valuable than the bottom line.

“Certainly for the companies, there are losses. Are these losses tremendous? Not likely. For most of these firms, the Russian market doesn’t represent an overwhelming portion of their asset base or their income stream,” explains Petrozzi. “They’re very much concerned with consumer reaction to their continued presence in the Russian market.”

Petrozzi says while it may seem like it’s just about how staying in Russia reflects on a company, that consideration is not to be taken lightly. Optics are an integral part of a company’s brand valuation and factor into the cost of staying vs. leaving.

“Oftentimes, the value of a company is in fact embedded in its brand. This perceptual idea of brand recognition … is really about the underlying economic value of that company and of its products,” said Petrozzi. “And so to run the risk of doing serious damage to your brand in order to maintain a revenue and income stream — not a smart move,”

“PepsiCo does not want to be seen as the preferred soft drink of invaders.”

McDonald’s is among the companies losing money by temporarily shuttering its 850 stores across Russia, estimating a loss of $50 million per month. The chain says it will continue to pay it’s Russian employees during the closure.

Petrozzi says the move by the fast food giant is both prudent and smart.

“Maintaining brand integrity is more important than loss of income or loss of revenue,” he said. “The economic cost of exiting is far less than any hit on their brand worldwide. [If] people decide McDonald’s are a bunch of grifters who are only interested in making money and don’t really care about people — that’s not a winning proposition for most companies.”

It’s the “right thing” to do

Along with considerations about brand integrity, company’s are also likely taking a moral stand about Russian aggression in Ukraine by refusing to do business in the region.

“I think it’s one of those situations where we want to have a very strong denunciation of those actions [by Putin]. If part of that includes stopping doing business in Russia, then I think that’s what companies need to do,” said ethics professor Chris MacDonald, director of the Ted Rogers Leadership Centre at the Ted Rogers School of Management at Ryerson University.

MacDonald added that companies are likely also concerned about “bolstering an economy that is the engine of Putin’s war effort.”

“[There is also] I think a very genuine interest in sending a very strong signal to Putin that this is not okay. ‘You are not going to be part of the world’s political or economic community if you continue to behave this way’,” he said.

In addition, MacDonald says people tend to be wary of corporations taking a stand on political issues, but the extraordinary nature of the situation and the danger it poses to the rest of the world trumps those considerations.

“I think this is one of those opportunities for companies to stand up on the right side,” he said.

Multi-national firms can do more than just pull business or release a statement adds Paul Klein, founder of Impackt Corp. — a company that helps corporations get involved in solving social problems.

Emphasizing the difference between “programs” and “promotions,” Klein suggests that companies reach out to Ukrainian employees directly affected by the conflict and implement initiatives built with their input, rather than simply voicing their support.

“There’s this expression, ‘nothing about us without us.’ And that means it’s important to understand and to live into the perceptions of people with lived experience. What we think and know about does not matter — what does matter is what people who are experiencing this know about it and believe,” he said.

Klein says the programs should have a focus and real world impact, going beyond hashtag activism — such as how best to support the families of Ukrainian employees or those who are now refugees in neighbouring countries.

“It’s okay to have a hashtag as long as you’re actually doing something,” he said. “I just genuinely believe that corporations that contribute to social change will benefit from a business point of view. But that does mean you actually have to be doing something, not just talking about doing something,” he said.