It doesn’t get much more symbolic than McDonald’s. As the war in Ukraine continues, the fast food chain joins the growing list of companies that are moving away from Russia for now.
For some, it evoked memories of a historic moment in 1990: the opening of the first McDonald’s in what was then the Soviet Union. Thousands of Muscovites stood in line for hours for a Big Mac, which quickly cost the average Russian about three hours’ wages.
McDonald’s now has 847 restaurants in Russia. On Tuesday, CEO Chris Kempczinski to let employees know that they will all be closed for the time being. Kempczinski, who was under increasing social pressure to take action, spoke of “an extraordinarily complex situation” with “many tradeoffs”, but ultimately said the company wanted to do “the right thing.”
Stay in Russia or leave? It is a complex issue for companies, in which public opinion, business interests and social responsibilities are intertwined. Nevertheless, an increasing proportion are opting for a (partial) exit from Russia. Only in recent days has that been the case for investment bank Goldman Sachs, coffee chain Starbucks, clothing brand Uniqlo and car group Stellantis, parent company of Peugeot, Citroën, and Opel.
“I’m seeing a snowball effect,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management. He keeps a list of large companies withdrawing. There are now more than 300 names on it.
Sonnenfeld’s position is clear: companies have a moral obligation to take action. “Otherwise you will keep Putin’s facade up.” That is why he also mentions big names that have not (yet) taken any steps: coffee and sweets chain Dunkin’ Donuts, for example, tire company Pirelli, sandwich chain Subway. The Dutch paint group AkzoNobel also announced on Friday that it would remain in Russia for the time being, as long as Western sanctions allow it.
More action than expected
But a large group of companies is actually taking a remarkable amount of action, Sonnenfeld sees. Much more than they are legally required to do due to sanctions. This is remarkable because these steps have (heavy) financial consequences for the business community. This is how McDonald’s would do, according to experts in American media Cost $50 million per month to keep their restaurants in Russia closed. The company itself doesn’t make any announcements about it, but it’s not hard to understand that it will cut it if a chain has to close 847 branches.
In addition, companies may incur President Putin’s wrath, writes financial journalist Peter Coy on Friday The New York Times† He has already said that he views sanctions from other countries as an “act of war”. He may also take revenge on companies, according to Coy, for example through cyber attacks.
So why the great willingness to take a stand against Russia? The great public distaste for the war in large parts of the world naturally plays a role, says Sonnenfeld. “Companies are afraid of a consumer boycott.” But he also thinks that investors and investors are exerting pressure. For example, the major US pension fund, which manages $280 billion, last week urged companies to stop doing business in Russia, wrote business newspaper de Financial Times† Although it differs per industry how high that pressure is.
In addition, Sonnenfeld sees employees as an important influence on the direction of companies, especially when many young people work.
Technology company Philips, for example, noticed that employees were starting to stir. The group was used to taking a “politically neutral stance”, a spokesperson told NRC† But Philips saw that “many questions came from our own organization: shouldn’t we take a stronger position? Emails were sent, it was always discussed in meetings and on our internal social media channels. We wanted to, but we just weren’t used to it yet.” Finally, CEO Frans van Houten issued a statement condemning the war.
It is also understandable that companies are dubious with this file, because criticism is quickly lurking. Heineken experienced this when board chairman Dolf van den Brink wrote on LinkedIn last Friday about a donation of 1 million euros for war victims. In the eyes of critics, things went wrong twice: to start with, Van den Brink initially used the term ‘military operation’ instead of ‘war’, which led to him being accused of spreading Russian propaganda. Heineken could do better with „the guts [tonen] to stop all activities in Russia,” as one reader put it.
This week the brewer announced that it will stop selling the Heineken brand in Russia after even less drastic steps had been announced a few days earlier. “A big decision,” said a Heineken spokesperson, even though the company’s other beer brands will remain available. “We have never decided to take away the Heineken brand for geopolitical reasons.” The company has seven breweries in Russia, 1,800 employees and gets 2 percent of its turnover from here: the Heineken brand is “a significant” part of that.
Surprising ‘first movers’
In addition to the large number of companies taking measures in Russia, Sonnenfeld was also surprised by the order in which this happened. The concerns that were the first to move „are not the first movers that you would expect,” he says.
The day after the invasion of Ukraine, on Feb. 24, the first to respond were oil companies BP, Exxon and Shell (which announced Tuesday to sever ties with Russia completely, after initially selling only the oil and gas exploration business). The big tech companies soon followed: Dell, then IBM, Apple, Meta, Google, Twitter. Business service providers such as McKinsey, Bain, KPMG, EY, Deloitte also came forward almost simultaneously. †shocking† I have been doing this job for 45 years. And I’ve never seen companies like this come out on top when it comes to social issues.” Normally it is more consumer companies that speak out on issues such as climate change or human rights, Sonnenfeld says – if they do so at all.
What’s that in him? Food companies such as PepsiCo and Danone say they are reluctant to take drastic measures because they provide Russian citizens with food and drink: they both have only promised not to make new investments in Russia. Danone’s CEO said to the . last week Financial Times that it is “easy to fall into black-and-white thinking” but that his company bears “a responsibility” to customers, farmers and tens of thousands of employees. And PepsiCo makes a distinction at the product level: it will stop selling drinks, but not food and dairy.
Philips is following the same path, which has stopped importing razors and electric toothbrushes, but not baby products such as bottles and breast pumps. The company also supplies medical equipment. “The war in Ukraine is terrible, but we should also not lose sight of the human side in Russia.”
Yale professor Sonnenfeld believes that some of the well-known consumer brands fear punishment from the Russian public, who have been fueled by Putin’s propaganda and who may have been a good customer in the past. Jewelry brand Bvlgari (part of luxury house LVMH) received a lot of criticism, the CEO of which told the news agency at the beginning of March Bloomberg confided that “turnover probably had increased” after the war started, because rich Russians ‘fled’ in expensive Bvlgari jewelry. What did not help in the public opinion is that he added that Bvlgari “is there for the Russians, not for the political world”. The stores closed a few days later.
With the cooperation of Teri van der Heijden and Liza van Lonkhuyzen