Since Russia began its invasion of Ukraine on Feb. 24, a growing number of U.S. and European companies have announced their withdrawal from Russia or the suspension of operations in that country. Sanctions and export controls are, of course, the proximate and compelling reasons for the sudden realization of the financial and legal risks of doing business in a country that has become a virtual no-go zone.
One might ask if reputational risk is also a major factor in the decision to abandon a market that, for many of those companies, has been extremely lucrative in the two decades that President Putin has been in power. If so, it begs another question: At what point does reputational risk supersede the normal business logic of protecting assets and preserving market share?
Under most circumstances, the public relations departments of multinational firms can deflect criticism over their host countries’ human rights violations with a well-funded corporate social responsibility campaign, or by laying low for the duration of any atrocities in the expectation of the short memory of public opinion.
Companies agonize over China, whose gross violations of human rights are well documented, but whose market is irresistibly large and profitable. Myanmar might be an easier call, given its paltry consumer potential. Venezuela fits in the middle, subject to sanctions but so far limiting its atrocities to its own population, mostly out of sight of international media.
However, when the government of the country where you have a major presence is raining missiles and cluster bombs on civilian populations in a neighboring country (perhaps, especially when that country is in Europe) it may be more than you — an otherwise phlegmatic C-suite executive — can stomach, or you may doubt it can be easily brushed aside with a focused ad campaign. Perhaps you make a decisive move in anticipation of sanctions, making a virtuous gesture in the face of inevitable mandatory action.
Until now, the tolerance of reputational risk in Russia has been surprisingly high. The litany of outrageous violations of human rights could be explained away as unproven allegations, dismissed as political matters about which foreign companies cannot legitimately express views, or simply ignored.
The profits in Russia were so good and the public awareness of, or sensitivity to, the atrocities of Putin’s regime was so low, that the threshold of corporate moral outrage was never crossed.
Not when hundreds of Russians died when three Moscow apartment complexes blown up in 1999 were revealed to be an FSB false-flag operation meant to galvanize public support for Putin’s leveling of Grozny, the capital of Chechnya.
Not when Putin ordered the use of military-grade chemical weapons on foreign soil against his political enemies Alexander Litvinenko in 2006 and Sergei Skripal in 2018.
Not when Sergei Magnitsky, a lawyer who denounced high-level government corruption, was murdered in a prison cell in 2009.
Not when Anna Politkovskaya, a reporter investigating corruption in Putin’s inner circle, was murdered in 2012.
Not when Putin-backed separatists in the Donbas region of Ukraine shot down a civilian airliner, killing all 298 passengers and crew in 2014.
Not when his talented and thus threatening political opponent, Boris Nemtsov, was gunned down outside the Kremlin in 2015.
Not when Russian military aircraft bombed hospitals, schools and an aid convoy in Syria in support of their client Bashar Assad.
Not when Putin’s leading political opponent, Alexei Navalny, was poisoned with a chemical weapon that almost killed him in 2020.
There should have been no surprises with respect to who Putin was and where he was going, but business leaders were nevertheless willing and eager to be seen with him in public forums, and even to express admiration for him.
Let’s give the companies that are now announcing their withdrawals from Russia credit for finally doing so. Reputational risk may have played as much a role as sanctions. Let’s just be a little skeptical about attributing it to principle.
Edward S. Verona is a senior advisor at McLarty Associates who consults with clients on issues related to Russia and Europe. He is a former U.S. diplomat, former vice president of ExxonMobil Russia, and former president and CEO of the U.S.-Russia Business Council (USRBC). The opinions expressed in this piece are solely those of the author.