Entreprise

Leaving Russia: Key Issues Faced by Multinationals

Wolodymyr Zelensky’s message is dull. Western companies must leave Russia immediately “because our blood is overflowing,” the Ukrainian president told US Congress last week.

Multinationals have withdrawn from Russia at unprecedented speed and scale. Some, such as Danon, have stopped new investments, but “quoting responsibility for the people we feed, they argued that they would remain. [and] Farmers who provide us with milk. “

Many are looking for more radical options. Jeffrey Sonnenfeld, a professor at Yale School of Management, who has been tracking the “business blockage,” estimates that more than 400 people are now promising to shrink, shut down, or withdraw completely.

Behind the announcement volley, “execution is very complicated,” he said.

Even companies that have announced plans to withdraw from Russia face dilemmas about Russian people, assets and liabilities, and the country’s short-term and long-term options, according to interviews with executives, advisors and scholars.

People’s problems

“It’s easy to say that we’re leaving Russia, that’s what we all want to do,” said Andrea Orcel, UniCredit’s CEO.

Some companies, such as Spotify, have separated people. Some companies, such as Accenture, have closed their Russian businesses, even though they are large local employers that affect the employment of nearly 2,300 people. Toyota is gradually permitting after shutting down its St. Petersburg plant. A total of 48 people, including the expatriates and their families, will return to Japan.

Most employers struggle to strike a balance between suddenly moving away from toxic markets and protecting paying people.

“There are places like McDonald’s and IBM [large local] The workforce and they do not want to come across those who were part of their family as disciplinary, “Sonnenfeld said.

Even if McDonald’s shuts down at 850 Russian restaurants, McDonald’s promised to continue paying 62,000 employees there.

However, Sonenfeld said:

Russian prosecutors have warned that business leaders who criticize the government can be fined and imprisoned, while companies that shut down can be found guilty of “fraud or intentional bankruptcy.”

After shutting down the St. Petersburg factory, Toyota is gradually returning expatriates and their families to Japan for a total of 48 people © Anatoly Maltsev / EPA-EFE / Shutterstock

Another car executive said: [production].. By design, the situation is so delicate that we never step into this politics, no matter what we think. [the plant] For some reason you are on their radar. “

Dave Robertson, Chief Operating Officer of Koch Industries, says that two glass factories in Russia employ about 600 people. We will hand over these manufacturing facilities to the Russian government so that they can operate and profit from it. “

Expropriation threat

As Robertson suggested, some Western companies are concerned that suspended businesses could be seized by the state.

Another automaker executive said, “If it is deemed to have shut down for no good reason, it may face nationalization, be put into bankruptcy or control, and assets may be confiscated if it is not restarted. “.

Alberto Alemanno, a law professor at HEC Paris, says companies are now “paying a lot of lawyers to assess what they can do about it in terms of protecting their investment.” Stated.

Their concerns reached the White House, and spokesman Jen Psaki tweeted that “illegal” seizures would lead to legal claims. The Russian embassy in Washington has rejected fears such as “disgusting hysteria.”

Sonnenfeld said the risks are limited, as most non-industrial companies have few hard assets in Russia.

When Disney said it would “pause” all activities in Russia, he added that “contract complexity” meant that it would take time to free himself from others, such as television channels. rice field.

McDonald’s is also working on ongoing efforts such as restaurant leasing, and Chief Financial Officer Kevin Ozan said this month that costs in Russia would be reduced to about $ 50 million per month.

Derek Leatherdale, managing director of geopolitical risk consultancy GRIStrategies, said some companies have determined that the reputational risk of continuing to pay Russian counterparties is too high.

“Theoretically, a withdrawn company would retain its legal and financial obligations within Russia,” he said. The benefits of public relations to go out outweigh the theoretical risks. “

Western companies seeking expert advice are facing new challenges as international law and accounting firms themselves close local affiliates, or at least temporarily disconnect them from the global network. Laws designed to avoid the “avoidance” of sanctions limit the advice that businesses can provide. Transactions with Russian trading partners and obligations, or trading partners seeking to sell assets or collect payments.

One lawyer warned that while companies could legally suspend transactions with sanctioned organizations, organizations that voluntarily suspended their contractual obligations were at considerable risk. Joint venture partners and investors heard in a British court. “

An old couple walking towards an IKEA store in Moscow
With 17 IKEA stores, 9 planning studios and a distribution center in Russia, the Ingka Group said it employs 12,000 people and is working on the assumption that it will continue to be shut down for months © Maxim Shipenkov / EPA-EFE / Shutterstock

Can the seller find a buyer?

Companies such as BP and Shell have announced plans to sell Russian assets. For some companies, existing partners and franchisees are looking for logical buyers, but finding buyers who are not on the Western sanctions list is difficult and questions about how to refund the sale price. Facing

Tobacco makers Imperial Tobacco and British American Tobacco have transferred their operations to the Russian business. Kingsley Wheaton, BAT’s chief marketing officer, is criminally liable for the “false bankruptcy” regulation being discussed in Congress.

But he said the negotiations could take months, as transferring control of Russia’s BAT’s 2,500 employees, St. Petersburg’s manufacturing plant and supply chain was a “complex business”. Stated.

“This is not a classic coffee table book M & A. This kind of M & A itself takes a long time. Adding the peculiarities of the current environment only makes it even more complicated. It’s a complicated situation.”

Keep options open

Companies that maintain some or all of their original operations in Russia with more than 80 Sonnenfelds are addressing economic weaknesses, supply chain collapses, currency devaluations and supporting their operations. Some companies are having a hard time accessing cash.

James Peters, Chief Financial Officer of Whirlpool, said: so. “

With 17 IKEA stores, 9 planning studios and a distribution center in Russia, the Ingka Group said it employs 12,000 people and is working on the assumption that it will be shut down for months.

“We want to provide long-term employment stability to all our colleagues, and we recognize that the situation in both countries is dynamic and rapidly changing. We have a six-month plan. We are working on it, but at the time of the announcement of the temporary suspension, we guaranteed a three-month salary in Russia. “

Return risk

Wharton professor Michael Useem, who specializes in risk management, needs to think about how companies wanting to return to Russia someday, even when they are tackling the challenge of keeping their withdrawal pledges. It states that there is.

“If I’m at McDonald’s headquarters, I think we’ll be back someday ….. what about the situation, the situation, the moment, the political situation that means we can legally return? ?'” He said.

The board needed to oversee strategies on how companies could re-enter Russia in a way that was favorable to stakeholders. [informed by] Dedicated analysis. ”

Many companies are looking for ways to remain disconnected, such as using call options to buy back assets that have been temporarily sold to a trusted local partner. However, one lawyer said: Enforcing call options is not easy when selling to a trusted third party. If you let go of your asset, you may never see it again. “

AndrewEdgecliffe-Johnson and Andrew Jack, Peter Campbell, Philip Georgiadis, Ian Johnston, Richard Milne, Michael O’Dwyer, Antonio Slodkowski, Eri Sugiura

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