Have Conn. companies’ exits from Russia affected the war in Ukraine?
In his office at the Yale School of Management, professor Jeffrey Sonnenfeld keeps a large Ukrainian flag. The blue-and-yellow standard is a gift that Sonnenfeld received from Ukraine’s ambassador to the United Nations, Sergiy Kyslytsya, at a Yale conference in Manhattan in June 2022, in recognition of Sonnenfeld’s support of the war-torn country.
It is a symbol and reminder of how a war more than 4,000 miles away has affected many in Connecticut, including the state’s business community, ever since Russian invaded Ukraine on Feb. 24, 2022.
In the last two years, Sonnenfeld has led a team at Yale that created and maintains a database on the proliferation of corporate withdrawals from Russia, including exits by some of Connecticut’s largest corporations. As the war has dragged on, a number of observers have questioned the impact of the business exodus, but Sonnenfeld maintains that the corporate boycotts are essential to holding Russian President Vladimir Putin accountable for the carnage.
“It’s having a devastating impact on the Russian economy,” Sonnenfeld, the Lester Crown professor in management practice and senior associate dean at the School of Management, said in an interview earlier this month. “Putin is just stealing the future of Russia.”
Many companies withdraw from Russia
About 1,200 companies worldwide, including some of the largest firms based in Connecticut, have scaled back or ended their operations in Russia since the war began two years ago, according to the Yale database.
Within days of the conflict breaking out, Norwalk-headquartered travel-services provider Booking Holdings halted bookings in Russia, while Stamford-based sports-entertainment firm WWE shut down the online WWE Network in the
country and terminated its partnership with a Russian broadcaster.
In March 2022, New Britain-headquartered toolmaker Stanley Black & Decker announced that it would end its business in Russia, as a sign of it standing “in solidarity with the people of Ukraine.” In July 2022, Farmington-based elevator and escalator maker Otis Worldwide announced the sale of its Russian business.
“After carefully considering the global impacts and consequences of the ongoing crisis and humanitarian tragedy across eastern Europe, including supply chain disruptions and mounting regulations, we determined that Otis’ ownership of our business in Russia is no longer sustainable,” Otis said in a written statement on the decision, adding the sale would provide a more certain future for local colleagues, customers and shareholders.
Booking, Otis and Stanley Black & Decker have earned grades of A in the Yale database for their responses to the war. WWE, Norwalk-based workplace-technology firm Xerox and Stamford-based career-services provider Indeed received grades of B.
Greenwich-headquartered warehouse operator GXO Logistics was upgraded to A after the company
announced last week that it had “fully exited” Russia and “has no business operations there.” Before the announcement, the company had received a grade of D for nearly two years.
Sonnenfeld has frequently compared the corporate withdrawals from Russia, combined with sanctions imposed against the country by the U.S. and many other nations, with the marginalization of the apartheid regime in South Africa in the 1980s. In 1986, Congress passed economic sanctions against South Africa. Eventually, more than 200 western companies cut ties with the country.
“In world history, this is the high-water mark of global corporate social responsibility,” said Sonnenfeld. His other efforts to support Ukraine have included a trip last September to Kyiv, during which he met with Ukrainian President Volodymyr Zelenskyy.
But some economists are more skeptical about the impact of reprisals by western companies and governments against Putin’s regime.
“Sanctions, company exits and the like have a short-term impact on a country at best and do not, in my opinion, have much influence on the long-run behavior of a country. If they truly worked to influence
behavior, Cuba, North Korea and others would have turned toward democracy by now,” said Christopher Ball, director of the Central European Institute and the Istvan Szechenyi chair in international economics at Quinnipiac University. “That being said, their exits definitely make life worse for the average Russian citizen since their exit deprives them of their services and goods. This also, of course, has a small, negative impact on GDP and likely decreases Russia’s efforts to modernize.”
Scrutiny of companies still operating in Russia
Despite the pressure to withdraw, many multinational firms continue operating in Russia, whose estimated population of about 142 million people ranks ninth globally.
Shelton-headquartered sandwich chain Subway is among the companies that have faced widespread criticism for their ongoing business in Russia. While Subway announced in March 2022 that it would not make any new direct investments or open additional restaurants in Russia, its response has not been nearly as emphatic as those of other fast-food giants. McDonald’s, for instance, announced in May 2022 that it would sell all of its approximately 850 restaurants in Russia.
In a statement, Subway said that all of its approximately 400 establishments in Russia are independently owned and operated by local franchisees and managed by an independent master franchisee, adding: “Subway does not directly control these independent franchisees, nor their restaurants and has limited insight into their day-to-day operations.”
Tobacco producer Philip Morris International, which opened a new headquarters in Stamford in 2022 after relocating from Manhattan, also continues to do business in Russia. PMI, whose international brands include Marlboro, has held talks with at least three “serious” potential buyers of its Russian business, PMI CEO Jacek Olczak said in a Financial Times article published in February 2023. But Russian regulations on foreign companies’ sale of Russian assets were complicating such a transaction, and Olczak said that he had an obligation to consider shareholders’ interests before making any deal.
In response to an inquiry from Hearst Connecticut Media about the current scope of PMI’s operations in Russia, a company spokesperson said, “we are unwavering in our commitment to Ukraine. Since the start of the war, we have and continue to take a number of actions to support Ukraine and the people of Ukraine.” Among new initiatives, the company is launching this year a factory in the city of Lviv in western Ukraine that will create 250 jobs, according to the spokesperson.
Still, Yale gives Subway and PMI grades of D for their response to the war, a mark also given to about 175 other companies for “postponing future planned investment/development/marketing while continuing substantive business” with Russia. About 220 companies, none of which are headquartered in Connecticut, received grades of F for, “just continuing business as usual,” in Russia.
“They don’t know shame, and it’s pure greed,” Sonnenfeld said of the companies that have not significantly curtailed business in Russia. “It’s against their own business interests to be there … (For) these companies, it isn’t even 2 percent of their sales. And they’re not even really making money being there.”
Norwalk-based heavyequipment manufacturer Terex has a grade of C, one of about 150 companies that are, “scaling back some significant business operations but continuing some others,” according to the Yale database.
Terex officials dispute Yale’s assessment.
“Terex is not doing any business in Russia,” the company said in a statement. “We are not supplying equipment, parts or services. We don’t have employees, manufacturing or sales in Russia.”
The Yale database is updated continuously by Sonnenfeld and a team of experts, research fellows and students that he leads at the School of Management’s Chief Executive Leadership Institute.
What happens next?
As the war drags into its third year, Ukraine’s military is struggling to keep Russian forces at bay as it acutely feels the impact of political wrangling in western nations, including the debate in Congress over a proposed $95 billion aid package for Ukraine, Israel and Taiwan.
“The lack of U.S. military aid to Ukraine is likely more a strong signal to Russia that American and European resolve is weakening,” said Ball. He added that recent developments in Congress encouraged Putin to continue the war and wait out American voters, who were losing interest in the war.
Sonnenfeld argued that Putin was only able to sustain the Russian war machine by “cannibalizing” Russia’s economy.
“You can go a fair bit of time that way, by mortgaging Russia’s future,” Sonnenfeld said. “It’s the equivalent, in domestic terms, of taking the living room furniture and throwing it into the furnace to keep the heat on. That’s what he’s doing for now.”