Many companies in the U.S. and elsewhere have been quick to sever ties to Russia – going well beyond applying the sanctions ordered by their governments. IKEA, Nike and H&M, and an array of luxury goods groups, for instance, are temporarily closing their Russian stores. Disney, Sony and Warner Bros. paused the release of new films in Russia. Apple, Samsung and Microsoft stopped selling their products there. McKinsey, Ernst & Young and many other top accounting and consulting firms said they are leaving the Russian market – possibly for good.
In all, over 300 companies have announced plans to close stores, reassign staff or stop selling products in Russia since the invasion began on February 24, 2022, according to a running tally by Yale management professor Jeffrey Sonnenfeld. Most recently, McDonald’s, Starbucks, and Coca-Cola joined the list on March 8, announcing they would close stores and cease sales.
In some ways, these decisions fit in with a recent trend in which companies have increasingly staked out public positions on often controversial social and political issues, such as restrictions on trans rights and ability to vote. The same factors that have driven those decisions to speak out are at work over Ukraine. However, Ukraine stands out for one important reason: For many of these companies, it may have been one of the easiest stands they have ever taken – even if there is a financial cost.
Taking a Stand
Corporate sociopolitical activism entails companies making public declarations or taking actions about significant social or political issues that extend beyond their core business. Until relatively recently, companies rarely took stands on social or political issues. That did not really change until the 2000s, when LBGTQ rights were under attack and major companies, such as Walmart, spoke out against bills that would have allowed discrimination. Since then, there has been a surge in companies taking proactive stands on issues ranging from climate activism and racism to abortion and voting rights. For example, in the wake of the murder of George Floyd by police in Minneapolis in 2020, hundreds of CEOs signed a pledge against racial discrimination and created an organization dedicated to diversity, equity and inclusion.
In 2021, the CEOs of Dell, American Airlines, Southwest Airlines and AT&T spoke out against a Texas bill aimed at making it more difficult for citizens to vote. Others have taken more decisive action. Uber and Lyft said they would pay to defend their drivers if they got sued under a Texas law that allows anyone to sue a person who helps someone get an abortion. And in 2016, PayPal and the NCAA pulled business from North Carolina after the state passed a bill limiting LGBTQ protections.
Surveys show that today’s consumers expect companies to live up to the values they espouse in their press releases, and big corporate groups, such as the Business Roundtable, have even begun urging companies to focus on creating value for everyone – not just shareholders.
Why Companies Speak Out
More specifically, research has identified three major factors that typically drive a company’s decision to pursue corporate activism: employee beliefs, consumer pressure and the CEO’s personal involvement or conviction. It is not always clear what is driving corporate decisions to suspend operations in Russia, but it seems as if all three factors are at play.
IKEA, for example, cited the support and security of its workforce in announcing its “pause” in Russia and a donation of 20 million euros for humanitarian assistance for those displaced by the war. Meanwhile, after a #BoycottMcDonald’s campaign began trending on Twitter to protest its presence in Russia, the fast-food chain said it was temporarily closing its stores there. And Tesla CEO Elon Musk agreed to provide Ukraine with free satellite internet after a Ukrainian official requested it on Twitter.
A Corporate No-Brainer
The decision of whether or not to sever a relationship with a country – even if temporarily – is very different from taking a stand on an anti-trans measure. Even so, the speed with which U.S. and other Western companies have abandoned Russia is something we have never seen in our lifetimes. And it suggests the decision was likely a no-brainer. For one thing, Russia’s invasion has been met with widespread revulsion in the West – and even before the war, the public’s perception of Russia in Western countries was very low. One post-invasion poll found that 86 percent of Americans saw the invasion as unjustified – with broad bipartisan agreement.
And governments, including those like Germany and Italy that have close commercial ties to Russia have strongly condemned its actions and joined unprecedented sanctions. About 80 percent of Germans, for example, said they approved of their government’s decision to sanction Russia and export weapons to Ukraine – or said it did not go far enough.
Ultimately, the Russian market is just not that big for companies in the U.S, such as Apple and Disney. (Or those in the luxury goods segment, where companies derive less than 5 percent of their annual sales from Russian consumption.) For others, such as McDonald’s, which has been in Russia since 1990 and has about 850 locations there, days of pressure finally persuaded company officials they had to pull out.
On many social issues like trans rights and gun control, the general public is generally split almost right down the middle, meaning that in taking a stand, companies could alienate a lot of consumers. That is not necessarily the same on the issue of Russia’s invasion of Ukraine, in which case many companies likely were more worried about the risks to their reputation in the even that they did nothing. With so many other companies pulling out, it likely seemed better to explain to shareholders and customers back home why they are leaving Russia than why they are staying.
Douglas Schuler is an Associate Professor of Business and Public Policy at the Jones Graduate School of Business at Rice University. Laura Marie Edinger-Schons is a Professor of Sustainable Business at the University of Mannheim. (This article was initially published by The Converstaion.)