Analysis: Western companies fight Russia’s ‘half exits’

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March 18 (Reuters) – (This March 18 story corrects paragraph 12 to show that Bayer does not maintain production facilities in Russia)

Western companies that maintain a presence in Russia to supply essential goods such as food and medicine are trying to balance the government of President Vladimir Putin with the supporters of Ukraine pushing them in opposite directions.

More than 400 companies have withdrawn from Russia since it launched its attack on Ukraine on February 24, according to a list compiled by Yale School of Management professor Jeffrey Sonnenfeld. They left behind assets worth hundreds of billions of dollars in total before the invasion, which Russia calls a “special military operation”.

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Still, about 80 companies maintained their presence, even as they suspended new investment and business ventures. Many are consumer and pharmaceutical companies who say pulling out would significantly harm the Russian population. Some also worry about the legal repercussions for their employees in the country if the Russian government retaliates.

“Companies think they can’t easily abandon Russian small businesses and the consumers who rely on them,” said Bruce Haynes, global co-president of crisis communications at public relations firm SVC+FGH, which advised the companies. on their withdrawal from Russia.

Consumer goods giants such as PepsiCo Inc (PEP.O), Procter & Gamble Co (PG.N) and Nestlé SA (NESN.S) said they would maintain a presence in Russia to supply basic items for nutrition and hygiene, such as milk and diapers.

With increasing casualties and refugees from the conflict in Ukraine, pressure is mounting to withdraw from Russia altogether.

“Barring a turnaround that we don’t see at the moment, the pressure (to pull out) will increase,” said BSR chief executive Aron Cramer, who advises companies on environmental, social and governance issues. company (ESG).

Katie Denis, head of communications and research at the Consumer Brands Association, a trade group that counts Pepsico, Coca-Cola and P&G among its members, said its members as a whole did not support Russia’s actions in Ukraine, but that the uninvolved Russian people should not be hurt.

Pharmaceutical companies such as Pfizer Inc, Germany’s Bayer AG (BAYGn.DE) and Eli Lilly (LLY.N) have announced they will halt non-essential operations in Russia, but plan to continue supplying drugs for diseases such as diabetes and cancer. They noted that prescription drugs have been excluded from international sanctions because they meet an essential humanitarian need. However, in recent days, even these goods have come under scrutiny.

Ukrainian President Volodymyr Zelenskiy this week urged pharmaceutical companies to join conglomerates pulling out of Russia altogether. Sonnenfeld, whose list was seized by human rights activists to pressure global companies to leave Russia, also called for such a move.

Some pharmaceutical companies have the support of their shareholders. Josh Brockwell, for example, an executive at investment firm Azzad Asset Management, said he supported Pfizer’s decision to continue supplying Russia. “I don’t think the people should suffer for the actions of the (Russian) government,” he said.

Many US-based pharmaceutical companies say they do not manufacture drugs in Russia, but some European counterparts, including Switzerland’s Novartis SA (NOVN.S), maintain manufacturing plants in the country.

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Putin said last week that Russia could seize the assets of companies that abandon operations in the country. Russian prosecutors have also warned some Western companies that their employees could be arrested if they stop production of essential goods, a person familiar with the matter said.

Kingsley Wheaton, chief marketing officer of British American Tobacco (BATS.L), told Reuters last week that quitting his business or stopping the sale or manufacture of its products would be considered criminal bankruptcy by Russia which could expose its personnel in the country to prosecution.

Other challenges facing consumer companies still operating in Russia are processing transactions under bank sanctions and securing commodities, said Jack Martin, fund manager at Oberon Investments, which has stakes in Unilever (ULVR. L), Diageo (DGE.L), Burberry (BRBY.L), GSK (GSK.L), Eli Lilly and Nike.

“The risk premium for investing in companies that do business in Russia has increased,” Martin said.

Companies try to find ways to appease all parties. Pfizer and Eli Lilly, for example, said they would set aside all profits from sales in Russia for humanitarian aid. Novartis and Bayer have each pledged millions of dollars for Ukraine aid.

Some companies remain in Russia while seeking parties to buy or take over their local operations. Wheaton, of British America Tobacco, said his company was trying to do it “quickly”. Interested parties could include its Russian distributor for 30 years, Wheaton said.

Many companies also worry about what would happen to their facilities in their absence. An abandoned food factory, for example, could be repurposed by Russia to supply troops fighting in Ukraine.

Some investors want companies to think about how they could indirectly finance the war by paying taxes. Hannah Shoesmith, director of engagement at asset manager Federated Hermes, told Reuters last week that companies should “think carefully” about the taxes they pay to the Russian government and whether the products and services they provided were worth the risk.

Companies that have left Russia may have difficulty recovering their property and assets once expropriated. Tiffany Compres, a partner at law firm Fisher Broyles, said companies could sue Russia in international forums such as the International Center for Settlement of Investment Disputes, but such cases can drag on for years and Russia cannot be forced to pay.

“Even if the company wins, Russia has a reputation for not paying,” Compres said.

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Reporting by Richa Naidu in London and Jessica DiNapoli in New York Additional reporting by Ross Kerber and Caroline Humer in New York and Uday Sampath Kumar in Bangalore Editing by Greg Roumeliotis and Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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