Multinational corporations are giving up billions of dollars in Russia, as they cut back operations there in response to Moscow’s invasion of Ukraine. Of almost 1,100 firms tracked by Yale University, more than 750 have voluntarily scaled back business beyond the requirements of international sanctions—and the choice, in many cases, carries serious costs: BP estimates it will lose $25 billion in revenue; Shell, $5 billion. These public decisions to side with Ukraine follow years of corporations increasingly taking liberal or progressive political positions on divisive cultural issues, including voting rights, rights for gay and transgender people, and the Black Lives Matter movement. But corporate leaders knew those moves wouldn’t cost them substantially, because few consumers consider corporations’ social and political stances when buying goods or services. So why are these companies willing to forgo billions of dollars now?
Neil Malhotra is the director of the Center for Social Innovation and a professor of political economy in the Graduate School of Business at Stanford University. A few executives, Malhotra says, acted on intuition to get out of Russia early, and then a cascade effect developed, with others not wanting their companies to be seen going against an apparent global consensus on a historic issue. According to Malhotra, corporate calculations on social and political stances have changed since Donald Trump became president of the U.S.—but they haven’t changed fundamentally. Businesses are still driven by financial considerations above all, and the decisions to get out of Russia are based on a judgment that leaving is the better move to ensure long-term profits. But it also sets a precedent, Malhotra says, with unknown implications across an array of fraught social and political causes.
Michael Bluhm: Why are corporations going beyond their legal requirement to cut ties in Russia?
Neil Malhotra: It’s a fascinating situation. Corporations are going far beyond government sanctions. They’ve left real money on the table. Russia is a significant market that they’re not serving anymore.
The situation reached a tipping point. If you’re not leaving Russia now, you won’t be seen as a legitimate company—and that’s going to get you effectively on a blacklist among consumers, potential employees, investors, and so on. It’s an example of how society as a whole coordinates on an issue, and companies don’t want the impression that they’re on the wrong side of it.
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