What Is “Good Corporate Citizenship” for Companies Operating in Russia?

It is often not easy for western companies to live up to the principles of “good corporate citizenship” when they have operations in or are investing in countries without democratic governments. As the unprovoked military invasion of democratic Ukraine by the Russian Federation got underway, western companies doing business in Russia were quickly presented with serious challenges. In response, more than 400 major western companies so far have made the decision to cut their ties with Russia, according to a research team led by Yale University professor Jeffrey Sonnenfeld, while some companies have continued to operate in Russia.

Sonnenfeld, an acclaimed expert on corporate governance and founder of the nonprofit Chief Executive Leadership Institute, is identifying the actions (and lack of actions) by corporate boards and CEOs, tracking the choices as:

• Withdrawal – make a clean break / disengage completely
• Suspend operations – keep options open for return
• Scale back – reduce activities, delay investment
• Dig in – defying demands for exiting

In our Top Stories, we bring the latest results of the Yale team’s tracking of companies’ decisions. g. (As of March 18, there are 152 withdrawals; 181 suspensions; 84 scaling back; and just 27 big corporate names are classified as digging in.)

What are the important guideposts for company boards and managements, providers of capital, employees or potential hires, and other stakeholders trying to assess “good corporate governance”?

For large-cap public companies we can look to The Business Roundtable (BRT), comprised of 200 CEOs of the largest companies in the U.S. In August 2019, BRT revised its long-standing mission statement which had “stockholder interest” as the primary principle of operating public companies, to move to a “stakeholder” focus. The five principles of the revised statement are:

• Deliver value for customers -- meet and exceed customer expectations.
• Invest in employees – foster inclusion, dignity, respect.
• Deal fairly and ethically with suppliers – partners, large and small.
• Support communities where [we work] – protect the environment, embrace sustainable practices.
• Generate long-term value for shareholders who provide capital – be transparent and engage.

Clearly the principle of supporting the communities where we work is being tested in this situation. What is corporate leadership to do in what some are calling “a new Cold War”? Leaders have to calculate risk/opportunity to factor in: What happens when a large nation in which we operate or invest in goes to war – and other nations impose sanctions, embargoes, blockades, or even engage in armed conflict? The decisions are being made right now, as the White House and leaders of many European nations impose sanctions on Russian entities, companies, and individuals.

Watching corporate actions closely are national and global media, NGOs, public sector leaders, and corporate governance experts. These stakeholders are weighing in with their opinions.

The challenges were intensified by President Volodymyr Zelenskyy of -Ukraine in his address this week to the U.S. Congress. He clearly stated that all U.S. companies should leave Russia and not do business with that nation which attacked his own sovereign Ukraine.

There will be much more news and opinion offered on these fast-changing issues, which the G&A team will continue to share in coming issues of this newsletter.

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