ANALYSIS-Western companies fight Russia’s ‘half exits’

Band Richa Naidu and Jessica DiNapoli

March 18 (Reuters)Western companies that mainA presence in Russia to provide essential goods such as food and medicine is trying to strike a balance between President Vladimir Putin’s government and Ukraine’s supporters pulling 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More than 400 companies have withdrawn from Russia since it launched its attack on Ukraine on February 24, according to a list compiled by Yale School of Management professor Jeffrey Sonnenfeld.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 that were worth hundreds of billions of dollars in total before the invasion, which Russia calls a “special military operation”.

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 like PepsiCo Inc. PEP.OProcter & Gamble Co. PG.N and Nestlé SA NESN.S said they would maintain a presence in Russia to provide basic nutrition and hygiene items, such as milk and diapers.

With mounting 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,” BSR said. General manager Aron Cramer, who advises companies on environmental, social and corporate governance (ESG) issues.

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. PFE.N, germany Bayer AG BAYGn.DE and Eli Lilly LLY.N said they would halt non-essential operations in Russia, but plan to continue supplying medicine 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 join the conglomerates that pull out of Russia completely. 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 Bayer and Switzerland’s Novartis SA NOV.Smaintain manufacturing plants in the country.


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.

British American Tobacco BAT.L Marketing director Kingsley Wheaton told Reuters last week that leaving his company or stopping the sale or manufacture of its products would be considered criminal bankruptcy by Russia that could expose its staff in the country to prosecution.

Other challenges consumer companies always operateing in Russia face are process transactions under bank sanctions and secure commodities, said Jack Martin, fund manager at Oberon Investments, which owns stakes in Unilever ULVR.LDiageo DGE.LBurberry BRBY.LGSK GSK.LEli Lilly and Nike NKE.N.

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

Companies are trying to find ways to appease all parties. Novartis, Bayer, Pfizer and Eli Lilly, for example, said they would set aside for humanitarian aid profits from sales in Russia.

Some companies stay in Russia while looking for 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 30-year-old Russian distributor, Wheaton said.

Many companies are also concerned that would like arrive at 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, 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 the case, Russia has a reputation for not paying,” Compres said.

(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)

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