Guest: DJ Peterson, Founder and President of Longview Advisors
The wave of global companies shutting their doors to Russia permanently or temporarily continues. What is the impact on Russian consumers? Will the Kremlin budge?
In the first weeks of the war, we heard reports that brand after brand of Western companies was closing their doors in Russia. Oil giants shut down their rigs and tech companies unplugged their servers, sending workers home. Luxury good brands joined the exodus, sending powerful values-ridden press releases. The wave of global companies leaving Russia has not stopped. Over the last decade, there has been an acceleration towards greater and more active corporate social responsibility. Taking a stance on powerful political issues such as war represents an escalation. What does the exodus mean for the Russian economy? Has a new standard been set for corporate responsibility and a stakeholder economy? And, finally, what does this mean for the few international companies that refused to leave? We discuss all these themes with our guest, DJ Peterson.
Companies have taken stands on the environment, voting, gender, racial issues, and worker’s rights. A few years ago, Business Roundtable, made up of Fortune 500 CEOs, expanded its mission, announcing a transition of priorities from shareholders to stakeholders. Values penetrated corporations.
The last time there was such a corporate exodus from a country was in the 1980s in South Africa, where hundreds of American companies stood with the US policy of rejecting Apartheid and shuttered their activities in South Africa. There was no social media platform for public shaming or customer posting, but even then, it sent a strong message, often at great cost for companies. We asked if this is going to become a way for companies to exert political pressure? Peterson answered, “I think it’s going to set a precedent. […]In many ways these companies have been forced to take action because of public sentiment. […] And the question is will this standard hold for other markets?”
The impact on companies and consumers is undeniable. But are these private actions capable of influencing Putin’s decision? Peterson explained, “No, it doesn’t. I think it’s very important to be clear that Putin is often portrayed as a strategic chess player. But in fact, he lives in an imaginary medieval world in which Russia is great, Russia is the future, and the West is degenerate. So, there’s nothing the West can do, or Western companies can do to change his thinking.”
More than 500 companies have withdrawn from Russia. Altamar’s Muni Jensen asked, “What is the economic impact for consumers? And when does it end?” Peterson pose, “I think this is the big question. In many cases, people are wondering, can we reanimate our businesses that have been frozen or our investments? I’m saying we can’t go back.” He elaborates, “First, as long as Vladimir Putin is in office, sanctions aren’t going to be lifted. And very importantly, the brand risks for companies are going to be heightened. […] Second, the Russian economy has been fundamentally hobbled by sanctions so, the business opportunity for companies to sell into Russia is greatly diminished. […] And finally, looking at larger issues such as ESG, […] the scrutiny is just much greater, and this is making them much more risk-averse than they were in the past.”
Despite the numerous and often surprising exits of companies, not everyone has left. Many companies have stayed cloaked in concern for their workers and the communities that they are in. Are there consequences for these companies? “If you look at the list [of companies] almost every major Western brand is pulled out or frozen or curtailed or written off their investments. The players that are remaining are largely Asian. Or they are companies that are not retail brands, they’re B2B, providing oil field services technology, even in the pharmaceuticals area. The visibility is a factor here.”
Altamar’s Peter Schechter asked, “Do you think that companies need to take a political stand all the time? Doesn’t this make the expansion of globalization very difficult?” Peterson answered, “I think Russia is setting a precedent for corporate decision making, [regarding adhering to] ESG criteria. And other situations, the question is does it get the scrutiny? Obviously, a big issue is China. Companies are not going to pull out nearly as fast from China. When you talk about other smaller emerging markets, it’s an issue of scrutiny. The question is, do they get the scrutiny? Is this large enough?”
Companies have certainly acted, but with what motivations? Recently, we had a guest, Vivek Ramaswamy who brought up the concept of fake wokeness. Are some companies just looking to strengthen their brand for an activist consumer base? Peterson comments, “Clearly, in the pullout from Russia, companies have written off hundreds of billions of dollars of investment and years of participation in that market. That’s not fake, that’s real. So, I would be careful calling that fake wokeness. But clearly, again, companies are not going to be as quick to pull out of China for infractions or other markets.”
The ESG screen is becoming a problem for companies on multiple fronts. Our guest used the Walt Disney Company as an example, explaining “Disney announced a withdrawal from the Russian market at the same time that it was lambasted in Florida for not opposing the Don’t Say Gay bill there. In fact, you can see there’s a direct parallel there. This ESG screen on Russia and the ESG screen on Florida. Russia’s creating the template. It’s not necessarily creating a clear pathway for companies though.”
In ‘Téa’s Take,’ a youth and social justice-focused segment on the podcast, Téa was concerned about the impact of personal sanctions on Russian goods since these sanctions have been quite ineffective in the past. She asked, “what is your take on the effect of boycotting Russian products?” Peterson answered, “First of all, there’s almost no real personal boycott opportunity. For Russia, there are no real products. Judgments are being made about what we consume. We should be assessing, where does our food come from? And similarly, where does our energy come from and make decisions around that. So, while you can’t boycott say Russian products directly, I think it is very important to understand that high prices at the gas pump […] are a direct response to our dependence in part on Russian energy”
The podcast ended by asking about how the interaction of governments’ actions and businesses’ responsibilities. When governments overtly cause global disruptions, what is the role of business? Has this grown or changed in recent years? Peterson explained, “When we see failures in the public policy arena, companies because they’re large and very visible, become a vehicle through which people try to achieve policy objectives. It’s not clear though, that companies are always going to do the right thing or that they can always do the right thing at the end of the day. Most companies are private, and they respond to their shareholders, and that’s not necessarily the voters”
Will companies attempt to return to Russia? Will the role of ESG continue to grow? Find out more by listening to the latest Altamar episode, available wherever you get your podcasts. You can download the episode here.