Pressure is mounting for companies to take a stand against Russia waging war on Ukraine by severing their ties to the country, regardless of the cost.
Certain corporations have been proactive, such as the oil giants that were among the first to move out. BP, for example, is divesting its near-20% stake in Russia's state-owned oil company Rosneft, which will cause it to take a massive $25 billion charge. Meanwhile, Shell is exiting from all Russian operations and partnerships, including with another of Russia's government-owned oil giants Gazprom, which could lead to as much as $3 billion in impairments.
That seems an appropriate response, considering the Russian government's dependence on oil, but many consumer product companies are also taking a stand and suspending operations or selling their stakes in Russian ventures.
The question is, if withdrawing from Russia is the right thing to do, why just stop there? Investors need to consider the wider implications of divestment if calls to take a principled stand expand beyond just this conflict.
Image source: Getty Images.
Drawing a line in the sand
The list of companies severing ties to Russia is growing. Yale University is keeping a running tally of major corporations' response to the invasion, and at last count, over 200 companies have withdrawn from Russia.
Disney (NYSE: DIS), Nike, and TJX Companies are exiting the country; Netflix announced it was pulling out; and TikTok won't allow new posts there.
Others such as Alphabet's YouTube won't allow Russian-backed outlets to monetize their channels; Roku, Snap, and Spotify are halting ad sales in Russia; and car companies like Ford, GM, and Stellantis are suspending their joint ventures or ending shipments there.
Yet some companies continue doing business in Russia. Twitter (NYSE: TWTR), for example, is removing Kremlin-linked ads from the platform, but it is also keeping its service operational (when it's not being blocked by the government), as it is seen as a means of keeping information flowing to the Russian people.
The cost of doing business
Numerous companies are also taking this dual approach to doing business in Russia, stopping new shipments or investments, but continuing to sell essentials. Yogurt maker Danone, for example, says it has a "responsibility" to keep operating there, though it's not making new investments.
Considerable public pressure and threats of boycotts were brought to bear on others that initially balked at withdrawing. According to Yale, PepsiCo, Kellogg, McDonald's (NYSE: MCD), and Starbucks (NASDAQ: SBUX) were among those still doing business, but within the past 24 hours or so all have committed to shutting down operations.
Pepsi will stop selling soda in the company, but will continue to supply food essentials. Kellogg will also halt shipments, but the U.K.'s Telegraph reports it has three factories in Russia that will keep operating.
On the other hand, Coca-Cola (NYSE: KO) reportedly told Russian news outlet Tass it would not withdraw from Russia, as it is "fully responsible to partners, society, and thousands of our employees" there, but has apparently reversed course since and now says it is "suspending its business in Russia."
No doubt there was a financial reason for the reticence among some consumer companies. Having spent billions or tens of billions of dollars over the years building up a presence in the country, it is a major loss for them to now sever all ties.
Here is the impact a number of companies would feel by divesting themselves from Russia.
| Company | Russia Exposure |
|---|---|
| Caterpillar | $4 billion (8% of revenue) |
| Kimberly Clark | $600 million (3% of revenue) |
| McDonald's | $2.3 billion, (9% of revenue) |
| Mondelez International | $1 billion (3.5% of revenue) |
| Nestle | $1.7 billion (2.3% of revenue) |
Data source: Yale University; company SEC filings.
How far does it go?
These are not insignificant sums, but for many, they're paltry compared to what they generate from other countries that can at best be charitably described as having a poor record on human rights.
The obvious question arises: If companies are pressured into cutting ties with Russia, why not also China, which stands accused of waging a genocidal campaign against the ethnic population of Uyghurs and reportedly may consider a similar invasion of Taiwan?
China has been the linchpin of growth for many companies. McDonald's has 4,395 restaurants in China, more than any other international market and 11% of the fast-food chain's global total. A cessation of operations in China would be devastating compared to the shutdown of the 847 Russian locations.
Similarly, Starbucks has 31% of all its 17,100 coffee shops in China, and it admits the country is critical to its growth and profitability. So too with Disney, which owns two theme parks in China and considers how best to position its movies for a positive reception in China, though the Asia Pacific region as a whole represents only 10% of Disney's revenue.
Image source: Getty Images.
The final tally
Because many of these companies have been vocal advocates for social justice issues here at home, they are now expected to take a more expansive view of events globally. War is probably the most devastating evil to befall a people because of the human toll and economic ruin it brings, but after Russia's invasion of Ukraine, the harder task for companies may be deciding just how far to take their virtue signaling.
There may come a reckoning if they fail to make a stand elsewhere, and for investors, the exposure companies have in countries with dubious records on human rights may increase the risk of owning them to an unacceptable level.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Duprey owns Coca-Cola and Kimberly Clark. The Motley Fool owns and recommends Alphabet (A shares), Netflix, Nike, Roku, Spotify Technology, Starbucks, Twitter, and Walt Disney. The Motley Fool recommends Alphabet (C shares), Nestle, and The TJX Companies and recommends the following options: long January 2024 $145 calls on Walt Disney, short April 2022 $100 calls on Starbucks, and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
