This report aims to establish why multinationals doing business in Russia are facing significant reputational risks in the ongoing conflict between Russia and Ukraine. Since the Russian invasion of Ukraine, the global business environment has witnessed a mass exodus of major brands from the Russian market in what is seen as a protest against the Russian decision to invade Ukraine. However, other international brands have not taken decisive action to leave the Russian market since they are not ready to deal with the negative impacts of that decision. These brands have faced increased global pressure from the international community due to their failure to take decisive and early action to stand against the Russian invasion of Ukraine. Amid the growing pressure, these firms are experiencing major reputational risks that arise from their continuing “business as usual” in Russia. An analysis of the problem shows that the failure of businesses to be socially responsible and going against the current business outflow in Russia are the major reasons for reputational risks faced by those firms.
Major Problem: Reputational Risk
Multinationals doing business in Russia face significant reputational risks in the ongoing conflict between Russia and Ukraine. Since the Russian invasion of Ukraine, the global business environment has witnessed a mass exodus of major brands from the Russian market in what is seen as a protest against the Russian decision to invade Ukraine. For the last few months, dozens of international brands that have been present in the Russian market for many years have withdrawn, halted, or scaled down their operations in the country. Nonetheless, other international brands have not taken decisive action to leave the Russian market since they are not ready to deal with the negative impacts of that decision. Brands with a large amount of production in Russia are afraid of leaving the market since the Russian government has indicated that it will confiscate those firms and their facilities. Meanwhile, there has been growing global pressure on such firms from the international community due to their failure to take decisive and early action to stand against the Russian invasion of Ukraine. Amid the growing pressure, these firms are experiencing major reputational risks that arise from their continuing “business as usual” in Russia.
Reputation is important to business success since consumers perceive businesses with a positive reputation as providing more value. A company’s overall reputation is the function of its reputation from all its stakeholders, including customers, employees, shareholders, investors, regulators, and suppliers (Zapotichna, 2022). Reputation is not only one of the most valuable assets of any corporate firm but is also difficult to maintain. Businesses that are active in their corporate social responsibilities are at an advantage of gaining a positive reputation. In contrast, those who do not participate in corporate social responsibility (CSR) risk having a negative reputation among their stakeholders. Research shows that there exists a positive correlation between corporate social responsibility and good corporate reputation (Šontaitė-Petkevičienė, 2015).
There are several reasons a business operating in Russia amid the Russian invasion of Ukraine faces significant reputational risk. One of the reasons is the failure of the firms to decide their corporate social responsibility. Over the past few decades, CSR has gained significant attention from the business world and has now become an integral part of the corporate world. Currently, there is a wide range of definitions and connotations about CSR. According to Sprinkle & Maines (2010), CSR involves several c-operate activities aiming to improve the welfare of various stakeholder groups, including the entire global society. A key aspect of the corporate reputation is the perception of key stakeholders, including society, of how well an organization’s CSR activities and decision meets the stakeholders’ expectations and social and environmental values (Sprinkle & Maines, 2010). In this regard, organizations are at increased reputational risks when their CSR decisions and outcomes fail to meet stakeholders’ social values and expectations. The stakeholder’s expectation is supported by Carrol Theory which has four complimentary components of CSR: economic, legal, ethical, and philanthropic responsibilities. The ethical component stresses the responsibility of firms to do and promote actions that are right, just, and fair to all stakeholders. Businesses that continue to operate in Russia fail to recognize their social responsibility of promoting stakeholders’ welfare by protesting Russia’s action in invading Ukraine. Continuing to operate in Russia signals support for the heinous and inhuman acts done by the country in Ukraine. Simultaneously, it goes against the expectation of stakeholders that the business community will stand against the war, thus presenting a reputational risk for firms that have not pulled out of the Russian market.
Another reason businesses operating in Russia face significant reputational risks is going against the current outflow of business which is severe to the reputation of those businesses. Since Russia made the decision and sent its troops to Ukraine, hundreds of international companies that have pulled out of the Russian market have cited numerous and varied reasons. Most cite their values, political, moral, and human stance in support of the Ukrainians, and some cite business-driven issues such as disruption of supply chains and production difficulties. Nonetheless, the growing calls from the international community for brands to halt operations in Ukraine and the growing criticism of firms that have not taken a decisive and early decision to get out of Russia are the most outstanding reasons why brands are moving out of Russia. Standing against the international community’s call for multinationals to halt their operations in Russian isolates brands and draws criticism and speculation about their motivation. For example, as seen in the case study, one of the American brands, Koch, has been isolated by boycotts for its decision not to halt its operations in Russia. At the same time, the firms have faced severe criticism and speculation that it’s motivated by money and not humanity. Therefore, companies operating in Russia, such as Koch, are at a great reputational risk arising from their decision to remain in the country. The overall impact for companies operating in Russia will be a loss of their consumer value and revenue due to poor corporate reputation.
Šontaitė-Petkevičienė, M. (2015). CSR reasons, practices, and impact on corporate reputation. Procedia-Social and Behavioral Sciences, 213, 503-508.
Sprinkle, G. B., & Maines, L. A. (2010). The benefits and costs of corporate social responsibility. Business Horizons, 53(5), 445-453.
Zapotichna, R. A. (2022). AN OVERVIEW OF REASONS FOR THE EXODUS OF MULTINATIONAL BANKS AND CORPORATIONS FROM THE RUSSIAN MARKET OVER RUSSIA’S INVASION OF UKRAINE. Publishing House “Baltija Publishing.”