SWIICL | 2022 Symposium on Global Business - "Business Decision-Making in the Wake of Ukraine"

SWIICL | 2022 Symposium on Global Business -

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Welcome to the panel. Discussion on business decision making in the wake of Ukraine, which will address issues that business grapple with in the context of doing business as a countries that are experiencing conflict. You've got on the one hand, there's encouragement for businesses to continue conducting business and operating in these regions with conflicts based on the belief that this might aid in peacemaking and development. But on the other hand, you've also got some problematic issues that may arise for these businesses if their conduct of engaging in business, either directly or indirectly in these areas, might aid oppressive governments or perpetrators of human rights violation. Of course, we've seen this spotlit in the context of the Ukraine Russia conflict with businesses leaving Russia. But the issue is certainly broader than just this particular example.

And so we're going to discuss both the Ukraine Russia example as well as others. Just to give you guys a bit of an outline of where we're going to go with our discussion, there'll be three major topics that we explore as a group. We've designed the panel to first discuss the role of businesses in the human rights context, in respect of international peace and security discussions surrounding the background of business dealings with these issues, as well as international legal developments that have been happening through the United Nations, for example, that are addressing business and human rights. You also have companies taking on these matters themselves in the context of corporate social responsibility and addressing how the human rights element or factor plays a role when we discuss CSR.

The second big topic we'll hone in on the Ukraine-Russia conflict as a case study to explore the factors that led to businesses, for the most part, taking action and leaving Russia. But then there were some that addressed the issue and decided, perhaps not to leave. And finally, we'll discuss whether the conduct of businesses in the context of the Russia Ukraine example that we will explore is illustrative of how businesses will choose to act in the future or whether this might be perhaps an isolated instance.

So those three topics will be addressed by our great panel today. Then let me introduce those first we have Yousuf Aftab, who is the director at Atelier Aftab. Yousuf has a decade of experience advising an array of fortune 100 companies, governments, law firms, and international organizations on strategic sustainability. He's also the founder of Enodo Rights, a leading human rights consulting firm.

He's on the Global Advisory Board of Cornerstone Capital and a coauthor of Business and Human Rights Law, published by LexisNexis. Next, we have Ellen Hewitt. She is the managing director at FTI Consulting in its Global Risk and Investigations Practice. She supports domestic and multinational clients and resolving issues arising from fraud and malfeasance, sanctions and compliance failures, government regulation and enforcement, and event driven crises. And last but not least, we've got Richard Kirkpatrick, who is the assistant professor of business law at the College of Charleston, where he teaches commercial law, international business law courses, maritime law, and has been publishing on a range of international commercial law issues. So with those introductions, let's jump on to our very first topic, which will go to Yousuf.

Yousuf, we'd love to start the discussion before we dig into the specifics of Ukraine-Russia, before we dig into how business might work. Let's take a step back and talk about the role of businesses, if any, that they have to play in the broader context of human rights violations and international peace and security. Is there such a role or should there be such a role? Thanks a lot and thanks, everyone, for joining. I hope there's a role. There has to be a role.

I don't really have much of a career otherwise. I think it's a very interesting question to raise in the context of Ukraine, because I'm not entirely sure that business reaction to Ukraine has anything to do with human rights. But before we get there, let me just talk a little bit about the background. So business involvement on social issues, whether that's through political activism or through philanthropy, taking a stand by, not doing business in certain countries has frankly, this has been a part of business forever. The question is why? And so and what exactly business does.

So if we think back to business involvement on social issues, you can trace at a high level business engagement around how the abolitionist movement through to the robber barons and philanthropy in in the Depression era and then all the way down to the anti-apartheid movement and engagement on those kinds of issues to this day, where now we got into the reaction to Ukraine. What's changed? And this is particularly changed in the last decade or 15 years, is that there's been much more systematization around what is expected of business. So before that, it was it was unpredictable when a business was going to act, which businesses would act, why they would act out and that and exactly what they would do, because there weren't clear guidelines on what the expectations are of business. And I started to change really in 2011 with the endorsement by the United Nations of the Guiding Principles on business and human rights, which is a voluntary framework that sets out expectations of global businesses beyond legal compliance and have to do with engagement on human rights issues wherever they might be connected directly or indirectly. And that's inspired a whole suite of changes now into law. Now, I think there are a few points to understand about that framework and what's made it something that can proliferate and create so many different expectations and risks and I'd say the three points that the guiding principles and then derivatives standards and laws kind of focus on that put structure on this from the first is that it's governance focused.

That's to say you understand whether a business is responsible not by its decision or its impact, but by the method it follows to get there. And in this, it tracks very much the compliance expectations that we might see in this U.S. sentencing guidelines for compliance programs. Overall, that's to say, we know business is responsible by the culture it sets from the top, the policies that it has in place.

We know it's responsible by the diligence it conducts before making its decisions. We know business is responsible based on the measures it puts in place to offer remedy when there is some sort of harm. And we know how good a business is by its transparency, how well it discloses that governance focus has enabled a number of different types of organizations, and from investors to civil society groups to regulators, to hold companies accountable, to track how well they're doing this rather than having some ad hoc measure that's that's tied to just the mood of the moment. It's really tied to something that can be objective and predictable.

The second is that business and this is going to be relevant in the context of Ukraine, business responsibility is defined by involvement. That is, the business is responsible to act, respond, identify, and address adverse impacts that it may be involved with directly or indirectly. And these have become terms of art that to some extent are open to debate. But in effect, what it means is, rather than looking at where a business can make a difference as the first question, the first question is how is business, any given business, actually are potentially impacting people? And that might be very different from where it can make the most difference. But that's that ends up being the first question.

And then that frames what's expected in response. And then the last element, which is related has to do with a focus, a different kind of focus on risk. How is it that you prioritize risk where, you know, commercial lawyers are long, long been dealing with the concept of materiality as something that warrants this prioritization that dictates what companies disclose and how they how they address them. But in these two centers, the key focus is the concept called salience. That is how severe is the risk to stakeholders and how likely is it? And by stakeholders here I'm talking about people potentially affected by activities and that ranges from workers, workers in the supply chain to community members, both around company operations and in supplier operations, but also downstream all the way to customers and those who might be impacted by customers. So these three principles have really created a framework for accountability, and that's where we are now.

And I think if we have a modern discussion about where businesses have human rights responsibility is really now much more grounded discussion one that's grounded in these cornerstone standards, the guiding principles on business and human rights guidelines. But those have come to inform investor ratings, right? They've come to inform what the Sustainable Accounting Standards Board, which is a dominant ESG ratings agency or framework, would use, they come to inform now more and more law. So in particular in Germany, there's the elasticity response, the supply chain, due diligence and that's called supply chain. But actually it's practice expectations are on companies own operations and it is modeled very closely, although a document for a legal context on the guiding principles the EU has is considering now a draft directive that's quite advanced on corporate sustainability diligence, and that is even more closely tied to the guiding principles. But these, these frameworks are then creating a whole different risk context for companies, and these are interrelated, right? So whereas human rights issues for a long time were just brand directed when the response would then be just the glossy brochure or the campaign that you can market, well, now it is brand and law and investor and then institutional customer expectations that are all mutually reinforcing and are tied together. And so when a company develops a strategy on human rights, what it's thinking about is one of those governance elements that I talked about.

Then how do you engage with these different kinds of key corporate stakeholders? How do you tell the story that will be compelling to regulators and courts on the one hand, but investors on the other and to civil society groups? And that that's ends up being the art. What is the responsibility of business? At a very foundational level it is to do your very best, but at a very practical level it is show how you are doing your very best to different audiences. So jumping off something there, you know, you talked about international legal frameworks, obviously with the United Nations and OECD, some regulations, Germany as an example, or the European Union. Would it be accurate to say that a lot of these is, you know, duties or responsibilities imposed on businesses are through governmental agencies, the regulation, or do you think there is the businesses themselves are also taking this on their own? I mean, let's talk about corporate social responsibility. For example, these CSR measures that get implemented at big companies.

Right? Are those because these businesses feel like that's their role to go in that direction? Or is it more because the paradigm is changing as to what is expected of business in the international community? So I think so two things. One, most of it most of the drivers of this, it's still been, you know, legislation is coming but that's new. It has largely been voluntary, but it's still voluntary in a business context. As I say, most of our engagements come because someone from BlackRock called to ask questions of the company or Human Rights Watch issued a report that might be that might show up on The New York Times front pages. So business is still driven by business imperatives. But I think that as a fabric of those business imperatives, being able to show that you're responsible in a compelling way is more and more integral to just regular good business.

So that's a big driver. I do think we're at a but a precipice of a different kind of universe because we are seeing a proliferation of actual legislative initiatives with enforcement actions and opening up more and more pathways for civil liability. And we're just at the beginning of that journey.

Oh, yeah. No, absolutely. A couple of court cases from the US and Europe come to mind. I do want to open this up to Richard, and I have one more question, but Richard, Ellen, comments? Thoughts from you all on the background and where we are. I'll chime in.

And I mean, if we're if we're talking about how does all this fit into an overriding movement in corporate social responsibility? I mean, I think particularly in the United States, there's anecdotal evidence that there's a trend. You know, a couple of examples come to mind. When North Carolina passed its bathroom bill that impacted people with transgender status, there was kind of a vicious reaction by some in the corporate world, including the NBA, the National Basketball Association, moving its All-Star Game. The same thing happened in Georgia with voting restrictions that were imposed relatively recently. There were statements made by major corporations based in Georgia, Delta, Coca-Cola, but also Major League Baseball moved their All-Star Game out of out of Georgia.

And so we're seeing this even this week in reaction to the Dobbs decision out of the US Supreme Court, that there are at least statements being made by major companies in reaction to this infringement on civil rights. And so you see this trend in that context. I think also in the environmental context, I think you could see a similar phenomenon where businesses are voluntarily taking a financial hit to promote certain values. But again, I mean, I think that the question was raised previously why is this why is this happening? You know, are these decisions being made for public relations purposes or are they truly values driven? The optimist in me likes to think that these are value driven decisions, but I think that there certainly it can be both. It can be both that they're that they're values driven.

And also, there's an eye toward perception when businesses are making these kinds of choices. Can I just jump in on that for a moment? Just to say, I think Richard's absolutely right. And we've worked with some of these businesses that he's referring to.

And I will say there is right now, though, they're not not to be. There's a great divide between activism, corporate activism, and corporate sustainability. And those two arms don't necessarily meet. And that's the reasoning that goes into programs around human rights, due diligence and supply chain and engagement with investors and the like. They're frequently at a very operational level, completely distinct from the decision making around.

Do we say something about this law in Georgia or do we say something about these developments in North Carolina? As I do think the imperatives end up being slightly different when we still just practically to group it all under one heading because the movers and guidelines and frameworks are quite different. I think the point that you made about corporate activism is interesting and I'll just say upfront, so I do agree with Yousuf. I'm not sure that the response to the Russia-Ukraine situation is really about human rights. I think that this situation is a very it's it presents a great platform for a conversation around these issues. With Russia and Ukraine I think that we've seen more of a desire to incorporate this corporate activism more long term, even if it means some short term losses.

I think I know Yale has done a great job of tracking businesses that have chosen to scale back or leave altogether from Russia and what impact it's had on these companies. And broadly speaking, even though it's had a negative short term impact on these companies in terms of losses, it has had a positive impact on share prices from the end of February to mid April. So it seems that shareholders are rewarding these companies and obviously this is a really short time period to understand whether this is going to be really more long term.

But what we've seen is that companies are starting to take this reputational risk, corporate activism more seriously, but when it is the right set of issues. And then one other aspect that I just wanted to bring up was, in addition to considering investors and shareholders, I think it's important to acknowledge also the role of employees and employee pressure at this point in time. Post-Pandemic with the great resignation, a very hot job market, companies are forced to consider more about how their employees view their policies and their CSR in a way that may not have mattered ten years ago.

And employees typically want to feel that their company is making the right decisions, taking the right stands. And this is, from my perspective, becoming a more important way to retain talent. The tricky thing is, of course, not all employees people are aligned on exactly which are the right set of issues. So it's just another reason why it's really important for companies to put together a framework that's consistent across all issues, otherwise that only investors and shareholders will find it confusing. Why a firm is taking a stand on a particular issue, but employees will as well. Ellen, you raised among many good points, one that I really want to hone in on, which is share prices, right.

If the companies that were maybe pulling out of Russia or how the market will reward. But when we talk about the role of businesses, certainly one of the first goals of a business is to profit, to make money, right? So we talk about roles. That's something that is to be considered, right? When should a business make decisions that perhaps might cost it in the long run? And we talked and you mentioned that for now we don't know.

In the long run, we'll see. Share prices seem to reward these companies for the time being, but isn't that also kind of spotlights the fact that maybe there are certain types of businesses that are more public in nature, not just because they're public companies, but because they're more publicly known. For example. So the question for the group is in the context of the role of a business, which is to make money, but among other things, obviously as well.

Right? Human Rights is something we're talking about, are there certain types of businesses or certain types of companies that can more easily or less easily engage in this type of decision making, like, well, what the role of the business should be of doing business in a conflict zone, for example, like are there certain companies that are more amenable to that? Are there certain companies that are kind of hidden away so they don't get that public pressure? We've been talking about? Does that matter what business it is? So I think there are a lot of threads to pull on there. I start first with just the idea actually of the the role of money and profit in in the decision making processes. I think there is in terms of fiduciary duty and the business judgment rule and how much deference directors are getting out. It's so the great lines are in a long term harm to the business story. But I still think if we were to take Delaware law, you are not going to be in a place where a board can say, notwithstanding the fact that over the long term we're going to lose value, we are making this socially responsible decision. So I think that's where the guardrails are.

What they can set is that in the long term we are confident that this will have benefits to share price. There is another movement around stakeholder capitalism that might talk about other groups being critical. I think, as where law stands at the moment, you'd still need to be able to justify it on long term value.

But within those parameters and I think there's a lot that can be done. There's a lot of deference as long as the right things are considered by by the board. And to this question of the, you know, which kind of companies, it's part of the issue is where you're looking at the drivers. So there's that there's the brand pressure that comes and then there can be principled pressure. And there is, for instance, there is going to be a difference between a company that is selling soft drinks in Russia versus a company that's selling essential pharmaceutical products to mitigate the effects of cancer.

So I think from a principled level that's sort of come into play. I think for the most part, though, the question has been around brand and frankly the biggest brands who's most likely to get hit by questions coming up either in the times or because of investor groups and the like. So I would just jump in there and you know, when we started thinking about this panel, a lot of my work is involved with advising companies on sanctions, advising them on risk. And the first big thing, the biggest priority when in February was really sanctions.

How are companies going to deal with sanctions? And that was the immediate legal priority to figure out how to make sure that they were complying with the new sanctions and also be able to set themselves up for the expected additional ones. Once businesses felt that they were okay with sanctions, the next priority was really thinking about military defense. Any end users that might be associated with that type of business and ensuring that that was that that risk was adequately dealt with.

But after that, companies really started coming to us asking what would be most problematic for us to be seen dealing with if it were in the New York Times or one of these other big newspapers? And that was a major driving force for a lot of the risk assessment. Right. Just to the audience, please, if you have any questions, chime in any time. There's a chat box, there's a question answer box.

I'll be keeping an eye out for that. So if you have any questions for our panelists here, please let us know. With that, I think. Let's move on to the second topic. Having discussed some of the context in the background, I think it's important now to dive in into the Russia Ukraine issue, which you were touching upon and look at it as a case study. So I'm going to pose this question to Ellen.

But Ellen, Russia's conflict with Ukraine and its aggressions in Ukraine are not new, right? Russia's aggressions, recent aggressions, at the very least, include Georgia and the invasion of Georgia in 2008. In the Ukraine context, I don't know if itself the invasion of Crimea began back in 2014. It was some time ago, but those aggressions didn't trigger the type of reaction that we've seen against Russia by businesses. So can you please kick us off discussing why is it that the 2022 further invasion of Ukraine here has triggered the type of reaction that we've seen from the business community? So first off, I think that we can all agree that we've seen quicker and more unified action from Western firms targeting Russia as a result than the other two instances that you've mentioned, as well as, frankly, other recent examples of human rights violations.

It's interesting to note that there was also action taken here by companies that aren't necessarily viewed as the most socially conscious. For example, oil companies, tech firms, all you know, it comes with a certain corporate reputation these days. And then even more interestingly, we also saw firms that have a more from a symbolic perspective, had a huge impact when they announced their departure. So it was monumental when McDonald's first opened in Red Square in Russia in 1990. The symbolism of this very, very capitalistic western culture operating in the Soviet Union, regardless what it meant in terms of the decline of the Soviet Union, it showed that Russia was opening to the West. So McDonald's moved a little bit more slowly than some of the other companies taking action.

But I would argue that the symbolic aspect of McDonald's was one of the biggest and most visible impacts that we've seen. So as I mentioned before, companies were really thinking about what is the reputational risk here once you have compliance and really, you know, supply chain, military defense, once these they feel relatively comfortable, their compliance on those areas and what factors align to kind of create that pressure. And certainly the biggest factor, I think, is the overwhelming public interest and backlash against the aggression in Ukraine, which I believe was beyond what US and European Union policymakers had anticipated.

So that not only gave policymakers the opportunity to act more quickly and in a more unified manner, but also passed stricter sanctions that had previously been capable as a result of the Crimea annexation and the political world in both the US and Europe has become increasingly polarized. But I think also the Ukraine situation for a variety of factors has kind of stood out as an issue that resonated more across political lines. And from a human rights perspective, I think that we can't pass over the fact that the events in Ukraine may be more high profile because this is a white European country, and that's probably one of the factors driving outrage over Ukraine. But it also plays into the bigger narrative themes that have occurred since the end of the Soviet Union, the tension between the East and the West. Ukraine has made several indications over the years that it's moving closer to the West, whether that's defined by NATO or the EU.

In 2014, right before the Crimea situation happened, Ukraine almost joined the EU and even though politically it's remained outside, I'd argue that over the past several years it's culturally continued to become more western. So when we think about the historical development of this conflict, the public has had awareness of it for a long time and didn't really need any introduction to these built up tensions. And just one other note before we start talking about factors pushing companies on to leave on a more granular level, I think that we can't ignore the role of media in the high profile nature of this conflict, both from the perspective of building media narratives around the conflict, but also media and social media. Social media have been hugely powerful motivator for companies in making these decisions to exit. As I mentioned, the question that people like companies are asking is what would be problematic for us on the cover of The New York Times or The Wall Street Journal? And when we're talking about reputational risk with you, with this with for the for these companies, obviously the answer is going to be a little bit different if we're thinking about a global financial institution, if we're thinking about a pharmaceutical company, or a tech firm.

Richard or Yousuf, any thoughts on factors that are seem to be aligning or seem to have aligned already for businesses to take action against Russia to leave? I played out. I mean, for me, I'd play out the counterfactual but I mean Ellen's absolutely right and I think knows this much more intimately than I would it. But the, I play it the counterfactual that if Russia had done what a lot of us had expected and just gone into Donbas and just taken it within three days, would we have had the same outrage? And I suspect not. And I think this ties into Ellen's broader point about the media narrative. I think the fact that it was full out invasion of sovereignty into an attempt to conquer a whole country made it much more black and white.

Whereas with Crimea and maybe possibly with Donbass and arguably with Georgia, it would have been one, It happened so fast, hard, hard for everyone to mobilize. But two, it there's more of a gray area in terms of the argument that there's some sort of colorable justification based on, you know, people's sovereignty rights and the like. There's none of that here.

And I think the black and white matter nature really made it easier to mobilize all of this pressure. I agree. I think that part of it, I think because of Ukraine's relative success in resisting the invasion and it taking months to and still holding up at this point versus, you know, losing all their territory in a matter of days, which is kind of what it felt like early on in the invasion after the invasion. I think that that has mobilized some of the reaction, both from the regulatory perspective and seeing all these different layers of sanctions that have been imposed, And also just the voluntary measures taken by businesses. I think it's in part because of Ukraine's resistance and success, relative success. I also think that this kind of happened as a wave where some of some larger companies set the tone in backing away from Russia.

I think maybe perhaps a seminal moment was when BP decided to voluntarily divest from one of its projects. Were in their, in a statement, they laid out the actual costs that they were suffering, something like $25 billion that they were losing. I think that when they did that and when they indicated the reason why they did that is because they felt it was the right thing to do, that this spurred other companies to do to take similar action.

And so I think we we shortly after we saw Shell taking similar a similar approach to back away and ExxonMobil and other energy companies doing the same thing. And then on as this was kind of highlighted in the media, there was a bit of naming and shaming going around where those companies that were remaining in Russia were kind of pointed out by people in the media. And I think that this continued to to promote this this wave. And it was almost like dominos falling where companies were just pulling out of Russia. Yep, Yousuf you mentioned that point about if it was Donbas versus the entire country, maybe the situation would be different.

A question for our audience, I think, kind of relates to the this a little bit. The question is, wasn't it the case that civilians did not flee Crimea as they did Ukraine? So is there an element of perhaps acceptance from the territorial people or territory that plays a role maybe in Donbas? People would also similarly not have fleed. But when you invade the entire country, there's obviously a mass exodus happening. No, I look, I think there's absolutely a place for that.

I do not think it deals with Georgia as well, but this element, when we start to think about Crimea, I think is a key element. But it is if you're an international observer and you're looking at this and say, well, the people, they don't seem that upset about it. So, you know, all right, fine.

It's a violation of sovereignty, but I can kind of maybe justify it or I'm not that moved by it in the same way. I think that's absolutely at play. Where was clear here it was it was clear here that this was a wrong that was not welcome and that was causing, you know, the images just going to Ellen's point of the narrative out of the media that the images are so horrifying and it does feel like we've gone back to World War Two.

When was the last time we seen some like this? And so it evokes such primal sentiment that and I think that's a number of elements coming together, including the time element, but also the resistance. Right? Right. Which gets spotlit in the media, which then of course to what to Richard was talking about it with the pressures. Going back, you know, so Ellen this is for you, but everyone is welcome to chime in obviously.

We talked about sanctions and how they may play a role. Do you think there is a role of sanctions coming into play from the EU and through the U.S. Expected sanctions. I mean, they're waves of that. Right. But companies started exiting even before some of those were some of the heavier ones at least were in play. So do you think that businesses were reacting to what they were expecting governments to do, or was this like what we're going to exit out of the goodness of our heart? I think certainly at the beginning companies were reacting to the expected sanctions.

I do think having the existing sanctions in place from Crimea helped companies kind of prepare a little bit. And frankly, also Russia itself from its from an economic perspective, prepare it from the onslaught of Western sanctions. But this was really the biggest priority in the first few days. How are we going to deal for banks? How are going to deal with adding all of these names to the list? How will we navigate, you know, changing just general changes in sanctions? There's going to be such a huge overload. And we need to make sure that in these coming weeks we've done everything we can to do to get in place for that.

And I really don't think it was until after this initial the initial sanctions were passed that companies really started to think past that because from a legal perspective, that that would be their first priority right. Do if you had any comments, please chime in. But one question that kind of triggers for me at least is do you think, given the Crimea situation and certain sanctions which were nowhere close to as strict as where they are right now. Right. Do you think that companies were ready to exit, that were there was there any preparation? Was there assessment? I would imagine there may have been.

I don't know. But I'm curious to see you guys maybe use of any you advise companies in this respect if you knew or were advising companies on whether or not they need to be ready or if you were doing that in your capacity with sanctions that were in place after Crimea, but perhaps, you know, expecting them to increase in force in power after something bigger happens. So I guess we can. Oh, sorry. Go ahead,

please. So I was just going to say, from my perspective, I think that there may have been a degree of awareness, but not exact. I wouldn't necessarily deem it preparation. I think there was uncertainty as to what extent the aggression and kind of the response from Ukraine, certainly how that would play out and I don't think that the preparation was to the level of sanctions that we've seen enacted.

And I mean, building on that, I don't know the sanctions context is all but the the business that we were dealing with, I don't think anyone thought beforehand. All right, when this happens, we need to have an action plan that would be involves getting out and how is that going to play out? I think that there were thoughts about what are what is our responsibility going to be? How are we going to, how is this going to move and affect what our what our decision making looks like? But I don't think, and this is all anecdotal, but there is no company we worked with that had it at the top of their agenda, this kind of reaction. And I think a lot of that was driven by public reaction and the images and of course, you know the leaders of these companies are people. They see those headlines that that changes things and it can change things very quickly if there's sufficient buy in at the top. And I think this is one of those cases.

It wasn't thought it out that well in advance. A lot of it was reactive. I would also say, and from a somewhat cynical perspective, I anticipated that some of the questions about the reputational risk to Russia would would dry up and stop. I didn't anticipate that the public backlash would be enough to pressure companies to really see this through.

And I was surprised to some extent that it didn't leave off with just kind of like the sanctions and then, you know, some some questions and then this eventual drying up, it continued. And I will say, just building on something Ellen said earlier and then what Richard was saying about peer pressure. So two things have been key drivers.

So employee activism and especially in public stances, but that's actually a critical, critical factor, much more than maybe it has been in the past. But we've noticed that certainly in the last couple of years, if you think to activism around Georgia voting rights and in North Carolina to what's happening in Ukraine, a lot of that was very sensitive to how our people are going to react. And then the peer pressure element is huge. It really once there's a certain threshold crossed of big brands from different sectors making the decision. Every company we deal with was asking, well, who's doing what? How are they doing this? Are we? And when letters came from, even in a moderately sized, moderately influential civil society groups, companies were taking that very seriously and benchmarking if they thought at some point there's going to be a list published and we're going to be on the wrong side of that list. Yeah, I mean, I don't think I personally don't think that the Crimea sanctions necessarily prepared businesses for for the kind of comprehensive sanctions that they're dealing with now in the Russia context.

But at the same time, in the last, I would say decade or so, businesses have become very well acquainted with sanctions compliance, because there have been other regimes like the Iran sanctions or North Korea sanctions or Venezuela or whatever, that have caused businesses the need to have in place compliance processes and also risk mitigation measures. And so I think to some extent, they they were more prepared for this, even though they maybe did not expect it in the Russia context. So there's a comment made by one of our audience members that also triggers another question.

So we've been talking a lot about factors that businesses undertake or consider to exit from sort of Western side, employees, you know, the media issues, the fact that, you know, we've got a Western, European, white country being invaded, and you see pictures of that. So that sort of, you know, factors of perhaps we're seeing from the western side of things. What about from the Russian side of things? Do you think that there were factors about doing business in Russia and threats that Russia posed to these companies and businesses within the Russian territory that also went into play? Because the comment that I'm reading is about the risk that Western companies would face if they stayed in Russia. So once again, anecdotal, I don't think this has come up, but I think though that wasn't a concern that there's going to be you know, I don't think McDonald's was thinking, you know what, just because we're American, Putin's going to treat us differently.

If we just keep our heads down and keep rolling. They might have been concerned that once we start speaking out, then we might see some retaliation. But I think the Russia factor that's most important, it's kind of the elephant in the room is that Russia is not that important. I mean, it just it's much easier to get out.

There's so much uncertainty. And in that in that all of that uncertainty, it's actually a much easier decision to get out of a mid-sized market that doesn't matter that much then. It's a very different calculus I'm sure we're going to get into it, but it's a very different calculus for China. Right.

And we're seeing with the same kind of framing of issues, very different reactions both at the public and at the operational level. And I think that Russia element, combined with the uncertainty is what makes a difference is that there's probably a view that there might be some retribution. We might be able to control for it, but we don't know how this all plays out. And it's not a big deal if we get out.

Yeah, I think I think safety and logistics is part of the calculus as well. So if a businesses is worried about their employees in Russia for whatever reason, that they might weigh in to their decision making process as well. So I think it's all of these factors together, but it's a very good point that that it's not just about values and it's not just about reputation. There's other elements as well. Yeah. And I think after some of the second or third rounds of sanctions, they were legislation for exproprietary measures within Russia.

So fair enough that you may need to be concerned. As I understand, there is a new McDonald's in Russia now. So love that going on. So we've talked about factors that have been considered by businesses to exit. What about businesses that are staying? Are there still businesses that are Western businesses operating in Russia? And what are some of the factors that go into that decision making of not leaving? So I pose this to Richard, but certainly open to the rest of the group as well. Yeah, absolutely.

And I think it's really interesting as well, just because the rationale has been different depending on the industry. So one example of companies that have decided to stay are tech companies, so particularly Meta Facebook and Instagram have resisted pulling out because they want to be there and make sure that they can spread legitimate information about what's happening in the war. And so it's a I was going to say, creative approach to justifying their continued engagement. But it's a it's a I think a relatively a compelling argument to make there. So so that's one kind of rationale driving a company's decision to stay another.

As was mentioned by Yousuf earlier, the pharmaceutical companies have resisted pulling out, I think for obvious ethical reasons, not to really ultimately put use use people regular, Russian citizens, as kind of a leverage in this situation. So so there has been quite a bit of resistance from companies like Johnson and Johnson and Pfizer to to make sure that everyone knows that they're are staying in Russia, but there are reasons why. Right. And so I think what we've seen in that context is public statements being issued by these companies. Just to clarify.

Right, to clarify the reason why they're staying. But another very interesting one is companies that are involved in food distribution. So Nestlé, for example, has my understanding is they have pulled out of and divested from Russia and a number of their businesses. But for the parts of their operations that deal with things like baby food and hospital nutrition, that they have continued to provide those kinds of things in Russia.

But the same thing is true for Cargill. So the major commodities trader trading company based in Minnesota, they made it very clear that they're not going to pull out for essential food and feed facilities. And they even issued a statement saying that food is a basic human right and should never be used as a weapon. So I thought that was a very compelling argument.

And in fact, I, I polled my undergraduate students about what they thought about that argument in the spring semester, and they were actually very supportive of that approach. So I think that's pretty those are the three that come to mind that, you know, there are certainly others that have just decided to stay and, I guess, weather the storm and see if all this just fades away, all the public pressure fades away. So as Ellen mentioned, Yale has the Yale School of Management Chief Executive Leadership Institute has been keeping a list of companies that have pulled out of Russia. So they have a thousand companies that have been listed, but they also are giving letter grades to those that have either pulled out or decided that they're not going to pull out. And so it goes from A to F, right? And so the ones on the F side of the scale are the ones that are digging in and continuing to operate in Russia.

So I looked it up before our panel today just to see who is currently receiving an F. So it's companies like International Paper, Hard Rock Cafe, T.G.I. Friday's, Armani, Tom Ford, those are all receiving an F, but even Cargill is receiving a D. So it's kind of interesting what the work that they're doing.

Yeah. Just building on that Richard's point I think there's a question, a legitimate question to be asked just from a principled perspective, should companies leave? And if so, why should they leave? And this is, you know, speaking to the pressures that have led a lot of companies to leave. This is one of the reasons, I think, that it's not necessarily a human rights question. I think a lot of the decisions that have been made are driven by brand pressures and the like and not necessarily by some weighing of the moral calculus, but when we think about just applying that lens, that human rights lens that I mentioned before, if we were to apply the lens that's laid out in the guiding principles as to what companies should be doing, the question would be around which impacts they are involved in by staying directly or indirectly. So it becomes easy in certain contexts if you're supplying the Russian military, okay, this is a problem.

If you and probably you should be getting out if we just apply basic logic. But if you're supplying if you're supplying, say, Coca Cola to the general populace for Pepsi or Hershey chocolate bars, you know, what are the reasons that you should get out? What is the harm that is being caused on that downstream and that just operating there. Now and the two that it seems come up and it's really hard to quantify it has to do with giving some sort of legitimacy to the country and the regime by continuing there. Should you be making a stand on that basis? And the other would be taxes. Are your taxes being used for all sorts of you know, but the taxes argument is not really very compelling, just at a principle level because frankly, every country does some pretty horrible stuff and most companies don't react to that in the same way. On the tax dollar Part.

What goods have been used for, I think is a critical question, and that's the one that I think when we're seeing a justification, yeah, pharmaceutical companies, of course is intuitively there's a good reason food beverage companies or food companies and certainly Essential Foods is a very good reason to stay there. I don't think they're all staying or leaving, but I think it's one of those that reveals that we're dealing in a sui generis context in a way that this is not driven by a principle. It is by a different kind of pressure, because I actually don't think in most cases there's a very strong human rights argument that we need to do we need to get out unless there's closer relation with the regime. And the other element here is it's not a democracy. It's not like by putting pressure on the Russian people, you're telling them, you know, throw this guy out of office.

This is this is a regime over which they have very little control. So the question ends up being, are you doing more harm? I think the real question is, are you doing more harm than good by being there? And that ends up being dependent on certain things, the various factors the strength of your presence, the number of workers who might be impacted by you leaving, what your products are being used for, and then the weight of your brand and the legitimacy that might be having a weight in. But I don't think it's determinative. What about profitability? Let's say you are a pharmaceutical company and there is legitimate reasons to stay would you. Just a question or thought that comes to mind.

Should you stay and make a very large amount of profit and use as a backup, well, it's pharma, right? We got to get medicine to the people, which is a legitimate objective, obviously. Right. But do you also weigh that against probably also making a ton of money and potentially also you know, indirectly perhaps assisting the perpetrators yourself? Or should you perhaps scale down your models that maybe you're not making as much money and you seem better? I mean, are these companies going to have to justify that or are these companies even being asked these questions? Right, the ones that are saying. they are being asked the questions and there's not an easy answer. That's what is with all of these. And it's so we can say that we've been involved in these discussions.

There isn't and there isn't a simple answer now. And, you know, the idea of zero profitability sounds very appealing. It has a you know, it's difficult at a at a business level. It's also one where, frankly, the way these models work and you need a certain you know, it's hard to draw exactly where the lines are and then what all the extra values would be, in short. And so, you know, I don't think at a moral level there's anything inherently wrong with profit. The problem is that, you know, there might be there's a problem with profiteering.

Right. So this is something companies are very conscious about. So pharmaceutical companies operating in Ukraine and trying to provide to refugees would be are very alive to it. So at least the responsible ones are very alive to the risks that these vulnerable groups might be completely taken advantage of and not have access to what they need. But it's a different question when it comes to the Russian people. And the fact that you make a profit in Russia at a principal level is not inherently a problem.

I'm not speaking for any given company here, but this as I reason this out we reason this out with companies, I think that these are some of the things to bear in mind, just applying that human rights lens. I quickly want to talk about and we want to move on to a third topic. I want talk about the role of media.

Ellen had mentioned the role the media had played, but I really want to hone in on this a little bit. Can we about and Ellen maybe you can talk about this or others can chime in, how has the media really shaped this particular conflict? Right. I mean, we can compare it to Crimea or Georgia we can compare it to many other conflicts in the Middle East and other parts of the world, some of which Russia is involved with.

And yet the media focus on Ukraine has been rather intense. I mean there was weeks where I would turn on CNN and the only topic being discussed on the war, nothing else in the world. Sure.

So I can I can address that. And then on the others can jump in. But so first off, Ukraine itself as a country has been extremely skillful in how they've managed their media and how they've messaged this crisis. You know, you said mentioned earlier that with Crimea, there wasn't maybe perceptively, there was not that much of a backlash from the people there about the Russian aggression. But we definitely saw that with Ukraine. There was a very clear black and white line drawn.

And we have to talk about, of course, the Ukrainian president Zelensky. He's a former actor. He knows media. He's been very skilled with messaging his use of social media, interacting with global forums. And this really shows and has been incredibly effective. I think that also one aspect in reporting conflict that frequently comes up is the use of sympathy and sympathy driving images and to mobilize people's feelings and call to action and activism for these crises.

And we have that. We do have the you know, the incredibly upsetting images that we've seen that have been published around the world. But there's also another aspect of this conflict that has really draw in the public's interest.

And I think we can't discuss it without discussing the oligarchs. And we've seen the news stories about asset freezers and seizures with the yachts, the jets on these properties in the south of France. And it really adds as very slick element to the narrative, and it's very easy and straightforward for people to connect with. It's not you don't really have to understand the complexities of a political situation to understand that this oligarch is under sanctions and has a jet or a yacht that's being seized. And people have known about these figures for years.

There is a degree of celebrity that's intertwined with these issues that everyone knows who Roman Abramovich is. You might not know about this geopolitical situation, but you might know about Chelsea. And it's almost like there's this built in audience just from apart from the actual conflict, the name recognition of these oligarchs. And just a slightly different take on this. But I completely agree with Ellen.

I mean, I would say the other thing that's been interesting is how the media has been used by government. So one of the pieces that was interesting in The Economist a couple of months ago was this idea of prebunking and how both the US and UK governments to prepare for fake news and the counter-narrative and to control for it in the lead up were revealing so much more intelligence than they traditionally do, which demonstrated their credibility the moment that everything played out as they predicted. And I think that this is our experience with misinformation over the last 6 to 10 years has really informed our strategy at the governmental level, as to how to control for and ensure credibility in a particular narrative.

And that this was the first test case I think for that. Great points. And you know, for me, President Zelensky has spotlit something that I think can transition to the next topic. And he's brought up Taiwan as an issue right already in the media that sort of circulating.

So I'm going to pose this third topic to Richard to kick us off with, but I want to talk about whether the response by businesses to Russia's invasion of Ukraine have opened businesses up to criticism for continuing to conduct business in other regions of the world that have experienced and also are experiencing conflicts, accusations of genocides and other significant human rights violations. How do we take this example of what business have done in Russia with the Ukraine conflict and apply that to what these businesses, perhaps they're also doing at least conducting businesses in other regions of the world, experiencing conflict? Yeah, I think if the question is, do they open themselves up to criticism, yes and no. You know, if there is another event that is equal and in terms of scale and also flagrant, see in terms of its violation of international law, I could see a similar type of pressure to mount on businesses. For example, if there was invasion of Taiwan, then then, yeah, you might see a similar movement, God forbid, but well, that's that is possible. But I think in terms of current human rights controversies that have been discussed in the media and that are happening in parts of the world, you know, a couple of situations come to mind inhumane treatment of ethnic Uyghurs in China's Xinjiang province and also the Saudi backed to war in Yemen are two situations that have been raised in some circles about in terms of perhaps not generating the same kind of response from businesses that maybe there should be. But I think in part, the reason why we've seen a different reaction is because those situations are much more nuanced.

And so it can be difficult for the same kind of public pressure to mount. And so in contrast, I think it's there's no hiding from the war in Ukraine and it's just so blatantly horrific what is what has been happening and as has already been pointed out, there is an affinity toward Ukrainians for whatever reason. And because of that, this is a unique situation. But, you know something strike, when we think about, you know, whether businesses should be criticized for not doing more in these other situations. Part of that comes across as a little bit tone deaf and deflecting in this current moment just because of it's I see them.

These as different situations. Right. And so it's one thing to notice that there's a difference in the way that there's been a business reaction to Russia's invasion versus a different type of reaction in these other situations. But to to really focus on that seems to kind of miss the point. I think that there has been an extraordinary collective response against Russia and in support of Ukraine, and that is something that we should not lose sight of. I think this is just following from Richard.

I think that well, let me put it in context. Before the Ukraine event, what occupied 2021 for me was Xinjiang and that issue in China and it is absolutely true that every time businesses take a moral stand on some issue, it can be used against them and it does get used against them. And when it comes Xinjiang, Congress has done that against certain businesses in a very public hearing last year in August against a number of sponsors of the Olympics. And if you listen to those questions, they're all about how come you took a stand on this law in this state and now you're not saying anything about Xinjiang? I think that, you know, there's nuanced nuances, though not in the fact that you look at Xinjiang there's not much nuance in what China is doing. But nuance is the fact that there all of these other variables in play and there's a different story going to the media narrative point.

There's a different story that China can tell that is that can confuse the situation. Yemen, it's similar Yemen, I think there are various factors at play, but the narrative is not the same. It doesn't resonate with people in the same way. There is an element of this has always been conflict ridden and sort of baked in expectations of what life is like in a place like that, as problematic as it might be. But this I mean, counterposing Ukraine and China.

I think that frankly, if China were to invade Taiwan, you're not going to see the same reaction, partly because you can't. But what are we going to do without Semiconductors? What is what's going to happen we're so woven into the Chinese economy, the whole world's economy is so woven into the Chinese economy and it'd be very hard to have the same kind of the same kind of reaction without having much more significant consequences. So I think there'd be a similar level of outrage. I don't know if it results in a similar kind of decision making process. And I think that's one of t

2022-08-02 17:09

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