The Banking Executive Magazine - April 2023 Issue

Crossing the Red Line The geopolitical instability and con- flict resulting from the military oper- ation of Russia in Ukraine have had significant impacts on corporate boardrooms around the world. The assumption of continuing peace and stability in international business strategies is being challenged, and Western governments are now de- manding domestic firms to decouple from autocratic regimes. A research was conducted aimed to answer several empirical questions related to the divestment of Western businesses from their Russian sub- sidiaries in the nine months after the invasion. The research identified the foreign companies operating in Rus- sia at the time of the invasion using the ORBIS database and focused on completed exits rather than tempo- rary suspensions of activity or an- nouncements of intention to leave. The findings of the research revealed that only 8.5% of EU- and G7-regis- tered firms had completed a divest- ment from at least one Russian subsidiary by the end of November 2022. Estimates within the range of 5-13% were also defensible depend- ing on the interpretation of compa- nies’ public evidence. Exiting firms tended to have lower profitability and larger workforces compared to those that remained, and exit rates varied across countries. These findings raise important ques- tions for business executives, policy- makers, and analysts. The first question concerns Western busi- nesses’ willingness to sever ties with Russia's $1.7 trillion economy. Al- though Russia is an international pariah now, it may not remain so in the future, and the allure of doing business in the world’s eleventh largest economy is not going away. The slow pace of Western firms’ withdrawal from Russia raises the question of why it is taking so long. It is worth noting that divestments are complex and challenging even in the best of times, and the Russian gov- ernment has taken active steps to dis- courage or prevent divestment by foreign companies. Several presiden- tial decrees issued between August and October 2022 made it impossi- ble for some foreign companies to complete their divestments. ISSUE 172 APRIL 2023 the BANKING EXECUTIVE 37