By Steven Kreft, Clinical Professor of Business Economics and Public Policy, Indiana University; and Elham Mafi-Kreft, Clinical Associate Professor of Business Economics, Indiana University
Companies across the globe are fleeing Russia in an unprecedented display of corporate solidarity with their governments, appalled over the invasion of Ukraine. Over 750 multinational businesses so far have said they are curtailing, suspending or severing ties to Russia, more than triple the number that abandoned South Africa over apartheid in the 1980s.
Many corporate statements announcing the decisions have emphasized humanitarian aspects and unity with the Ukrainian people. For example, Pepsi suspended soda sales in Russia, describing events in Ukraine as “horrific”; Ford Motor Co. cited Russia’s “threats to peace and stability” in pausing operations at its three plants in the country; and Ikea closed its stores there and called the war a “human tragedy.”
Detractors of this type of corporate do-goodery have dismissed it as “virtue signaling,” implying there is an ulterior motive to the grandstanding. As scholars of corporate social responsibility, we believe altruism can play a role in corporate decisions like these, but – as virtual signaling suggests – other more profit-focused drivers are usually at work, especially given the stakes when deciding to abandon an entire country.
In this case, the common theme we see for many companies is the “great resignation” – and the fight to attract increasingly picky, younger Gen Z and millennial workers, who say they want to work for socially responsible brands.
A weighty decision
A company’s decision to entirely sever its operations in a country is seldom taken lightly. In leaving Russia, companies will incur significant costs from abandoning equipment, stores and factories, or even an entire workforce. For example, Exxon said it expected to lose US$4 billion in assets over its decision to exit Russia, while McDonald’s restaurant closures will cost the company $50 million per month. And there is no knowing when the companies leaving Russia will be able to return – if ever.
Yet that is not stopping hundreds of companies from making the difficult decision to back away. Amid their condemnations of the invasion and expressions of solidarity with the Ukrainian people, many companies have also acknowledged clear business-related reasons. Appliance maker Whirlpool cited the security of its workers, Japanese automaker Toyota blamed logistical and supply-chain hurdles, and video streaming company Netflix said troubles with payment processing will strain operations.
Growing power of workers
While these practical reasons, along with the moral concerns, could be enough to drive the exodus, we believe the great resignation, in which record numbers of workers are quitting their jobs, is amplifying all these other risks of staying in Russia.
Roughly 47 million U.S. workers voluntarily left their jobs in 2021, accounting for well over a quarter of the civilian labor force, according to the Bureau of Labor Statistics. Over 4.5 million quit in November alone, a single-month record, and nearly that many continued to hand in their notices in early 2022.
It is not just a U.S. phenomenon. Many other countries are experiencing similarly high rates of workers voluntarily quitting their jobs. This trend has shifted bargaining power to employees, and companies are struggling to acquire skilled workers to fill vacant positions. Employees are demanding higher pay and more benefits, and some are rethinking their careers so that their work is more aligned with their values.
Another sign of the shift in power is the recent success of youth-led labor organizing efforts. A growing number of Starbucks locations are becoming unionized, while Amazon got its first U.S.-based union after workers on Staten Island in New York City voted to form one in April 2022. Starbucks and Amazon have both suspended operations in Russia.
Some industries are experiencing especially high employee attrition rates, including management consulting and oil and gas, according to a recent article in MIT Sloan Management Review. The attrition rate measures how many workers are lost and not replaced over a period of time.
Management consulting, in which a talented workforce is vital, for example, saw an attrition rate of 16% over the six-month period researchers looked at, or over five times the national average.
Employees demand solidarity with Ukraine
This is why it was not a surprise to us that companies in these labor-strained industries either were among those that severed ties with Russia or quickly did so after facing criticism from employees. IT consultant Accenture, with nearly 700,000 employees, seemed to set the tone for what would be expected of companies in its industry when on March 3, 2022, it said it was discontinuing all business in Russia.
“Accenture stands with the people of Ukraine and the governments, companies and individuals around the world calling for the immediate end to the unlawful and horrific attack on the people of Ukraine and their freedom,” it wrote.
Competitors McKinsey and Boston Consulting Group initially planned more timid withdrawals by cutting ties with the Russian government but continuing to honor existing private contracts. But after current and former employees of both companies took to social media to call out their perceived soft stance and even cowardice on Russia, the companies quickly reversed course by announcing they were pulling out completely. All the other consulting giants have done the same, including Bain, Deloitte, EY, KPMG and PwC.
The big Western oil companies have similarly faced employee pressure to exit Russia, with workers going so far as to refuse to offload Russian oil and gas onto their docks. This comes on top of governments pushing companies to take steps that go beyond the sanctions. In severing ties, companies such as BP, Shell and Exxon have abandoned significant assets in Russia, which will result in huge losses on their balance sheets.
Short-term costs for long-term gains
But accepting these short-term losses appear to be worth it to avoid larger ones down the road. Recruiting and retaining a talented workforce is an important driver of a company’s long-term profitability.
Training new workers is costly, and the best talent is always hard to recruit – a challenge made worse by the great resignation. Survey after survey has shown workers are increasingly driven by a sense of purpose and expect their companies to reinforce their values.
No company that we know of explicitly cited issues related to the great resignation as a driver of its decision to leave Russia. And industries with high attrition rates and vocal workforces such as Big Tech have not seen complete withdrawals. In some cases, such as with Apple, Alphabet and Meta, they have suspended some operations but are trying to keep doing business in part because they play important roles in providing free information to Russian citizens to counter Kremlin propaganda.
Every company and every industry has its own unique analysis to go through based on exposure to business and reputational risk in Russia. We believe the great resignation compounds this risk, in some cases significantly. And employees are increasingly reporting feeling stressed out over Ukraine.
Russia’s aggression against Ukraine has been condemned almost universally in the West. Given that, many of the companies that severed ties – while sacrificing short-term profits – likely knew that staying would have been far more harmful for their brand, not only with customers but their employees as well.