How corporate boycotts could backfire

Last week, after enormous consumer pressure, Nestlé joined the more than 450 companies that have already left Russia or suspended operations there. Like the Swiss consumer products giant, many left only after being targeted by internet activists.

Indeed, consumer pressure has yielded spectacular results. As of 25 March, more than 450 companies had curtailed operations in Russia, up from only a few dozen on 27 February, four days into Russia's invasion of Ukraine. That is when Yale University management professor Jeffrey Sonnenfeld created his infamous list. 

The companies on his list cover a wide spectrum: The law firm Baker McKenzie is merely giving up servicing Kremlin entities, while Italian insurer Assicurazioni Generali is leaving the country altogether and Renault is closing its Russian plants. (Airlines feature on Sonnenfeld's list — but as Russia has banned Western airlines from its airspace, they deserve little credit for this step.)

In some cases, the corporate reversals have come almost overnight. On 8 March, Nikkei Asia reported remarks by Tadashi Yanai, the CEO of Uniqlo's owner, Fast Retailing. "Clothing is a necessity of life," he said. "The people of Russia have the same right to live as we do." 

Uniqlo was not going to close its 49 stores in Russia. Outraged supporters of Ukraine took to the internet to unleash their collective fury against the Japanese retailer. "Right after a Russian tank ran over a mail delivery van near the Ukrainian village of Egorovka, killing a mailman and a mailwoman inside, UNIQLO's CEO Tadashi Yanai pledges to keep doing business with Russia. When will you have enough money UNIQLO?" one angry customer lamented on Twitter. It worked. On March 10, Fast Retailing announced it was suspending operations in Russia.

In a 12 March trademark filing, Russian burger joint Uncle Vanya seems to take inspiration from the iconic golden arches of McDonald’s. Photo: Bloomberg

Nestlé, after vowing to stay, has now made a similar reversal. Its plans to stay in Russia had been greeted with Twitter campaigns such as "chocolate with a taste of pain." It's not the Swiss conglomerate's first encounter with consumer anger. 

In the 1970s and '80s, for example, the company's callous promotion of baby formula to mothers in developing countries caused protests and boycotts by Western consumers. On 22 March, Anonymous claimed it had hacked Nestlé. The following day, the Swiss conglomerate announced it would stop selling all but essential items in Russia.

A fair number of businesses will have decided their various degrees of exit on moral grounds. Many others, though, have done so as a result of activist pressure of the kind that caused Uniqlo and Nestlé to change course. "Divestment campaigns against particular countries aren't new," said Alison Taylor, a New York-based environmental, social, and governance (ESG) consultant. "Remember the campaigns against companies doing business in South Africa. But the debate on companies doing business in Russia is huge. We're watching them more than we're watching [US President Joe] Biden."

No company wants to be seen as supporting Vladimir Putin's war. Great, you say: Morally upstanding international activists have forced Western companies to do the right thing. But forcing Western companies to leave Russia is not as black and white as it may seem — and not just because their departure will cost many ordinary Russians their jobs.

The companies that have announced plans to leave Russia face considerable losses, as Russian authorities are planning to seize such companies' assets. Mercedes-Benz, for example, predicts a loss of about $2.2 billion. 

Some of the criticised companies are no doubt deeply immoral and plan to remain in Russia until their profits dry up. Others, though, may simply be holding their tongue until they've moved their assets out of the country, so as not to sacrifice them to the Kremlin.

And even though ESG issues are rapidly becoming more important, companies fundamentally exist to make money. The businesses now leaving Russia must look to make more money elsewhere. 

"Russia is a relatively small market, and companies will lick their wounds and consider alternative plans," said Michael Treschow, a former CEO of Electrolux and chairman of Unilever. "But the Ukraine crisis is having an impact on the global economy as well. Companies will face major difficulties if we head into a recession."

But even those without the slightest interest in companies' financial performance ought to consider this: When should consumers get involved to pressure a company into changing its course? With a war needing to be stopped, punishing Russia with the united might of Western consumer brands makes perfect sense. 

Indeed, consumer activists would do well to next target their fire on Chinese brands. DiDi and Tencent, for example, have said they will stay in Russia. But it raises the question: Why are Western consumers up in arms about companies doing business in Russia when Western firms have been operating in Saudi Arabia for decades — despite the country's discrimination against women and persecution of human rights activists, not to mention countless executions — without barely any Twitter outrage?

Elisabeth Braw is a columnist at Foreign Policy and a fellow at the American Enterprise Institute.

Disclaimer This article first appeared on Foreign Policy, and is published by special syndication arrangement.