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TheWallStreetJournal 20220319 B6 0 T
TheWallStreetJournal 20220319 B6 0 T
untangle supply-chain snarls and revamp operations around the world. It has
also required each company to rethink its future in Russia, a country of 150
million people and vast natural resources, whose army is now waging a bloody
war.
This time, companies were more prepared. The pandemic had given leaders a
crisis playbook. Years of corporate activism on issues such as climate change
and racial discrimination had trained them to respond to a range of issues. The
invasion took many by surprise, but they reacted quickly to what was a
potentially fatal threat to their employees and also a reputational threat to their
businesses.
When President Vladimir Putin launched the attack on Feb. 24, and pressure
from governments and employees began to build, as well as escalating
sanctions on Russia, companies moved with unusual speed and a sense of
collective action. The result was a corporate participation in geopolitics with
little recent precedent.
“I never believed that Putin would invade Ukraine. I never imagined there
would be a war in Europe,” said Volkswagen AG CEO Herbert Diess. Within
days of the invasion, Mr. Diess shut down or curtailed production at some of
his biggest factories in Europe because the plants couldn’t get wiring harnesses
from suppliers in Ukraine. The company later closed down production at its
car plants in Russia, citing its “great dismay and shock” over the invasion.
68%
shortages in world-wide access to food would only increase.
Fertilizer prices had already been high before the war. Now they were
skyrocketing. Mr. Holsether wondered if he would increase the price by
withdrawing from Russia. “I don’t think it is up to me to go forward with the
decision,” he told himself.
On March 9, the decision was made for him when the EU sanctioned the
owners of Russia’s largest fertilizer companies. Two days
The rise in the price of urea, a fertilizer component, since the invasion
$25 billion
The potential size of the hit to BP from exiting its Russian business
More than 400 companies have since announced plans to suspend or scale
back their operations. They include American icons like McDonald’s Corp.
and Coca-Cola Co. with large operations inside Russia, and international
banking and manufacturing firms that underpin global trade.
For some it wasn’t much of a financial sacrifice, with Russia accounting for
just a small slice of their revenues. CEOs didn’t want to risk having their
brands tarnished as Russian attacks began hitting civilian areas. Once
sanctions took hold, many leaders didn’t see how they could continue with
business as usual.
In Russia, Mr. Putin has endorsed a plan to seize assets of companies that fled.
In an address to the U.S. Congress, Mr. Zelensky took aim at international
companies that stayed. Thousands of jobs, billions of dollars of investment and
the direction of global trade are on the line.
The price of urea, a key component of many fertilizers, has soared by roughly
$450 since the invasion, settling Thursday at $1,115 per metric ton for one key
benchmark, according to BMO Capital Markets.
“We are going to have a food crisis. It’s a question of how large,” said Mr.
Holsether.
At the German chemical and drug giant Bayer AG, some employees were
making emotional pleas to executives, begging them to halt all shipments of
the company’s seeds, medications, pesticides and other products to Russia. A
few staffers emailed concerns to CEO Werner Baumann directly.
A crisis team of executives, led by Mr. Baumann, were meeting every other
afternoon to discuss the company’s response, as well as supply- chain and
workforce issues.
Bayer decided it would stop nonessential business in Russia and Belarus, but
said that withdrawing seeds and pesticides would exacerbate food shortages
arising from the conflict. “There are people behind each of these statements,”
Mr. Baumann said.
The CEO of discount carrier Wizz Air Holdings PLC, based in Budapest,
Hungary, told his top deputy that their evacuation plan for the company’s staff
and aircraft in Ukraine wasn’t viable. It needed a three-hour window.
Instead, Wizz activated its crisis protocol, typically reserved for scenarios like
a hijacking or crash. The first task was to locate the roughly 200 staff in
Ukraine, their family members and the families of another 100 Ukrainians the
company employs in other locations.
Passengers booked on Wizz The Kyiv offices of Yara International ASA, one
of the world’s largest fertilizer companies, were hit by a missile on the first
Saturday of the war. Yara CEO Svein Tore Holsether looked at images of the
damage. “To see our logo on a building with a big hole in it, it all felt very
close,” he said.
Yara had been preparing for weeks and none of the 11 staff was hurt in the
attack. But the Norwaybased company faced the increasing threat that
sanctions would choke off Russian raw materials it used.
Pepsi in 1974 was among the first American brands to enter the Soviet Union,
after a Cold War encounter in Moscow in 1959 when then-Vice President
Richard Nixon
Dumping alcohol
Average hourly wages of 4 euros, or $4.41, made Ukraine an attractive
location for manufacturers of auto components that required many hours of
manual labor. Thus wiring harnesses—which organize the cables inside a car
—took on outsize importance when Ukrainian factories shut and supplies to
VW’s auto plants dried up.
“I knew what would happen if Ukraine production stopped,” said Mr. Diess,
the Volkswagen boss. “But we never thought Ukraine would get hit. We
thought Northern Africa would be the problem.”
On the night of the invasion, Mr. Diess called an emergency board meeting for
the next day. The VW board agreed to duplicate the tools used in the affected
plants in Ukraine to help suppliers produce wiring harnesses at sites outside
which has more than 10,000 customers, had been preparing for such threats
since mid-February.
For CEO Corey Thomas, the invasion started in the middle of a vacation week.
He was at Walt Disney World with his family standing near the Seven Dwarfs
Mine Train when the news alerts started popping up about Russia.
“How are we going to deal with this from a personnel perspective?” Mr.
Thomas thought. That day, he had his AirPods in and iPhone out, using voice
text and calls to connect with staff and customers while also plotting out the
family’s next ride.
Mr. Thomas said the company has seen cybercriminals trying to use the
uncertain environment of the war to their advantage, such as phishing attacks
tailored to helping Ukraine or humanitarian aid, but it has been largely
business as usual. His firm is working with multinational companies that have
operations in Russia but stopped new business from customers whose primary
location is in Russia or Belarus. “We do expect escalations and we’re really
watching the spillover,” he said. “One of the big things: Russians are really
good at malware. Malware is really hard to contain.”
Anheuser-Busch InBev SA reported its quarterly results the day the war
started. CEO Michel Doukeris had flown from New York to Belgium to host
the earnings presentation. He gave interviews to CNBC, The Wall Street
Journal and other outlets about the financial results, knowing that they were no
longer relevant news. All anyone was talking about was Ukraine.
For two months, the Budweiser brewer had a team in Europe working on
contingency plans for a conflict between Russia and Ukraine. The company
had breweries and employees in both countries, which were also key producers
of wheat and barley.
AB InBev had 11 breweries in Russia, and was coming under pressure to take
a moral stance. First, the company had to talk with Turk-ish brewer Anadolu
Efes, the controlling partner of the companies’ joint venture in Ukraine and
Russia.
Efes wanted to continue its Russian operations to support its 3,500 employees
and the farmers who supplied the breweries. AB InBev decided to ringfence
the Russian joint venture and forfeit any profit or other financial benefit from
it.
AB InBev also asked Efes to suspend the license for the production and sale of
its Bud brand in Russia. “Budweiser is a global brand that stands for values,”
Mr. Doukeris said. The company will continue brewing other beers in Russia.
Soon after the invasion, some consumers and bartenders started dumping
Stolichnaya vodka and other products they associated with Russia.
Stoli Group’s Russian founder and chairman, Yuri Shefler, says he has lived
outside of Russia since 2002 because of his opposition to Mr. Putin.
Mr. McKinney had been watching Russia massing troops on Ukraine’s border
for weeks before the war. The former Royal Marine had begun gaming out
how he might protect the vodka maker from supply-chain issues, including
labels and bottle caps made in Ukraine.
On the morning of the invasion, Mr. McKinney phoned Mr. Shefler to discuss
the company’s stance. They agreed that Mr. McKinney would tell the 240
employees who would dial into the monthly town hall later that day that Stoli
Group condemned the attack. “We needed people to understand we were on
the good guys’ side,” Mr. McKinney said.
Mr. McKinney also decided the time was ripe for Stolichnaya to re-brand. On
March 4, the company announced its vodka would change its name to Stoli
and it would stop sourcing ethanol used to make the spirit from Russia.
Refugee aid
Before making its decision public, Mr. Looney broke the news to Rosneft’s
CEO, Igor Sechin, a former KGB operative. BP officials found Mr. Sechin
surprisingly understanding, the people said. Mr. Sechin was later among the
Putin loyalists whose assets were targeted by Western governments.
BP’s move set the stage for Shell PLC to then announce it was ending its
Russian joint ventures, and to get out of the just-halted Nord Stream 2 pipeline
project poised to carry gas into Germany. Within days, Exxon Mobil Corp.
said it would shut down production from a giant oil-and-gas project it runs on
Russia’s Sakhalin Island.
Behind the scenes, the company’s leaders explored another action it could still
take. PepsiCo could write down the value of its Russian business to zero,
modeling the process it used for its Venezuelan operations in 2015. The
Venezuelan unit is still operating— and PepsiCo still owns it— but it doesn’t
contribute to the
Supply woes
The disruption to already-strained global supply lines hit car makers like
Volkswagen hard. as the war escalated. They asked each other whether they
should pull out of the country or cease doing business with some entities.
They talked about whether it would help Russians on the ground if the
companies they ran, especially those that are internet-based applications,
continued providing services to help spread factual information about what
was going on in the region.
“Do we want to further isolate Russian people from the truth or do we want to
do the best we can to ensure a flow of information into Russia?” said Mr.
Lawson, who co-founded Twilio, a cloud-communications company.
On March 7, Twilio said it would keep its service in Russia but suspend new
business in the country, terminate state-owned customers and block
misinformation. The financial cost was negligible, accounting for tens of
millions of dollars out of Twilio’s roughly $3 billion in revenue last year, Mr.
Lawson said.
By the third week of fighting, there were more than 3 million refugees from
Ukraine, according to the United Nations.
Airbnb Inc. CEO Brian Chesky suggested in a team meeting just before the
invasion that the company be prepared to offer free housing to 20,000
refugees. The number matched a previous commitment by the home-sharing
service for Afghan refugees.
Two days into the war, Mr. Chesky realized it wasn’t going to
100,000
The number of free stays Airbnb has offered Ukrainian refugees
Cyberattack
For Lynn Good, CEO of Duke Energy Corp., Russia’s aggression raised a
worry closer to home: the risk of cyberattacks on the U.S. electric grid.
The same day, Mr. Chesky noticed something unusual. Hosts in parts of war-
ravaged Ukraine were getting a surge in bookings from guests who didn’t
intend to show up. People were booking Airbnb stays as a way to send money
to Ukrainians.
The CEO was stumped. The service wasn’t designed for such donations—
hosts are paid after guests check out and the platform can flag same-day stays
as fraudulent if guests aren’t in the same geography as hosts.
“In a world of darkness and destruction,” he said, “it was a reminder that
kindness still exists.”
Oil stakes
Russian children drink Pepsi in 1989. This month, PepsiCo decided to stop
selling the drink in the country.
20,000
The approximate number of PepsiCo employees in Russia
The Kyiv offices of fertilizer company Yara International, above, were hit by a
missile. ‘It all felt very close,’ said the company’s CEO. Ukraine’s Volodymyr
Zelensky, below left, has taken aim at international companies still doing
business in Russia. Rosneft CEO Igor Sechin, below right, has had his assets
targeted by Western governments.
By 2022, PepsiCo Inc. had 20,000 employees in Russia and it was the
company’s third-largest market after the U.S. and Mexico. The company’s 24
plants and three R& D centers in Russia made soft drinks, potato chips, milk,
yogurt, cheese, baby food and baby formula.
The bulk of the business was a Russian dairy-and-juice company PepsiCo had
bought in 2011 for about $5 billion. The Russian business operated in rubles,
and used locally sourced milk and potatoes, though it imported soft-drink
concentrates from Ireland.
The company’s top officials discussed the geopolitical crisis nearly every day.
They were reluctant to shut down the Russian operations, according to people
familiar with the matter. The leaders wanted to do right by their employees and
consumers, and they were under pressure to join other Western companies
making moves to penalize Russia. They also had a responsibility to
shareholders.
On the afternoon of March 8, McDonald’s said it was closing its restaurants in
Russia. Then Coca-Cola said it was suspending its business there. Within half
an hour, PepsiCo CEO Ramon Laguarta sent a memo to staff. The company
would stop selling Pepsi and 7UP in Russia, he told them, but it wasn’t pulling
out.
“We must stay true to the humanitarian aspect of our business” by providing
daily essentials such as milk inside Russia, he wrote. “By continuing to
operate, we will also continue to support the livelihoods” of PepsiCo’s Russian
employees and thousands of agricultural workers who supply the Russian
business with potatoes the country. That would take weeks, and parts began to
run out in days.
Soon after, VW shut production at its main plant in Wolfsburg, Germany. Audi
temporarily shut down some production. Porsche had to halt production of its
Taycan luxury electric sedan.
Some production is coming back online, but it remains patchy. It’s yet another
challenge for an industry still wrestling with a semiconductor shortage. “It is
going to take suppliers months to sort this out,” Mr. Diess said.
Chief Executive David Calhoun made clear the aerospace giant would need to
suspend its operations in Russia, including its purchases of titanium from the
supplier and their joint venture. Boeing had drawn up plans to get titanium
elsewhere after Russia invaded Ukraine’s Crimea Peninsula in 2014 and the
U.S. first imposed sanctions on Mr. Chemezov, a former KGB official.
“We are a U.S. company and we are going to follow the U.S. government,”
Mr. Calhoun told his leadership team in a videoconference on Feb. 28. “We
need to be closely aligned with our government, regardless of the
implications.”
Soon after, Boeing said it would close its office in Moscow. The company also
said it would stop sending plane parts to Russian airlines and halt purchases of
Russian titanium. The U.S. announced additional sanctions targeting Mr.
Chemezov.
Online operations
Twilio Inc. CEO Jeff Lawson and other tech CEOs relayed updates and advice
on a shared Slack group
Muscovites withdraw cash in late February, left. Wizz Air’s CEO realized
when the Ukraine invasion began that he didn’t have enough time to
evacuate staff.
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