Ukraine Represents A Watershed Moment For Global Corporations – OpEd

By Andrew Hammond*

The crisis in Ukraine is primarily a human tragedy. One of the most striking illustrations of this is the approximately 3.5 million refugees it is estimated have already been forced to flee the country, which is about 10 percent of the population.

Geopolitically, the situation is fast becoming the worst crisis in Europe since 1945, with the possibility that hostilities might spill across Ukraine’s border. Perhaps most alarmingly of all, there is growing concern about the use of tactical nuclear weapons by Russia, which could kill millions.

For corporations, the month since Russia’s invasion has been a dizzying period during which there has been what Jeffrey Sonnenfeld, a professor at Yale, called an unraveling of “capitalistic diplomacy,” with commercial relationships severed on a scale considered unimaginable as recently as February.

Vladislav Zubok, a professor at the London School of Economics, commented that the corporate retreat from Russia might well be the bookend to an era, the beginnings of which he witnessed when, on his way to work each day soon after the collapse of Soviet Communism, he would pass by the first McDonald’s restaurant to open in Moscow.

Governments around the world have taken coordinated action in response to the situation in Ukraine, using sanctions to target specific Russian elements such as the country’s banking system, state-controlled companies and powerful oligarchs. Under these legal mandates, and wider self-imposed restrictions, several hundred companies have severed commercial ties with Russia, rupturing supply chains.

Yet, despite the widespread actions taken so far, which have rattled Moscow so much that it has said they are akin to a declaration of war, there are calls for corporations to do much more. The sources of these calls include Natalie Jaresko, a former Ukrainian finance minister, who argued that the Russian invasion should prompt a wider environmental, social and governance reckoning for the corporate community.

She even suggested that the crisis in Ukraine could prompt “the 21st-century equivalent of the late-20th century anti-apartheid movement, in which business across many sectors and societies banded together to counter the systemic and systematic racism of the white nationalist South African regime. The fastest way to end the war is to stop trading with Russia, divest Russian assets and refuse to finance Putin’s regime.”

If we take a step back from the immediate situation in Ukraine, it is clear that the crisis is only the latest incident to underscore the growing potential for businesses to become intertwined with foreign relations between states in political, human rights, technological and/or legal issues.

There have been numerous other such challenges in recent years in what is sometimes uncharted territory, whereby individual firms, and sometimes entire industries, have found themselves under the political and stakeholder spotlight in diverse polities around the world.

While this is not a wholly new, 21st-century phenomenon by any means, it nonetheless appears to be increasing in terms of frequency and salience, driven by globalization in the volatile, uncertain, complex and ambiguous world we now live in. In the past decade and a half alone, we have seen a succession of first-order international crises, including the 2007/2008 financial turmoil and the coronavirus pandemic.

The degree of instability accompanying the high level of international interdependence of the past several decades might now mean that crises are recurrent and thus becoming the rule rather than the exception.

Beyond adhering to the law and other government mandates, corporations are guided in this volatile, uncertain, complex and ambiguous landscape by international codes of conduct, including the UN guiding principles on business and human rights. However, some companies have recognized the need to go even further, including the adoption of what has been termed corporate foreign policy.

Corporate foreign policy aligns a range of activities — including public affairs, risk management, environmental, social and governance issues, and operational planning — as part of a clear strategic framework. By recognizing the need for an unusual mix of core competencies in some international corporate functions, capability, including tools, training and infrastructure, can be enhanced where any gaps exist.

Environmental, social and governance frameworks are often an area of capability that needs bolstering in firms. This includes the need for clearer internal guidance for determining decision making, protecting stakeholders, including employees and customers, and remaining faithful to corporate values in fast-moving, unpredictable, crisis situations such as those resulting from the Russian invasion of Ukraine.

One related area of activity is foresight, horizon scanning and scenario planning, which enables firms to better anticipate and plan for social, economic and political opportunities and risks, and helps to embed resilience throughout organizational structures.

The march of globalization during much of the past few decades means that few international companies will escape these pressures completely. At the same time, owing to the proliferation of media and the influence of nongovernmental organizations and related stakeholders, the actions of firms are increasingly under the microscope.

For those companies that are proactive and invest in their capability, the prizes — both in terms of mitigating risk and seizing opportunity — are potentially ever-more significant.

Yet for those that are perceived to misstep, the fallout can be damaging, both reputationally and also for the financial bottom line.

• Andrew Hammond is an associate at the London School of Economics.