(Mt) – MGT 312 SEU Is It Time to Exit Russia Case

Case Study: Is It Time to Exit Russia? HBR’s fictionalized case studies present problems faced by leaders in real companies and offer solutions from experts. This one is based on a case taught by Nien-he Hsieh at Harvard Business School. BELINDA GENSER, THE CEO of Spark Pharma, was sitting in the boardroom with Claude Muteba, the firm’s CFO and her closest confidante, and she didn’t like the look on his face. They’d just finished the leadership team’s weekly meeting and were using the time afterward to catch up. “Have you seen the list that a professor at Yale put together?” Claude asked, turning his phone to show her what he’d pulled up on the screen. The “Yale list” was a rundown of firms that had publicly announced that they had curtailed Russian operations to some extent following the country’s invasion of Ukraine three weeks earlier. 1 It had been making the rounds in the media, and Belinda, like most CEOs of firms with operations in Russia, felt the urgency to take a stand. A global pharmaceutical company based in Brussels, Spark had operations in 24 countries, including a manufacturing plant and a sales team in Moscow. For the past two weeks, pressure had been building–from shareholders, government officials in Ukraine and Belgium, and worried and outraged citizens across the EU–to follow the lead of many multinationals and cease operations in Russia. The decision wasn’t straightforward, especially since Spark provided treatments for many conditions, from neurological disorders to diabetes. “The firms that have already pulled out aren’t suppliers of essential goods,” Belinda said. “They’re also firms that can distance themselves relatively easily: professional services companies with no assets on the ground or oil companies that can simply divest.” Claude scrolled down. “But I do see a few health care companies on there,” he said. Belinda knew he was right. They could not continue with business as usual–nor was that what she wanted. The Ukraine war was a stark example of the huge change in societal expectations about how companies should behave in response to political and social events. It was no longer possible for them to stand on the sidelines. Companies around the world were being called upon by consumers, employees, and investors to apply their own sanctions on top of government-mandated ones. Belinda had already heard from several board members and a growing number of employees who were concerned about Spark’s response. Immediately after the invasion, out of safety concerns, Spark had temporarily closed its warehouse and distribution center in Ukraine and vowed to support its employees there and to donate medical supplies to the region.2 But so far, its Russian division had remained operational. 3 “I know the optics aren’t good, especially if we’re a glaring omission from the list,” she said. “But I feel an obligation to our team in Russia and to customers there who aren’t responsible for the war. The humanitarian response could be to withdraw and stand in solidarity with Ukraine–or it could be to continue to supply medicines to the people of Russia.” She and Claude had thoroughly discussed the financial implications of a complete exit. The country represented less than 3% of Spark’s total sales, and their strategic plans and forecasts had accounted for geopolitical uncertainty in that market. However, they had to consider the wider implications of a decision to pull out: How would that affect sales in other countries whose governments weren’t as strongly opposed to the war? It was possible that withdrawal from Russia would turn off customers or suppliers in India, for example, a market that represented a larger portion of the firm’s revenue and where officials hadn’t imposed sanctions. “Where does Mila stand?” Claude asked, referring to Mila Jacobs, Spark’s head of global communications and PR. “She makes a strong argument that we pull out completely,” Belinda said. “She’s worried we’re headed for a PR crisis.” “That concern seems warranted, no?” Claude responded, showing Belinda his phone screen again. This time it was a tweet that already had more than 5,000 likes: “Any company that remains operational and pays tax dollars to Russia is funding the war against the people of Ukraine #WithdrawNow #NoGrayArea.” “I get that there’s no way to be Switzerland in this case,” she said. “In fact, even Switzerland supports sanctions against Russia.” 4 “You’ve never been afraid to take a stand,” Claude said. “I’m not afraid now: I just want to make the right decision.” DO NO HARM? Later that evening, Belinda was having dinner with her husband, Winston Yu, at their home outside Brussels. A vascular surgeon, Winston also worked long hours, so they made a practice of carving out this time for each other most evenings. As they ate, Belinda relayed her conversation with Claude. The war and Spark’s response to it had already been a frequent topic of their conversations, and Winston reiterated his concern about pulling out of Russia completely. “I can’t imagine having to tell my patients that the medicines they need are no longer available to them,” he said. “The philosophy of ‘Do no harm’ isn’t very straightforward here, is it?” “Russian citizens would still have access to generics of our drugs. It would be disruptive, yes, but there are alternatives, even if they’re not always as effective.”5 Winston reminded Belinda of another option they’d discussed. Rather than making a full withdrawal, Spark could stop selling nonlifesaving drugs (such as seasonal-allergy medication) but still provide medicines that people can’t live without. “That feels to me like we’re trying to have our cake and eat it too,” she said. “Or maybe it’s trying to find a win-win?” he replied. “You took this job because of Spark’s mission to bring cures to the world. You’ve always focused on ways to do well by doing good.”6 It was true that was what had drawn her to the CEO role. But it was hard to find a “win-win” in this situation, given the immense tragedy unfolding in Ukraine. There was no obvious right move–and no chance Spark could emerge from any decision without facing some backlash. 7 It had even occurred to her that if Spark didn’t fully exit Russia, she might be personally accused of sympathizing with China, which had not denounced the war, simply because her husband was British Chinese. No, a criticism-proof decision wasn’t possible, but she wanted to make a call that she could stand by, ethically and morally, in the face of any attacks, even groundless ones. THE GOAL The next day, Belinda joined a Zoom call with Dmitry Guzei, the general manager of Spark’s Russian division, and Ivan Medvedev, his chief of staff. They had asked to speak with her about the company’s decision, and she wanted to hear their perspectives. Dmitry did most of the talking at first. “I’m worried for our employees, our patients, and frankly, our country,” he said, his voice cracking with emotion. “And I realize I have a personal stake in the decision. I’ve worked for the past decade to build up our manufacturing plant, to develop our sales force. It would be devastating to see all that crumble.” Belinda nodded. “My hope is that if we decide to leave–and I want to be clear that I haven’t yet made that call–it would be temporary. We would return to full operations once the war is over.” When Ivan grimaced, she said, “Tell me what’s on your mind.” “Putin has already begun developing the legal means to seize the assets of companies that withdraw,” he replied. “There may not be a path to return. We need to be clear about what we’re trying to accomplish. And how will we know when we’ve met that goal? 8 Do we expect to influence the outcome of the war? Dmitry and I have different perspectives on that, but I don’t believe that corporate pressure will hold much sway with Putin. In fact, sanctions may backfire if he uses them to fuel his claim that Russia is being attacked by the West.” “How do you see it, Dmitry?” Belinda asked. “I think the sanctions are effective, especially considering the tax dollars that Russia is losing as a result,” he replied. “But I could argue this both ways. Like any country, Russia is not a monolith; I’ve heard plenty of people argue Ivan’s point and just as many insist that an exodus of companies would help Russians see how the war and Putin’s actions are causing suffering. It’s not an easy decision, but I’ll stand behind whatever you decide to do.” Ivan nodded in agreement. A LEGACY “Don’t forget: There’s the decision, and then there’s the messaging,” Mila said to Belinda. Belinda had asked Mila to meet with her and Carl von Post, one of the more active members of Spark’s board, to talk through their options. Carl was a director of several other EU-based firms with operations in Russia, and Belinda valued his counsel. “Internally, I can make the case that staying in Russia is a humanitarian decision,” Mila explained, “but I’m not sure the public will care about the nuances. If we stay, we will almost certainly see boycotts and social media campaigns against us, which could seriously damage our reputation. I believe it’s time to get out.” 9 “Is a partial withdrawal still on the table?” Carl asked. Belinda nodded. She explained that they were also considering staying and selling products at cost to avoid earning profits that would generate tax dollars for the Russian government. “That’s a tough message to communicate externally,” Mila said. “Anything short of a full exit will be criticized. The media and the public won’t be forgiving.” “Under Belinda’s leadership, this company has built a lot of goodwill,” Carl said. “We’ve been at the forefront of fair pricing and making our medicines widely available. We can rely on that.”io Mila was shaking her head. “But that’s an even better headline: ‘Do-Good Company Makes Wrong Call on Russian War.’” “Companies have made tough calls, even bad calls, about staying in countries during global crises without sustaining long-term damage,” Carl said. “Look at Johnson & Johnson in apartheid South Africa. At the time, companies had reasonable arguments against divesting. No one claimed that apartheid wasn’t wrong or unjust. But J&J made the call to stay because it didn’t want to abandon its employees. Of course, it was accused of being complicit, but staying didn’t sink the company.” “Fair, but think about the big picture,” Mila argued. “Given our global reach, this isn’t the last time we’ll face this sort of dilemma.” She turned to Belinda. “You are the face of this decision. What do you want your legacy to be?” Belinda winced, knowing Mila was correct. Her decision would set a precedent for Spark’s stance on future geopolitical crises. NIEN-HE HSIEH is the Kim B. Clark Professor of Business Administration at Harvard Business School. Should Spark exit Russia or continue operations there? The experts respond. SALLY SUSMAN is the chief corporate affairs officer at Pfizer and the author of Breaking Through. This doesn’t need to be an all-or-nothing decision. I admire Belinda’s determination to find a principled approach that aligns with her values and Spark’s mission to provide, without interruption, a steady stream of medicines to those who need them. In this case, I would recommend continuing to operate in Russia while donating all proceeds to those who are being harmed by the war. This is what Pfizer decided to do when Russia invaded Ukraine. We committed to keep providing medicine to our Russian patients but have funneled every penny we’ve since made from that business to humanitarian organizations in Ukraine. In my new book, Breaking Through, I share a framework for when, how, and why to engage in tough social issues in a fair and unbiased way. Belinda should ask herself: How does the issue relate to our purpose? Our values? How does it impact our stakeholders? What are our choices for engagement? What is the price of silence? Working through these questions, she and her team will find that keeping their product flowing should be the priority, I believe. With that decision made, she and Mila need to explain it internally and externally, helping all stakeholders understand the reasoning behind it. It’s important that Spark not be unfairly stereotyped as a company that didn’t adhere to sanctions. This should involve reaching out to journalists with whom Spark has a good relationship and who will give them the opportunity to explain their choice. For example, Pfizer’s CEO, Albert Bourla, went on Morning Joe with Mika Brzezinski to explain our company’s stance on Russia. I fully agree that this decision will shape future ones for Belinda. There will be more geopolitical crises down the line. That’s why it’s so important for her to use a consistent and principles-based framework now. LAUREN CHUNG is the CEO of the advisory firm Teneo’s Asia Pacific strategy and communications business. Belinda needs to plan and announce a full, yet phased, withdrawal from Russia. Anything short of a complete exit would expose Spark to a backlash from its stakeholders and likely damage the company’s reputation and market value. As someone who advises firms on strategic and reputational issues-actual and potential–I know that geopolitical risks are an increasing concern in the C-suite. Given the widespread condemnation of Russia’s invasion of Ukraine, leaving is Spark’s best option, and the decision should be immediately communicated to employees, customers, supply chain partners, investors, and governments. Spark should strongly oppose the violation of any country’s sovereignty, especially when lives are being lost. In their messaging, Belinda and Mila should explicitly tie Spark’s stance to its corporate values; after all, its products are designed to save and improve lives. All that said, the withdrawal should be done in stages to better accommodate Spark’s Russia team and its customers. An abrupt exit wouldn’t give employees time to find new jobs or patients time to find other medicine providers. A phased approach, by contrast, affords Belinda the opportunity to explore a potential sale of operations to a Russian company to avoid a supply disruption. Russia represents only 3% of Spark’s revenue, but she’ll need time to engage with shareholders on the financial impact of an exit and ways to mitigate it. Many of Teneo’s clients faced the same difficult choices when Russia first invaded Ukraine. Our global leadership across our strategy, communications, political risk, and financial advisory teams gathered on daily calls to discuss the crisis, its likely development, and how we would advise our clients through a scenario most had not faced in their careers. The role of multinational businesses has evolved greatly over the past decade. CEOs are now expected to help solve– indeed, to become activists in-some of the world’s most pressing problems and to use their companies’ resources to address major social and political injustices in the global community. Belinda needs to acknowledge that responsibility and make the right decision. LYNN PERRY WOOTEN is the president of Simmons University and a coauthor of The Prepared Leader. Spark should stay in Russia for the time being but downsize its operations. That means stopping the sale of any nonlifesaving medicines and selling essential drugs at cost to avoid making a profit or paying taxes to the Russian government. At the same time, the company should support Ukraine with humanitarian aid. In our book, The Prepared Leader, my coauthor, Erika H. James, and I talk about the three Ps that a leader must consider in times of crisis: people, profits, and planet. In this case, profits aren’t as important as the other two Ps: caring for people, including Spark’s employees and patients, and maintaining its commitment to a just and equitable planet. Responding to a crisis of this size requires collaboration. I strongly urge Belinda to look to her colleagues at Spark, external partners, other companies, nonprofits, and relevant governments to reduce the company’s footprint in Russia while continuing to supply critical drugs. For example, Belinda’s team could start reaching out to Russian suppliers that might have alternatives to Spark’s medicines. When communicating the plan, Belinda and Mila should emphasize that their priority is continuity for patients and employees and offer real-world stories of people whom they’re helping. Meanwhile, Spark should develop a plan B, considering what a full exit would look like and how it would be executed to mitigate negative consequences. Belinda should make clear that she and her team will keep monitoring the situation and pivot if necessary. That type of sensemaking–paying attention to new developments, signals, and stakeholder responses–is critical to effective crisis leadership. I relate to Belinda as a female leader under pressure. I too try to create win-wins wherever I can. As women, we’re more likely to be criticized for being either “too soft” or “too harsh.” Indeed, if Spark stays in Russia, Belinda might get pushback that her stance isn’t strong enough. But she can take that in stride, knowing that she’s been guided by Spark’s mission and her commitment to a solution that helps as many people as possible. HBR Reprint R2303M Reprint Case only R2303X Reprint Commentary only R2303Z Case Study Classroom Notes 1. This list, put together by Professor Jeffrey Sonnenfeld, is still active and now grades firms from A to F based on the extent of withdrawal. 2. Is Spark’s humanitarian action in Ukraine a sufficient response to the crisis? 3. According to a 2023 University of St. Gallen report, only 9% of EU and G7 firms with subsidiaries in Russia had divested at least one in the nine months since the invasion. 4. In February 2022, Switzerland joined the European Union in imposing sanctions against Russia, breaking its hundreds-yearlong stance of neutrality. 5. What ethical responsibility does Spark have to ensure that its customers have access to their medicines? 6. The longstanding notion of “shared value” has gained more traction over the past decade. For example, 90% of S&P 500 firms published corporate social responsibility reports in 2019– up from only 20% in 2011. 7. How much should pressure from the public, the media, or investors factor into Belinda’s decision? 8. If Spark were to exit Russia, what criteria would need to be met for it to return? 9. How quickly does Belinda need to act? How might the timing of Spark’s decision influence how it will be received by the public? 10. How much will the goodwill that Spark has built with consumers and the public help to protect it against criticism?