Yale professor: CT companies shrink Russia footprint after Ukraine invasion

Until the final week of February 2022, Russia ranked as an important market for a number of Connecticut’s biggest companies. In the past year, however, their collective presence there has shrunk dramatically.

Connecticut firms’ scaleddown operations or outright withdrawals from Russia reflect a resounding response by businesses around the world to the Russian invasion of Ukraine that was launched on Feb. 24, 2022.

Since the beginning of the war, more than 1,000 companies have curtailed their operations in the world’s largest country by land mass — a corporate exodus that has been prominently documented by a team at Yale University.

“This is a most-historic moment, marrying corporate values with huge diplomatic alliances,” Jeffrey Sonnenfeld, the Lester Crown professor in management practice and senior associate dean at the Yale School of Management, who leads the team that maintains the Yale database on companies’ presence in Russia, said in an interview. “We’ve never seen this happen in an effort to forestall expanding military warfare.”

Companies withdraw from Russia

Within days of the first Russian attacks on Ukrainian soil, some of Connecticut’s corporate giants started pulling back in Russia. Among them, travel-services provider Booking Holdings, one of the companies on the 2022 Fortune 500 list of the largest U.S. corporations, halted bookings in Russia, while WWE shut down the online WWE Network in the country and terminated its partnership with a Russian broadcaster.

In the following month, some of the state’s other Fortune 500 companies also made significant announcements. New Britainheadquartered toolmaker Stanley Black & Decker said it would shut down its business in Russia as it stood “in solidarity with the people of Ukraine,” while Farmington-based elevator-and-escalator maker Otis Worldwide committed to not taking new elevator and escalator orders and not making new investments in Russia “for the time being.” In July, Otis announced the sale of its Russian business.

“After carefully considering the global impacts and consequences of the ongoing crisis and humanitarian tragedy across eastern Europe, including supply chain disruptions and mounting regulations, we determined that Otis’ ownership of our business in Russia is no longer sustainable,” Otis said in a statement at the time. “The sale of the business will provide a more certain future for local colleagues, customers and Otis shareholders.”

Booking, Otis and Stanley Black & Decker have earned A grades for their responses to the war in Ukraine, according to the Yale database. WWE, Norwalkbased workplace-technology provider Xerox, which is another of the state’s Fortune 500 firms, and Stamford-based career-services provider Indeed have received B grades.

The corporate withdrawals from Russia, combined with sanctions imposed against the country by the U.S., and many other nations, have drawn comparisons with governments’ and businesses’ punishment of the apartheid regime in South Africa. In 1986, Congress passed economic sanctions against South Africa. Eventually, more than 200 western companies cut ties with the country.

“When companies like Coke, General Motors and IBM pulled out, they realized that they were a rogue nation and seen as pariahs in the global community,” Sonnenfeld said of the 1980s boycotts in South Africa. “That’s similarly what’s going on here,” in Russia.

Sonnenfeld and his Yale colleagues have gained their own acclaim in the past year, with their research garnering coverage from news organizations around the world. The database is updated continually by Sonnenfeld and a team of experts, research fellows and students that he leads at the Yale School of Management’s Chief Executive Leadership Institute (CELI). Other team members include Steven Tian, CELI’s director of research, with whom Sonnenfeld frequently writes pieces on Russia and Ukraine for a number of publications.

Among recent accolades, Sonnenfeld was named professor of the year by the MBA website Poets & Quants.

“An intellectual whirling dervish of energy, conversation and commitment, Sonnenfeld is the sixth professor to earn the honor,” Poets & Quants editor John Byrne said in an announcement of the award. “Yet none of our previous winners have had the impact on the world stage as Sonnenfeld who is now among 25 Americans, including First Lady Jill Biden and GOP Senate Leader Mitch McConnell, on a Russian ‘stop list,’ barred from entering Russia.”

Some companies have stayed, but Putin is ‘not on a sustainable path’

Amid the proliferation of companies pulling back or withdrawing from Russia, many multinational firms still operate to varying extents in the country, whose population of about 142 million people ranks ninth globally. Milford-headquartered sandwich chain Subway is among the companies that has faced widespread criticism for their ongoing business in Russia. While Subway announced last March that it would not make any new direct investments or open additional restaurants in Russia, its response contrasts with the farreaching actions of other fastfood giants. McDonald’s, for instance, announced last May that it would sell all of its approximately 850 restaurants in Russia.

In explaining its position last March, Subway said that all of its approximately 450 establishments in the country at that point were independently owned and operated by local franchisees and managed by an independent master franchisee.

“Subway does not directly control these independent franchisees, nor their restaurants, and has limited insight into their day-to-day operations,” the company said in a statement at the time. “The master franchisee in Russia manages all operations, marketing and the supply chain.”

Yale gives Subway a D grade for its response to the war, a mark also given to about 180 other companies for “postponing future planned investment/development/marketing while continuing substantive business.” About 240 companies, none of which are headquartered in Connecticut, are getting F grades.

Greenwich-headquartered warehouse operator GXO Logistics — a Fortune 500 firm that was spun off in 2021 from another Greenwich-based Fortune 500 member, XPO — is the other Connecticut-based company that has a D grade on the Yale list.

“In early 2022, we de-consolidated a small joint venture and ceased investment,” GXO said in a written statement this week, in response to an inquiry about its operations in Russia. “We are in a process to exit the business.”At the same time, there are about 150 companies that are receiving C grades because they “are scaling back some significant business operations, but continuing some others.” Those businesses include Norwalk-based heavyequipment manufacturer Terex and tobacco maker Philip Morris International, a Fortune 500 firm that last year opened a new headquarters in Stamford. PMI, whose international brands include Marlboro, has held talks with at least three “serious” potential buyers of its Russian business, PMI Chief Executive Officer Jacek Olczak said in a Financial Times report published this week. But he said that Russian regulations on foreign companies’ sale of Russian assets were complicating such a transaction.“I cannot just lose the patience and I leave it. It’s their money, it’s not my money, I’m managing this for them,” Olczak said, referring to shareholders. “If I had a buyer who could execute the transactions, yes, we would do it — but it doesn’t exist . . . there is no hope . . . So then I’d rather keep this whole thing.”

Even though numerous companies remain in Russia, Sonnenfeld argues that the corporate exits have irreversibly damaged the Russian economy — and that the country would not be able to sustain a long-term war in Ukraine.

“Putin is not on a sustainable path,” Sonnenfeld said of the Russian president. “In terms of a timeframe, it depends on how much (economic) ‘harvesting’ he can get away with before there’s a tipping point in the Russian population that topples him.”

Sonnenfeld