Many firms cannot or will not

PARIS>> When Russia invaded Ukraine, a phalanx of Western companies pledged to get out fast from what had once been an important market. Mcdonald’s dismantled its golden arches after 32 years. Oil giant BP moved to divest its mammoth Russian investments. French automaker Renault sold its factories for the symbolic sum of 1 ruble.

But a year into the war, hundreds of Western businesses are still in Russia, including blue-chip and midsize companies from Europe and the United States. They are doing business despite Western sanctions and boisterous boycott campaigns pressed by Ukrainian officials, consumers and human rights groups.

Some companies, facing accusations that they are helping finance Russia’s aggression, say they are staying because their customers need them. Among them is Auchan, one of France’s largest supermarket chains, which has kept its 230 stores in Russia open and says it intends to stay. The retailer has drawn the ire of Ukrainian President Volodymyr Zelenskyy and recently faced fresh calls for a boycott after a report that Auchan’s Russian subsidiary supplied donated food to the country’s military.

Auchan has denied those allegations but is unapologetic about remaining in Russia and Ukraine, where it also has stores, to “meet the essential food needs of the civilian populations.”

Other companies have scaled back their Russia operations, or their exits, announced last spring, have stalled.

Pharmaceutical giant Pfizer has stopped investing in Russia but continues to sell a limited range of products, with the profits sent to Ukraine humanitarian groups. Carlsberg, the world’s third-largest brewer, is trying to find a buyer for its Russian breweries that would offer buyback clauses to allow the company to return when the war ended.

For many companies, extraction from Russia has been trickier than expected. Moscow has tied their hands, they say, by brandishing the threat of nationalization and other obstacles. Western corporate chiefs frequently say they have a responsibility to shareholders to find buyers that provide some value for billions in assets, rather than surrender them to Moscow. Such concerns prompted tobacco giant Philip Morris to say last month that it might never sell its Russian business, despite efforts to do so.

Others do not want to risk surrendering market share to companies from China, Turkey, India or Latin America, whose governments are not part of the sanctions regime and are eyeing properties and equity stakes left by departing Western firms.

“Russia was a big market for many companies,” said Olivier Attias, a lawyer at August Debouzy, a law firm in Paris that advises major French companies with

operations in Russia. “Taking the decision to get out was hard, and the process for leaving has been difficult.”

Data compiled by Yale showed that of nearly 1,600 companies in Russia before the war, more than one- quarter had continued to operate fully there, with some only postponing planned investments. In a survey of twice as many firms, by the Kyiv School of Economics, that proportion was closer to 50%.

But another study suggests how few have fully cut ties, finding that fewer than 9% of about 1,400 companies from Europe, the United States, Japan, Britain and Canada had divested a Russian subsidiary since the war. Those that did accounted for a small share of the Western business footprint, which the report said called into question the willingness of Western firms to leave.

Despite their saber-rattling, Russian authorities are concerned about limiting the economic hit from sanctions and preserving hundreds of thousands of jobs, and would prefer not to see Western investors exit, said Dimitri Lavrov, a senior partner at Nexlaw, a Geneva law firm that counsels multinationals in Russia

draft bill circulating in the Russian Duma would allow foreign investors “to preserve both their assets and the actual presence of their business in the coun

try, and the possibility to return to Russia in case of forced withdrawal,” Lavrov added.

Auchan offers a window onto the complications that Western companies say they face. Since the war, the privately held company, which is part of a European retail empire owned by France’s Mulliez family, has insisted that keeping its stores open in Russia was necessary to provide food to its civilian customers and maintain employment for 29,000 workers.

Auchan said it had halted investments to Russia immediately after the war, leaving the Russian subsidiary a separate, self- sustaining entity. Closing the business, which generated $3.4 billion in sales in 2021, or 10% of Auchan’s revenue, would have been considered a bankruptcy by Russian officials, the company said, leading to a potential prosecution of local managers and the seizure of hundreds of supermarkets in which it had invested more than 20 years.

That has not assuaged Ukrainian officials, who say Auchan and other companies help fund Russia’s war by continuing to operate there. Dmytro Kuleba, Ukraine’s foreign minister, recently accused Auchan on Twitter of having “evolved into a fullfledged weapon of Russian aggression,” after an investigation by French daily Le Monde revealed that some Auchan employees in Russia collected donated goods that were then sent to Russian troops fighting Ukraine.

Auchan said that it had conducted an internal investigation

and that the characterization of the findings was misleading. The company said its presence in Russia was not helping to perpetuate the invasion.

“Our business is to feed the population and to be close to the population,” said Antoine Pernod, a spokesperson. “Because one day, peace will arrive, and it will be important to still be at their side.”

Companies that have pledged to leave say shifting Russian rules have made it difficult.

On the heels of Western sanctions, Russia tightened nationalization rules to include insolvency as a trigger. Foreign companies can sell assets only with approval from Russia’s Finance Ministry, which can take six to 12 months. Corporations from “strategic” sectors, including oil and banking, need a signoff from President Vladimir Putin.

Heineken said such hurdles had delayed its efforts to divest. Shortly after announcing last March that it would stop selling Heineken beer in Russia, the company said, it “received official warnings from Russian prosecutors” that a decision to suspend or close its Russian subsidiary would be deemed an intentional bankruptcy — a criminal offense that could result in nationalization.

The brewer, which faces a boycott after media reports that its Russian subsidiary kept selling Amstel beer and introduced more than 60 new products last year, said its Russia employees were compelled to maintain sales to avert insolvency and “the very

real threat’ of nationalization. Heineken said it expected a financial loss of around 300 million euros from its eventual Russia exit.

The explanations have riled critics, who have depicted Heineken beer cans as bullets on Twitter and labeled the company “a proud supporter of Russian genocide.”

BP made headlines three days after Russia’s invasion by pledging to pull out of its nearly 20% stake in Rosneft, the Russian state- controlled oil company, a decision resulting in a $24 billion charge on its books. But a year later, the company has yet to give up its shares. It blamed a “drawn out process,” constrained by international sanctions and the Russian government, which has effective approval rights on any buyer.

Other companies are trying to leave the door open for a return. Carlsberg is aiming to sell its Russian operations by mid2023. But the brewer’s CEO, Cees ‘ t Hart, said Carlsberg was seeking a buyback clause that would give it the opportunity to repurchase the Russian assets at a later date.

For Renault, the sale of its factories last summer to a Russian state entity included a crucial clause allowing the automaker to review a return to its state- ofthe-art assembly lines in six years. The company said it would take a 2.2 billion- euro financial. hit for leaving Russia.

In the meantime, the new Russian owner is cranking out Russian cars — made mostly with parts imported from China.