Risk Mitigation in the Age of Sanctions
“I cannot fathom why any of these companies are remaining in Russia helping the evil empire. It is indefensible and gravely troubling.”
—General David Petraeus
We have now, all of us, looked into Russian President Vladimir Putin’s eyes and we are troubled by what we see. As U.S. Senator Mitt Romney of Utah put it, he is a “man who is trying to shape the world in the image where once again Russia would be an empire."
Like so many things today, the battlefield has changed. International diplomacy is no longer the purview of just the Madeleine Albrights, Henry Kissingers, Dean Achesons and Ralph Bunches. If you lead a company, you have long been an ambassador but now you are a diplomat too. As Eleanor Roosevelt said to Vice President Harry Truman four hours after President Roosevelt’s passing, “Is there anything we can do for you? For you are the one in trouble now.”
For the past 50 years, we have more or less followed the Milton Friedman Doctrine – “the social responsibility of business is to increase its profits.” Historically, when faced with a delicate public problem, we could issue a statement talking about our responsibility to our customers and our shareholders. Crisis averted. Today, that won’t even buy a news cycle.
Another signpost we have sped past is the age of the Lexus and the Olive Tree. Tom Friedman’s theory may no longer apply. Countries with a middle class strong enough to support a McDonald's network do go to war with each other. There were 850 McDonald’s in Russia and 81 in Ukraine. The calculus between trade, investment, prosperity and freedom has been broken.
A half century ago, I was a young social activist and cut my political teeth on the nascent environmental and anti-Vietnam War movements and spent my first career as a grassroots organizer and lobbyist, extensively trained in Saul Alinsky methods. I dreamt of the day when a corporate brand would have a social purpose. But like so many aspects of youth, I am not so sure anymore.
How ironic that I now increasingly long for the day when, as Sigmund Freud would say, “Sometimes a cigar is just a cigar.” The new reality, for the foreseeable future, is that brands are increasingly defined by where they stand on some topical social issues as much as they are on price or quality.
The most oft-asked question I get from C-suite executives and board members is, “How do we navigate these rocky political shoals?” We have studied and consulted on mercantile activism for years and while we have identified many rules, we also find that the rules change rapidly with so many exceptions that it requires extremely honest internal and ongoing 360 degree discussions to apply them effectively.
If the rise of the Internet has done nothing else, it has blurred boundaries. The nation’s second online bookstore – Amazon – is now the world’s largest grocery retailer. Accounting, consulting and law firms no longer have entirely separate lanes. World War II-era Senator Arthur Vandenberg’s old adage that “Politics stops at the water’s edge” is, tragically, now not always true. Politics is no longer the third rail of business. It is a part of your brand.
Companies are being forced to navigate issues publicly that impose upon them political decisions whether they seek them out our not. Sanctions not only being the latest but the fastest.
The SEC has newly issued proposed climate disclosure rules, which promise to be highly complex and challenging. In response to restrictive new abortion laws in multiple states, companies are having to choose if their health insurance includes travel reimbursement for abortions. Anti-LGBTQ laws in Florida, Georgia, Louisiana, Oklahoma, Tennessee, Texas and other states are forcing companies to take a stand. Add to that the questions of whether you leave Russia, how, to what extent and if and how you would manage reentry?
But You Said…
A case in point about how difficult all of this is, are the tales of Delta and Disney. One company was excoriated for saying something and the other for staying silent. In the case of Delta, they were heavily criticized for appearing to support Georgia legislation to restrict voting access when in fact, they had tried to make the legislation less onerous and had written an internal memo highlighting the changes. Delta, as the largest employer in the state of Georgia, regularly comments internally on much of what happens at the statehouse without necessarily lobbying for a particular change. None-the-less, they appeared to the public to be supporting the legislation. You break the glass, you own it.
Contrast that with Disney who initially remained silent on Florida’s “Don’t Say Gay” legislation and was denounced for it by their own employees and others and has since changed its position (though it continues to remain silent in most other states where it does business and similar legislation is on the books). Darned if you do, darned if you don’t.
The bottom line here is that none of the rules, including the ones below, are written in stone. Work with “a cabinet of rivals” -- lawyers, lobbyists, brand experts, HR, communicators and more so that you holistically understand the forthcoming issues. Know and trust each other now, so that in the moments that count you have license for difficult conversations and constructive disagreement.
Nothing Stays in Vegas
Since the invasion of Ukraine began, over 400 companies have announced their withdrawal from Russia while others have stayed. Jeffrey Sonnenfeld and his team at the Yale Chief Executive Leadership Institute have recorded these activities, categorizing them by their level of commitment to departure and excoriating over 30 companies that have stayed in their “Hall of Shame.” The first day the list went public many of the Hall of Shame companies saw their stock drop 15% to 30% when the key market indexes fell by one tenth that.
As Sonnenfeld points out, those companies that have stayed risk becoming tarred as a number of American companies did three quarters of a century ago for their “constructive engagement” with Hitler’s Germany in the run up to World War II. Beware, this is a scarlet letter that lasts for decades.
Unless you are planning on making this your corporate-defining moment, the best strategy for most companies leaving Russia is to be neither first nor last.
Is it Hegelian Dialectic time?
The seemingly boundless arcs of history are ultimately constrained by Hegelian moments which eventually define peaks and nadirs. World wars, plagues, depressions and other significant events tend to get people and governments to do extensive soul searching, re-evaluate and realign. The Russian invasion of Ukraine, which threatens to escalate into a World War II-like conflict, feels like one of those moments, which cuts through our differences and may offer unity as a silver lining. Once Vladimir Putin “makes you feel uncomfortable” it has the ability to change a lot of attitudes.
If we are indeed at one of those moments, expect fundamental attitudes to change very quickly.
Start with the Why
All great companies struggle to go from a product to a brand to a theology. Nike, Apple, Starbucks, Marriott, the NFL – these aren’t just brands. They take on theological importance which creates its own significant buffer. When Nike or Apple does something wrong, the first instinct is to trust them and give them the benefit of the doubt. A luxury enjoyed by few companies.
Simon Sinek’s Start with Why asks an essential question -- why are you in business? Maximizing profits for shareholders and servicing your customers are no longer enough. Understand your tribe.
Nike’s advertising campaign embracing Colin Kaepernick was no accident. Nike understood exactly where their market was going and decided to embrace an icon who, as a controversial figure, was Kryptonite for most other advertisers.
NIKE took on the NFL - the second most powerful sports league in the world and one of their key customers -- and won. The results weren’t even close. Nike increased its market cap by billions and the NFL did a 180 degree turn and, at least publicly, embraced diversity.
Does your company have the certainty to know where its market is going? Do you have patience to wait out ten days of online vitriol and calls for boycotts, including online burning of your product? Nike did because they knew their customers, knew the place they held not just in their heads but in their hearts and, most critically, knew which direction the market was moving.
Your Customers No Longer Define You
Since Foxconn and Takata there is no such thing as a Business-to-Business company. We are all consumer brands now and have earned the “success tax.” Any company can be the target of calls for boycotts, protests, online shaming, employee and shareholder revolts, etc., not just consumer brands. While this may feel obvious, most historically B-to-B companies are largely untested under the clique lights and prefer to think “it can’t happen here.” Yet Sonnenfeld’s Hall of Shame has more than its share of B-to-B companies.
It’s Not Easy Being Green
I’ve had a number of conversations with DEI, HR and ESG officers over the years which is often accompanied by a certainty that they are wearing the white hat. Not so fast. Public narratives change quickly. Already diversity issues are splitting normally supportive and allied communities. The definition of green is changing as more Americans come to realize the supply chain for “renewables” goes straight through mines, indigenous lands and national security risks (Russia and China).
Nothing stays the same forever or even for very long. Our ideas on diversity will (and need to) significantly expand. Coal, nuclear, natural gas and other energy sources will have a period of greater acceptance due to economics and domestic production. The “S” in ESG will only mean more things in the coming months and years.
The critical take away is to always remain humble and recognize that the goal line is constantly moving. Facebook went from one of the most popular companies to the least trusted digital company in an inordinately short period of time. The brand trust you have earned is fleeting unless you re-earn it every day internally and externally. Marketing ESG and DEI is a lot different that living and evolving with it.
Use Your Peacetime Wisely
Our best decisions are not made when we feel the anxiety induced by inquiring reporters on deadline. Use your peacetime wisely. Test your interdisciplinary teams multiple times a year. Reverse engineer what other companies do in difficult public situations. Look forward to tomorrow’s issues – such as Taiwan – and game it out. Know and have relationships today with third party allies and NGOs.
There are two moments when an issue goes from a one day story to a negative viral sensation. The first is the moment a decision considered a mistake goes public. The second, is when reporters ask other experts. If they pile on, you risk becoming a poster child of what not to do. Know your potential allies before you need them. There are few who will jump in the quicksand once accusations are made.
Scrub Your Political Donations
One of the unintended consequences of the U.S. Supreme Court’s Citizens United and its progeny decisions is that while companies gained First Amendment rights they also acquired First Amendment responsibilities.
Already challenging prior to the January 6th insurrection, political donations are now a minefield. Heretofore opaque PAC, 527 and association donations and alliances are now largely transparent and draw heavy and sustained critical fire from the media, social critics, employees and even shareholders. In this age of divisiveness and heightened public criticism and when the old tropes about equal donations and not agreeing with everything a politician or group stands for falling on deaf ears, it raises the question for corporations about the increased risks and reduced rewards of political donations.
Is there a politician who won’t take a meeting with a large company, certainly one with jobs in their district? Companies have to increasingly ask the question if playing the political donation game is worth the cost.
To help companies navigate the risk of corporate political spending, the Center for Political Accountability provides multiple resources including a model code of conduct, Navigating the Risks of Corporate Political Spending.
Canaries in the Coal Mine
We are in love with the “new shiny.” For a while, “Big Data” was just that, the new shiny object. But big data alone is just math if it is not analyzed in context. It takes a team that understands social trends, interest groups, history, influencers, legal and business issues and more.
Most of the time, a single tweet is not alertive yet the early warning on the Saudi-Emirati blockade of Qatar was uncovered through a single, suspicious tweet. If we do not understand the context then the power to predict the future is lost in a pile of pixels.
It Gets Faster and Faster
The blinding speed and unanimity with which the U.S. and NATO applied sanctions is historic and remarkable. Governments, working in unison, worked at a speed few could imagine. If this is now the speed of the possible, never has it been more important to anticipate and plan for a world that is much different than it was yesterday.
(A shorter version of this article originally ran in BRINK)
Richard Levick
About the Author: Richard S. Levick, Esq, is the Chairman and CEO of LEVICK, an international crisis, litigation and public affairs communications firm which handles the highest profile and most sensitive matters globally.
