BUSINESS IN RUSSIA
master franchisee. At the other end of the spectrum, Subway, TGIF and Hard Rock Café restaurants are operating as usual. When they didn’t leave completely, several companies took other initiatives, such as withdrawing support to local franchisees, refusing to accept royalties from them, redirecting profits and making donations to humanitarian organisations, or supporting local employees. For all foreign businesses operating in
Russia, the ethical dilemma is essentially the same: should we stay or leave? The variety of outcomes is the result of how executive boards weigh up the variables. According to Leo Martin,
managing director and co-founder of GoodCorporation, a London-based consulting firm that helps organizations develop ethical programs, these factors fall into one of three buckets: legal, practical, and moral.
Legal and practical red lines “The legal aspect is mostly around sanctions laws,” says Martin. “In a way, it’s
the easiest one to assess: when companies are directly at risk of breaking the law, it overrides any other counterargument. In the case of foodservice companies, for example, it could be a franchisee who’s on the list of sanctioned individuals.” The practical aspect too can be quite important. Despite what foodservice chains claim, the inability to leave Russia because of binding agreements belongs to this category, rather than the legal one, Martin believes: “Franchise agreements typically gives franchisors strong control over their brands, goodwill, trademarks, as well as quality control over the services that are delivered. This could provide the legal basis to forbid local franchisees from using their brand on a range of legitimate grounds.” Whatever the reason for continuing operations in Russia, keeping high quality standards will be more difficult over time. At some point, that might become a strong practical argument for leaving the country. “Supply chains are starting to be disrupted, and the ability to receive payments and move money to and from Russia is very
limited,” warns Martin. “Companies may soon find out that they can no longer operate correctly in Russia and protect their brands because they can’t find supplies, or those consulting services that they need for audits.”
Moral vs financial
When it comes to the moral aspect, says Martin, “ideally, there should be a very clear moral logic. However, in practice the numbers are really important. In the case of companies’ presence in Russia, those would be the size of the investments, the number
“Supply chains are starting to be disrupted, and the ability to move money to and from Russia is limited”
KFC is mounting a partial withdrawal, while Starbucks is out for good
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