By Jessica Tasman-Jones
This article is brought to you by FT Specialist’s Agenda, a publication that focuses on corporate boards.
Geopolitics has become the new test for trust, said Richard Edelman, chief executive officer of Edelman, the global public relations firm, in a recent blog post. “We saw this with the allegations of human rights abuses in Xinjiang, China, and the war between Ukraine and Russia has only reinforced it.”
Boards across the UK have spent the past three weeks grappling with whether, when – and most importantly how – to exit Russia.
Gone are the days when the safest course of action for a corporation was to keep quiet on geopolitics, according to Tony Langham, co-founder of Lanson, the London public relations firm, and author of Reputation Management.
“It is sometimes risky as a company or a leader to play it safe,” he says. “That can now sometimes be more risky than taking a position.”
This shift can be seen in the case of BP. In early February Bernard Looney, the chief executive officer, brushed aside questions about the energy company’s ties with the Kremlin.
“We avoid the politics. That serves us well in many countries around the world,” he said.
By the end of the month, however, BP had announced that it would divest its near 20 per cent stake in Rosneft, the state-owned oil business, a company that it had stuck by after Russia’s annexation of Crimea in 2014.
Although BP’s exit from Rosneft is expected to cost $25bn, Langham pointed out that boards were meant to take a longer-term view and that any reputational costs could be unquantifiably large.
Decisions to exit are hard. In Russia there are three classes of company to consider, according to Edelman: those with ties to oligarchs or state-owned companies that must leave; “asset-lite” companies with few to no employees on the ground that can exit easily, and those that have substantial investment in factories, employees and products relied on by Russian citizens.
Responses from the UK’s largest companies and brands to the crisis have differed. Marks & Spencer, Asos and Boohoo all made prompt statements ending sales to Russia, for example. Others, such as Unilever, announced that sales would be scaled back to essential items, while imports, exports and advertising would be stopped.
Directors are being asked to put wider societal interests above the narrow commercial interests of their companies, says Roger Barker, director of policy and corporate governance at the Institute of Directors.
It is a sign of good governance and good management when companies respond to events in a strong and timely way, he says. “What doesn't reflect well is where you have the feeling that companies are dragging their feet or they have to be shamed into making decisions.”
British American Tobacco initially stated it would continue to operate in Russia but cease all new investment. Two days later it announced its position was “no longer sustainable in the current environment”. Other examples include Fast Retailing, the Japanese company behind Uniqlo, which reversed its decision to continue trading in Russia.
Those that moved fastest in response to the Russian invasion are likely to have drawn on their companies’ stated purpose and values to reach their decision, says Ian Peters, director of the Institute of Business Ethics. “These values should provide an ethical compass when faced with a dilemma such as this.”
The situation is dynamic, according to Polecat, which provides real-time data on reputational issues. Initially scrutiny fell on the energy sector but that shifted to consumer goods and brands. Now crop science and pharmaceuticals are testing the boundaries of acceptable humanitarian grounds for continuing to do business with Russia, with both Pfizer and Bayer scaling back activities.
“From a board perspective, the challenge is to look hard at what is credibly ‘humanitarian’ in Russia and whether provision of deodorant, for instance, meets a credible threshold in a world where consumers and civil society are balancing that against the levels of destruction seen in Ukraine,” says Yasmin Crowther, chief insight officer at Polecat.
“A good example of striving to balance the tensions and reduce reputational risk [is] Pfizer, who have communicated that they will maintain the humanitarian supply of medicines to Russians and donate all proceeds to providing direct humanitarian support to the people of Ukraine.”
Reputational risk was becoming more important to companies before Russia’s invasion of Ukraine.
Eighty per cent of respondents to a Willis Tower Watson survey last year said reputational risk would be an increasing focus in the next five years.
The survey also highlighted the potentially crippling effects of mishandling challenges: 86 per cent of respondents cited loss of income, 62 per cent noted a reduced ability to keep staff, and 57 per cent flagged struggles to attract talent.
More than half (65.5 per cent) of companies report at board level on reputational risk, said Willis Towers Watson.
Langham says that discussions should be happening at least on a quarterly basis, and boards need to see their reputation in a geopolitical context as part of that.
“You increasingly see people who used to be government ministers or even heads of state advising big companies, or as non-execs on boards,” he says. “That’s probably the way most companies favour understanding these situations – with a trusted expert with access to networks that gives them some perspective.”
This article is brought to you by FT Specialist’s Agenda, a publication that focuses on corporate boards.
