The Brands Leaving Russia: How do those companies fare in our best-managed list?

"Ever since sanctions for Russia in late February, companies doing business in Russia have faced a critical decision: Should we stay or should we go?

To some, the only ethical thing to do is pull out of Russia entirely. Jeffrey Sonnenfeld, a Yale University management professor, says that anything short of that will fail to cripple the economy and doesn't truly condemn Russia.

But to others, the situation isn't so black and white; there are good reasons, they say, for continuing at least some commercial activity there.

These conflicting stances can be seen playing out through the prism of the Drucker Institute's measure of management effectiveness, where the highest-performing companies tend toward the less absolutist camp.

Our statistical model, which rests on the ideas and ideals of the late scholar Peter Drucker, serves as the basis of the Management Top 250, an annual ranking produced in partnership with The Wall Street Journal. The 2021 list was published in December.

In all, we used 34 different indicators last year to analyze 846 large, publicly traded U.S. corporations across five categories: customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength.

To create our ranking, companies are compared in each of the five areas, in addition to their overall effectiveness, through standardized scores with a typical range of 0 to 100 and a mean of 50. Mr. Drucker defined effectiveness as "doing the right things well."

In the wake of sanctioning Russia, we were curious how the companies that we track were responding -- and if there was any correlation to our rankings. To figure this out, we turned to a research effort at Yale being led by Mr. Sonnenfeld.

Under the system that Mr. Sonnenfeld and his team have developed, companies are graded as follows: Those receiving A's have completely halted Russian engagements or left the country; the B's have temporarily curtailed most or nearly all operations while keeping their return options open; C's have scaled back some significant aspects of their business but are continuing others; D's have postponed future planned investments while continuing substantive business; and F's are those "defying demands" to exit or reduce activities.

Of the more than 1,000 companies assessed by Yale, 204 of them are included in our universe, allowing us to unearth an interesting pattern: Those that get B's and C's from Yale score much higher in our rankings (with average overall effectiveness scores of 61.1 and 60.4, respectively) than do those that earn A's (with an average score of 53.0) or F's (with an average score of 51.9).

Take PepsiCo Inc., which sits at No. 11 in our rankings with an overall effectiveness score of 77.4. On the Yale list, the company earns a C because it is still making certain products available in Russia.

In early March, CEO Ramon Laguarta described this balancing act. He said that, in light of "the events occurring in Ukraine," PepsiCo would stop selling soft drinks in Russia. But to "stay true to the humanitarian aspect of our business," he added, the company would keep selling "daily essentials such as milk and other dairy offerings, baby formula and baby food."

"By continuing to operate," Mr. Laguarta said, "we will also continue to support the livelihoods of our 20,000 Russian associates and the 40,000 Russian agricultural workers in our supply chain as they face significant challenges and uncertainty ahead." PepsiCo declined requests for further comment for this article.

Why do the companies at the top of our rankings get less than stellar grades from Mr. Sonnenfeld and his colleagues?

We suspect it's because, as a matter of culture and orientation, these companies are more likely to be looking out for the interests of all their stakeholders, including their own employees and ordinary citizens in the places they operate.

To this end, some of these companies surely worry that if they shut down in Russia, it may put their workers in dire financial straits or at risk to their personal safety and security. "When you cut and run without thinking through all of the ramifications, that's not what we call a responsible exit," says Anita Ramasastry, a professor at the University of Washington School of Law and a member of the United Nations Working Group on Business and Human Rights.

Ms. Ramasastry says it makes sense that the companies earning B's and C's from Yale score higher in our social responsibility category (average scores: 58.2 and 59.4) than do the A's (53.6). Many, she says, are likely adhering to pre-existing human-rights frameworks that call for businesses to consider a variety of impacts when reacting to events.

Mr. Sonnenfeld offers a different explanation. In addition to corporations that have simply acted decisively and morally, he says, many of the A's are tech companies and oil companies that don't tend to behave well according to a range of social-responsibility indicators. "They are hoping to cleanse their public image by doing better on this front -- this time," he says.

One of the biggest gulfs between our rankings and Yale's grading is among makers of pharmaceuticals and other medical products. Seven such companies rank in our top 50: Johnson & Johnson, Merck & Co., Abbott Laboratories, Pfizer Inc., Eli Lilly & Co., Amgen Inc. and Medtronic PLC. All of them get D's or F's from Yale.

Merck didn't respond to requests for comment. The other six companies pointed to statements explaining that they have suspended new investments and all nonessential activities in Russia but continue to provide drugs that treat serious conditions and can alleviate patient suffering.

Mr. Drucker wrote that "the first responsibility of management" is to not knowingly do harm. In the case of Russia, the best-managed companies by Mr. Drucker's principles seem to have a different idea than others of what that means.” [1]

 

The bottom line is that the losers as Landsbergis' family and Nausėda rush to completely remove businesses from the East like bears into the smoke. And serious nations do not make such absolute mistakes.

 

1. C-Suite Strategies (A Special Report): Management Top 250 --- The Brands Leaving Russia: How do those companies fare in our best-managed list?
Wartzman, Rick; Tang, Kelly. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 05 May 2022: R.9.