Staples makers face ‘compromise’ by supplying Russia with biscuits and soap

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NEW YORK/LONDON – Makers of everyday staples from Pampers diapers to Dove soap are walking a fine line in continuing to sell their products in Russia as pressure mounts on multinational corporations to take a stand against the recent Russian invasion of Ukraine.

McDonald’s Corp announced on Tuesday that it was closing its restaurants in Russia, including its iconic Pushkin Square location in Moscow. PepsiCo Inc, Coca-Cola Co and Starbucks Corp have also halted sales of their best-known products in Russia.

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But the world’s biggest makers of packaged foods and basic household items have lagged behind some financial services companies, oil and gas companies and retailers that have pulled out of Russia entirely. Consumer product companies say ordinary people in Russia rely on their products.

Procter & Gamble Co and Unilever Plc said this week they were continuing to sell essential products in Russia, but were ending all new capital investment and no longer advertising in the country. Unilever has suspended all product imports and exports to and from the country.

Packaged food maker Nestlé SA and dairy company Danone SA are taking similar approaches.

“I give them credit for doing more today than they did yesterday,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management who tracks big business moves to pull out of Russia. “The more complete the withdrawal, the more you advance the prospects for world peace.”

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Sonnenfeld added that it was a “mistake” to try to minimize harm to the Russian people by continuing to supply basic commodities.

“There is no middle ground,” he said.

Chocolatier Cadbury Mondelez International Inc and Kimberly-Clark Corp, which produces Huggies nappies, have yet to announce plans to cut production in Russia.

“It’s not about pure profits,” said Katie Denis, spokeswoman for the Consumer Brands Association, a trade group representing companies such as P&G and Mondelez. “It’s pretty much, are you going to continue to produce things that people need? It’s different from what companies that came out earlier are dealing with.

WORTH THE RISK?

The companies also don’t want to be seen as hurting ordinary Russian citizens by putting them out of work.

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At least six major fast-food companies — including Yum Brands Inc’s KFC and Restaurant Brands International’s Burger King — run more than 2,500 restaurants in Russia, mostly through franchisees, and employ tens of thousands more people, according to a Reuters tally that does not include McDonalds. So far, none of the companies have announced their intention to withdraw from Russia.

Investors such as the New York State Pension Fund want companies to consider whether continuing to do business in Russia is worth the risks.

Asset manager Federated Hermes urges companies by phone and mail to be “open and transparent about what they are doing in Russia” and to share “the decision-making process they went through to arrive at a conclusion” on working in the country,” said Hannah Shoesmith, director of engagement at the firm. Federated Hermes targets consumer products companies in its outreach, Shoesmith said.

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“We wouldn’t ask companies to just leave Russia without asking them to assess the human rights impact,” Shoesmith said. “There is a trade-off companies have to make. It’s not so black and white.

Companies “should also start thinking carefully” about their position on taxes paid to the Russian government, Shoesmith said.

“There are attempts to find good solutions regarding the payment of taxes,” she said. “If they pay taxes in Russia, what solutions can they find to make up the balance?”

Shoesmith said that in past military coups and refugee crises, companies made payments equivalent to their tax bills to non-governmental organizations aimed at helping people.

“CORPORATE SUICIDE”

“There is a big move in our industry to focus on companies with strong corporate governance and ethical standards – and that means societal issues as well,” said Jack Martin, chief investment officer at Oberon Investments, which owns shares in Unilever, Diageo Plc, Burberry Group Plc and LVMH Moët Hennessy Louis Vuitton SE. “It’s corporate suicide, really, right now, not to pull out of the area.”

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Joe Sinha, chief marketing officer of Parnassus Investments in San Francisco, said his firm has no direct exposure to Russian companies, but caters to US companies in the portfolio it owns with more than about 2%. of income exposure to Russia to ask for details on their thinking on whether to stay or leave the country.

“We’re not prescriptive, we try to understand their roles and their choices,” Sinha said. While Parnassus supports measures such as sanctions that cut off Russian banks and tech companies close to the military, he said, the analysis might be different for food companies that serve consumers.

“For some goods and services, it would harm individual citizens who have nothing to do with the regime,” he said. “There are gray areas.

(Reporting by Jessica DiNapoli in New York and Richa Naidu in London Additional reporting by Hilary Russ in New York and Ross Kerber in Boston Editing by Vanessa O’Connell and Matthew Lewis)

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