THEY ARE ONLY LOYAL TO PROFIT

Only sanctions and seizure will fix the scandal of multinationals staying in Russia

Matthew Lynn
Fri, 24 February 2023 

Ukraine - Henry Nicholls/Reuters

It is too expensive to get out, according to the tobacco giant Philip Morris. It is too complex, according to the French hotels conglomerate Accor, and risks enriching local oligarchs. Or it is impossible to find a lawyer, or transfer staff, or the chief executive's dog ate the paperwork, according to multinationals ranging from the normally sanctimonious Unilever to BAT. Carlsberg has even raised the possibility of going back one day, once it finally gets around to selling its unit in the country.

A year on from Vladimir Putin's brutal invasion of Ukraine, many of the world’s biggest companies are still operating inside Russia.

We all understand there are challenges of getting out of a major country. And it is a market where the weakness of the local competition means that there are easy profits to be made. But with the war potentially dragging on for years, there is no excuse for remaining. And there is a simple solution at hand.

Ukraine needs money for reconstruction, and companies need a punishment for helping to fund the war. The United States, the European Union, Britain, Japan and other leading Western powers should put in place a sanction-and-seize regime: tax Russian profits and pass the money to Kyiv. With that in place, it would be surprising how quickly they managed to get out.

Over the last week, most of the civilised world has marked the first anniversary of the invasion. Pledges of arms have been beefed up. Money has been found to help its suffering victims. Candlelit vigils have been held in New York and London, while in Paris the Eiffel Tower was lit up in the now-familiar blue and yellow of the Ukrainian flag.

Eiffel Tower - Pierre Suu/Getty Images Europe

Some of the world’s biggest companies, however, have found a less edifying way of marking the occasion: a fresh round of excuses for why they are still trading in Russia.

This week, Jacek Olczak, chief executive of Philip Morris International, which sells the company’s cigarette brands outside the US, argued that it was so difficult to sell its Russian unit that he might end up just keeping it. Apparently the Kremlin is imposing such strict terms that a sale could be impossible. Well, there’s a surprise Jacek. Who could have guessed Putin's regime would make withdrawing so difficult?

Sébastien Bazin, the boss of Accor, which owns brands such as Novotel and Ibis, told The Telegraph there was “no legal basis” for pulling out of Russia – and even worse, it might “enrich local oligarchs”. From Colgate to Unilever, BAT, L’Oreal and Procter & Gamble, plenty of the world’s biggest brands are still there.

The excuses companies are giving for remaining in Russia are lame, pitiful, pathetic and shameful. We all understand the challenges of exiting the country. Evidently, under the circumstances, it is hard to get much of a price. You are a forced seller, and it is not as if the Kremlin is exactly worried about its reputation for respecting international law right now. Putin’s gangster cronies are the only people likely to get their hands on your business, probably in a rigged deal. Staff and suppliers deserve some protection, and any sale will take a while.

Even so, a year is surely long enough. Russia is conducting a murderous campaign, and slaughtering innocent civilians as well as its own conscripts. It has turned into a war of attrition, and those are expensive to fight. The weaker the Russian economy gets, the harder it will be for the military machine to be maintained, and the sooner its forces will collapse. It is not hard to work out the real reason so many companies are still there: money.

With 140 million people, Russia remains a major market, especially for consumer brands. And of course, once local units are sold, it will be hard to ever get back in again; the prices will be higher, and whoever bought your business will be a rival. It is tempting to play for time, hoping that the war will end one way or another, and everything will quickly get back to normal.

Ukraine desperately needs to keep its own Army equipped, to keep the country alive, and to pay for the vast amount of reconstruction that will be needed. The IMF estimated in December that the country needs $5bn (£4.2bn) a month just to keep going. At the same time, there needs to be some form of punishment beyond condemnation, and potentially consumer boycotts, for the companies that remain.

The solution? Sanction and seize. If the G20 economies can come up with a global minimum tax, and most major economies can impose windfall taxes, it is hardly impossible to come up with a levy on Russian profits. Estimate the amount that each multinational is making in Russia, double it, and then impose a one-off charge on each one, and donate the proceeds to the government in Kiev.

The likes of Philip Morris and Accor can huff and puff if they want to. They can complain that it is too hard to sell local assets, that there is not enough time, or that they can’t get the right price. They can drag their heels, and come up with spurious reasons for remaining.

But here’s a prediction. If all the money they were making was confiscated, they would start to get a move on – and the scandal of major Western companies remaining in Russia would soon be over.

French owner of Orient Express claims pulling out of Russia is ‘not an option’

Oliver Gill
Fri, 24 February 2023

Sébastien Bazin - Anne-Christine Poujoulat/AFP

The chief executive of Accor, the French owner of the Orient Express and Novotel hotels, has claimed pulling out of Russia is “not an option” unless he is forced to by more stringent sanctions.

Sébastien Bazin said there is “no legal basis for pulling the plug” on Accor’s business in Russia and that his fiduciary duty to make money for shareholders holds sway.

Accor, which also owns the Ibis, Mercure, Sofitel, and Raffles chains, is the largest hotel operator in the country. Western nations would need to “go further” with sanctions to force Accor to withdraw from Russia completely, he said.

Mr Bazin told The Telegraph: “The reason why we did not really pull the plug is that we have no legal basis for pulling the plug.

“Even if we were to pull the plug, the hotel will keep the brand because I am in default. That way it is going to be run with the same people with the owner and me not being able to be a caretaker for the employee. So that's not an option.

“It's a legal issue where I have a fiduciary obligation for the next 25 years. I just cannot, unless the present sanctions [change]. I have no legal grounds. Unless they go further, the European Commission UK and US.

“And guess what? They're not. I don't have any pressure from any of those countries for me to go further.”

Zelensky - Sarah Meyssonnier/AFP

The company is the latest to confirm it will stay in Russia despite Vladimir Putin’s war against Ukraine. Philip Morris International, the tobacco giant behind Marlboro cigarettes this week said it would “rather keep” its business in Russia despite lining up three credible buyers.

Unilever chief executive Alan Jope has said exiting the country “is not straightforward” and refused to “abandon” approximately 3,000 employees in Russia or have its assets fall into the hands of the Kremlin.

French companies have come under particular fire for remaining in Russia. The Ukrainian president Volodymyr Zelensky last year accused a series of French businesses of “sponsoring the Russian war machine”. That came in March, weeks after the outbreak of war and a meeting at which Emmanuel Macron had reportedly advised French business leaders against a hasty withdrawal from Russia.

Mr Bazin said: “If you go, you give whatever has been built for a dollar, you actually get the Russians richer. Why should we actually be helping them to get rich at our expense?”

The UK Government was quick to put pressure on oil giants BP and Shell to sell large joint venture energy assets in Russia following Mr Putin’s invasion of Ukraine a year ago.

But in a signal to the complexities of exiting the country, BP has still yet to find a buyer for its 20pc stake in Rosneft, for instance.

Another of the UK’s biggest listed companies, British American Tobacco, is also struggling to offload its Russian arm.

Jack Bowles said earlier this month: “In terms of complexity we have to navigate not only the sanctions in Europe but also the sanctions in the UK and the US – plus the regulatory framework in Russia.”

Mr Bazin’s remarks about Russia came as he lamented the impact of Britain’s decision to leave the EU.

He blamed Brexit for staff shortages that have been “devastating for our own industry”.

“It is probably one of the worst tragedies in terms of the decision-making process,” he added.

He said that the Covid pandemic had deferred the fallout from Brexit as businesses pared back trading during lockdowns and restrictions.

“We should have actually been battling together,” he said. “We all know today, but people don't pay attention, that the basis upon which [UK] people make a decision [to leave the EU], was just a bunch of lies.”

Nevertheless, Accor, which has more than 40 hotel brands and employs 230,000 people worldwide, announced on Thursday that annual revenue had risen 92pc to €4.2bn during 2022.