Opinion | Companies refusing to leave Russia are experiencing the biggest costs

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Jeffrey Sonnenfeld is senior associate dean and Lester Crown professor of management practice at the Yale School of Management and president of the Yale Chief Executive Leadership Institute. Steven Tian is the research director for the department. Steven Zaslavsky is the deputy director of research at the institute.

A wave of misleading headlines in recent days has pointed to the supposedly large economic costs that companies bear to withdraw from Russia. This is completely wrong. Companies that have left Russia not only incur significant costs; they also show economic benefits. And those who refuse to leave experience the biggest costs.

A recent, much-discussed case illustrates this well: Societe Generale’s share price jumped 5 percent earlier this month after announcing it would leave Russia despite a $ 3.4 billion write-down. This is only the tip of the iceberg.

Looking at market capitalization-weighted returns for about 600 listed companies, we found that since Russia invaded Ukraine on February 24, companies that curtailed their activities in Russia have outperformed companies that did not do so during the last two years. months. Remarkably, the total shareholder return corresponds exactly to the letter grades we assigned to companies based on their level of withdrawal from Russia. Those with an A rating – those who have made a clean break or permanent exit from Russia – have performed best on average, and those with an F rating – those who “dig in” and defy the demand to reduce activities in Russia – is doing the worst.


The impact of the war on companies

doing business in Russia

Market value-weighted returns.

The company’s response

to the invasion

Avg. return from

February 23 – April 8

A – Withdrawal

from Russia

B – Suspension

operations

C – Scaling down

operations

D – Pause investments,

but becomes

F – Doing business

as usual

Source: Analysis of market value weight

returns on about 600 listed companies

by the Yale Chief Executive Leadership Institute.

The impact of the war on companies

doing business in Russia

Market value-weighted returns.

The company’s response

to the invasion

Average return from

February 23 to April 8

A – Withdrawal

from Russia

B – Suspension

operations

C – Scaling down

operations

D – Pause investments,

but becomes

F – Doing business

as usual

Source: Analysis of market value-weighted returns on

about 600 listed companies by Yale Chief

Executive Leadership Institute.

The impact of the war on companies doing business in Russia

Market value-weighted returns.

The company’s response

to the invasion

Average return from

February 23 to April 8

A – Withdraw from Russia

B – Interruption of operations

C – Scaling down

D – Pause investment, but stay

F – To act as usual

Source: Analysis of market capital-weighted returns for around 600 listed companies

by the Yale Chief Executive Leadership Institute.

We have maintained an authoritative list that tracks the responses of more than 1,000 global companies since the invasion of Ukraine began. As soon as our list appeared on CNBC two months ago, many of the companies we identified as remaining in Russia saw their stocks plummet 15 to 30 percent, even though key market indices only fell about 2 to 3 percent.

We noticed that the same trend unfolded over time, reinforced by the release of investment analysis reports based on our list. That is why our financial and economic researchers, led by Steven Zaslavsky, Yash Bhansali and Ryan Vakil, used our proprietary database to study this phenomenon. The results confirm that the financial markets greatly reward companies that withdraw while punishing those who remain.

The strong response from the markets was especially pronounced in the first weeks after the invasion. Companies that restricted operations to some degree during the first three weeks generally followed the wider market sales of about 3 percent across major market indices, while companies that refused to retire fell by a surprising 7.54 percent for those with a D rating and 12.54 percent for those with an F rating.


Widespread losses in

initial weeks

Market value-weighted returns.

The company’s response

to the invasion

Avg. return from

February 23 – March 11

A – Withdrawal

from Russia

B – Suspension

operations

C – Scaling down

operations

D – Pause investments,

but becomes

F – Doing business

as usual

Source: Yale Chief Executive Leadership Institute.

Widespread losses in the first weeks

Market value-weighted returns.

The company’s response

to the invasion

Average return from

February 23 to March 11

A – Withdrawal

from Russia

B – Suspension

operations

C – Scaling down

operations

D – Pause investments,

but becomes

F – Doing business

as usual

Source: Yale Chief Executive Leadership Institute.

Widespread losses in the first weeks

Market value-weighted returns.

The company’s response

to the invasion

Average return from

February 23 to March 11

A – Withdraw from Russia

B – Interruption of operations

C – Scaling down

D – Pause investment, but stay

F – To act as usual

Source: Yale Chief Executive Leadership Institute.

Further analysis reveals that this pattern of outperformance from retiring companies held true across several factors, including the regions and sectors of the companies included. We saw that the trend remained consistent, even across different market value segments, suggesting that even smaller, lesser-known companies that remained in Russia were not immune to strong investor setbacks.


Even smaller companies that

remained in Russia then

setbacks from investors

Average return from 23 February to 8 April.

F – To do

business

as usual

Source: Yale Chief Executive Leadership Institute.

Even smaller companies remained

in Russia experienced investor setbacks

Average return from 23 February to 8 April.

A – Withdrawal

from Russia

F – Doing business

as usual

Source: Yale Chief Executive Leadership Institute.

Even smaller companies remained

in Russia experienced investor setbacks

Average return from 23 February to 8 April.

A – Withdrawal

from Russia

F – Doing business

as usual

Source: Yale Chief Executive Leadership Institute.

Some have suggested that companies that draw large parts of their revenue from Russia may be more reluctant to leave Russia, or that these Russian-dependent companies would suffer more financially, but our study shows that companies that pull up against 5 percent of revenue from Russia, has not differed in total return from those who draw less.

In fact, many of the companies most dependent on Russian revenues are commodity producers who have been more than offset by rising global commodity prices. For example, ExxonMobil shares have risen 13 percent since the invasion, despite having written off billions in Russian assets and rejected its profitable Russian activities. Meanwhile, Kinross Gold has risen 13 percent, though it left its investment in the Russian Dome gold mine, which accounted for 20 percent of its revenue. Even BP, which was hit by a hefty $ 25 billion by writing down its holdings in Rosneft, is in the green.

Contrary to media reports, when it comes to companies leaving Russia, the focus should not be on their lost revenue or the assets they should write off. Russian revenue accounts for a small percentage of most companies’ revenue. And even for the multinational corporations that previously withdrew significant revenues from Russia, investors are clearly much more concerned about the far more important reputation risk of financing the Putin regime and of the potential for large-scale corporate boycotts around the world.

In other words, the far more dangerous economic threat to shareholders remains in Russia – not with the write-off of Russian assets. The companies that have kept their course should take note of that.

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