Here’s why McDonald’s has now decided to leave Russia — and what might happen next

The Golden Arches are coming down, possibly for good, in Russia.

And while the decision by fast-food giant McDonald’s to sell off your business there won’t cause the Russian economy to implode — at least not on its own and not immediately — it has set a precedent that could lead the way for other western firms looking for the exit.

“It is impossible to ignore the humanitarian crisis caused by the war in Ukraine,” McDonald’s chief executive officer Chris Kempczinski wrote in a message to employees that was released by the company Monday. “And it is impossible to imagine the Golden Arches representing the same hope and promise that led us to enter the Russian market 32 ​​years ago.”

One could be mistaken for thinking that the corporations’ exodus had already taken place.

In the days that followed the Russian invasion of Ukraine, hundreds of companies, from Nike to Apple to BMW to the National Hockey League, watched the military offensive in horror and took one giant step back from their Russian operations.

But for most, including many Canadian companies with operations in the country, it was less a full-blown retreat than a nervous pause — a chance to study the implications of economic sanctions, gauge the impact on the Russian economy and see how things played out. , both on the battlefield and in the court of public opinion.

French carmaker Renault announced Monday that it will sell its stake in the Russian company AvtoVaz, which produces the well-known Lada brand — but with a condition written into the deal that it can buy back its majority interest within six years should economic and political calm return to Russia.

Moscow Mayor Sergey Sobyanin said he directed the municipal government to purchase the Renault plant in order to save thousands of workers’ jobs. They will now be put to the task of producing a modern-day version of the Moskvich, a Soviet-era brand, and electric cars in the future.

Russian reactions to the news was more sarcastic than celebratory.

“That car will provide a steady income for the auto mechanics,” one anonymous commenter wrote online.

Another remarked: “How do you like that, Elon Musk!”

Ikea, which is as popular in Russia as it is everywhere else in the world, initially did like many other western firms: It shuttered its stores, stopped production and halted imports and exports in and out of Russia and Belarus while continuing to pay an estimated 15,000 employees in the country.

But that wait-and-see approach has turned into a wait-longer-and-see approach. Last week, it extended that corporate pause through August.

The furniture giant has not disclosed the cost of coasting through these uncertain six months. McDonald’s, however, estimated that closing its 850 restaurants and continuing to pay employees was costing the company about $50 million (US) each month.

Others have cut short their period of reflection.

Canadian gold-mining firm Kinross, which has been operating in Russia’s far east for a quarter-century, has announced the pending sale of its assets to a Russian company, Highland Gold Mining Ltd. In late March, the US warned against engaging in gold-related transactions with Russia, taking the shimmer of the country’s considerable stockpiles.

The Toronto-based real-estate and investment management company Colliers decided to sell off its Russian operations as well, “in response to the gravity of the Russian military’s aggression in Ukraine,” said company spokesperson Andrea Cheung, in response to written questions.

“Their actions are indefensible and in complete contrast to the principles of democracy and freedom.”

The company sold its stake to a Russian associate and former Colliers International managing partner Nikolai Kazansky. The Russian operation of Colliers is now known as Nikoliersand the changes to the Canadian company’s distinctive logo were even less subtle: Where there once was the Colliers name in white against a blue background with a yellow, green and red stripe below, Nikoliers uses the same template, subbing in the new name and the white, blue and red tricolor of the Russian flag.

Despite the similarities, Cheung said: “Colliers has definitively discontinued our business in Russia. We no longer have any association with our former operation nor its brand.”

The decision to continue operations or leave the Russian market is a serious undertaking — not a corporate shell game or a simple creative rebranding, said Gilles Breton, a former Canadian diplomat and head of the business association that was, until very recently, known as the Canada Eurasia Russia Business Association (CERBA).

His group now renamed the Canada Eurasia Chamber of Commerce, but still using the old acronym in its website address, Breton said corporate lawyers around the world are hard at work determining how best to comply with the tight sanctions regime.

Some of the sanctions target segments of the Russian economy, such as oil and gas, or the defense industry, while some target individuals, such as government and military officials or wealthy Russian oligarchs.

“There are sanctions against individuals, but not against their companies. What do you have to do in that case?” Breton asked. “Certain companies have obtained certifications saying that they are not under sanctions. That’s great to say, but what if there are ownership ties to a sanctioned individual?”

He said there are very few Canadian companies conducting business as usual in Russia — that is, as it was conducted before the Feb. 24 invasion of Ukraine.

Other companies that have paused operations temporarily include: Canadian Tire Corporationowner of the Helly Hansen brand of ski apparel, which has 41 stores and 300 employees in Russia; Feeding Couche-Tard, which operates 38 Circle K convenience stores in Russia, with 320 employees; and Magna International, which has six manufacturing or assembly facilities in Russia and 1,650 employees. Telephone calls and emails to the companies were not returned Monday.

Some companies may have been deemed essential services in fields such as health care under Russian law, meaning could face penalties if they cease operations.

“Those companies that continue to operate are those that have certain obligations and are clearly and unambiguously not affected by the sanctions,” Breton said, declining to provide any company names.

Other companies that have the choice to leave Russia are being pressured to do so.

Jeffrey Sonnenfeld, a professor of business management at Yale University, maintains a chart of nearly 1,000 companies with business interests in Russia, and ranks them according to whether they have quit the country, have suspended operations, have scaled back, are buying time or are digging in.

He maintains a second, related site that includes email contacts for the listed companies and encourages people to send messages expressing their disapproval and advocating for divestment.

The pressure on western firms operating in Russia has been immense. The speed with which companies reacted in the wake of the invasion was stunning. The impact of a total corporate abandonment of Russia could be devastating.

Kempczinski, the McDonald’s CEO, said the decision to stay or leave Russia was guided by key questions: Could the company legally operate in the country? Could they conduct business without interference? Would staying enhance the company brand? Would it make good business sense?

“Unfortunately, the answer to each of these questions is currently no — and I don’t see that changing for the foreseeable future.”


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