The Continued Expectation for Western Brands and Agencies to Leave Russia

As the situation in Ukraine worsens by the day following the unprovoked invasion by Russia, pressure on remaining western brands and advertising companies continues to grow. Major companies, including oil and gas brands such as Shell and BP, have divested operations in Russia alongside the world’s largest brands, including Amazon. Even Philip Morris, Imperial Brands and British American Tobacco have stopped distribution and ad spend, but there is still a widespread belief internationally that companies should not be operating there at all. Among the seemingly endless list of blue-chip brands that have also paused their activities in the country in recent weeks are Apple, Pepsi, Coca-Cola, Starbucks and McDonald’s, although they have also faced criticism for not acting with speed in the early stages of the aggression. Similarly, global advertising agency networks that service these multinational brands have also faced criticism for their slow pace. In response, the Kremlin has vowed to seize the assets of those companies that have withdrawn. Even so, almost 400 hundred companies have done so, but every day it seems a new list is published by a mainstream media outlet highlighting the brands who remain in market—those include Burger King which has 800 franchise outlets there, confectionary giant Mondelez, Marriott and Hilton Hotels and even British retailer Marks & Spencer. A continued call to wind up activity Earlier this month, the chief executive of the World Federation of Advertisers (WFA), which represents marketers from the world’s largest brands, called on its members to review and reconsider their media and marketing investments in both countries. It found that approximately 75% of the 31 global brand owners, representing $34 billion in global ad spend in total, had reallocated, reduced or cut spend altogether in Russia. “In light of the horrifying events in Ukraine, the global marketing industry must speak out,” said WFA CEO Stephan Loerke. “Every company will have to make its own decision, but our recommendation is that media investment and marketing in Russia should end for now.” At the beginning of March, a YouGov Direct poll of 2,000 people revealed that 82% of U.S. adults feel brands should stop doing business in Russia. Only 10% of participants said companies should not halt operations. Meanwhile, a survey by consumer insights platform Zappi of 3,600 consumers in the U.S., U.K. and other major western economies including Canada, Singapore, Germany and France found that the public expected brands to halt the use of Russian goods and services in their supply chain. (80% of respondents in the U.K. and 61% in the U.S. stated that expectation, along with 71% of Canadian consumers, 60% in Germany, 58% in France and 57% of Singaporean respondents.) Every company will have to make its own decision, but our recommendation is that media investment and marketing in Russia should end for now.Stephan Loerke, CEO of World Federation of Advertisers, Meanwhile, 61% of Germans said brands should pull their ads out of the country entirely, and 69% of U.K. and 61% of U.S. consumers agreed, according to the same survey. "Every company will have to make its own decision about how to respond to the crisis and approach their marketing efforts, but brands are being called upon to take meaningful action in response to the horrifying events in Ukraine,” said Ryan Barry, president at Zappi. “The data from our platform shows that consumers have high expectations on brands and that they are coming under a microscope when it comes to their ties with Russia." Criticism of the agency approach Advertising agency networks have not escaped criticism for their slow response to calls to stop operating in the country, either. Accenture, which employed 2,300 people in Russia, withdrew during the second week of hostilities. Other business consultancies such as EY, PwC, KPMG and Deloitte also severed ties with their Russian operations that week, as did the world’s largest agency network, WPP. Two weeks later, competitors IPG, Publicis Groupe and Dentsu International revealed their intention to “suspend” their operations too, with Publicis handing over the reins of its businesses to the teams based in Russia. “Far more than a business decision, this has been a difficult moral dilemma for me and our senior management team,” explained Philippe Krakowsky, chief executive of IPG on LinedIn about why it took so long to act. “The issue we’ve therefore been wrestling with is how to reconcile the fact that discontinuing our operations in Russia could mean abandoning our approximately 200 colleagues there, many of whom we’ve been fortunate enough to work with for decades.” Meanwhile, Omnicom continues to operate in Russia where it does not have sole ownership of its businesses on the ground, so walking away would require negotiations or handing over complete control. However dentsu and Publicis have handed over control of their businesses on the ground in order to relinquish their ties. It is a shrieking irony that these ad agencies who protect brands so carefully and advise others on building, fortifying and advancing their brands have been so shabby on themselves.Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management An Omnicom spokesperson said of the situation: “We have 2,000 colleagues in Russia and are continually assessing the most appropriate course of action that takes into account the gravity of the situation and the welfare of our people. We are coordinating our response with our global clients in Russia. Almost all of them have paused their advertising and marketing services in country, while some have chosen to exit their operations in Russia. We are operating in compliance with the sanctions imposed by the U.S., U.K., and E.U. We will continue to monitor the situation closely to determine any further actions we may take.” Meanwhile, S4 Capital, which employs only 10 people in Russia, told Adweek it is focused on helping its employees in and outside of Ukraine. However, Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management, which is maintaining a list of companies operating in Russia, condemned the agency networks for their slow pace to pull out, telling Adweek he felt they had negatively impacted the view of the advertising industry as a consequence. “It is a shrieking irony that these ad agencies who protect brands so carefully and advise others on building, fortifying and advancing their brands have been so shabby on themselves,” he said, describing them as “somewhere between greedy and reckless” in their decision-making. “The percentage of their businesses is quite small, looking at anywhere, even close to 2% of their global revenues.” Sonnenfeld described the networks’ lack of urgency to retreat as “beyond bewildering,” especially considering the world’s biggest brands that make up their client base were ahead of them in doing so. As the invasion continues, and perhaps the longer it goes on, companies that have not made their opposition clear through actions—not just words—are likely to also be singled out by consumers. As was a factor in the post-conflict resolution following World War II, which saw Germany and its allies take many years to overcome negative sentiment toward both their people and companies. Russia and its allies will continue to be alienated as pariahs. But global businesses and companies that remain risk being dragged down with them. At the very least, their shareholders will not be impressed. Crisis in Ukraine: How Brands Are Stepping Up to Help