YOUR COMPANY EXITED RUSSIA: Will China Be Next? A business's departure from an international market requires extensive board contemplation.

• Author: Hayes, Bill
• Position: BIG IDEAS FOR CORPORATE GOVERNANCE

When Russia invaded Ukraine on Feb. 24, 2022, the reaction of the American business community was swift. According to the Yale School of Management's Chief Executive Leadership Institute, over 1,000 companies have since curtailed operations in Russia to a point beyond the minimum legally required by international sanctions. But does a departure from the Russian marketplace establish a slippery slope for companies operating in countries with questionable track records on human rights that might also be threatening invasions? Should companies that exited Russia leave China too?

In early February 2022, mere weeks before the onset of the Ukraine invasion, Russia and China announced the signing of an agreement that would, among other things, challenge the United States as a global authority and stand up against NATO as a touchstone of international security. In keeping with the agreement, China has neither condemned nor condoned Russia's invasion of Ukraine, electing instead to adopt a position of neutrality. But, of course, China presents problems beyond its position on Russian aggression.

Serious questions remain about human rights violations in China, with the United Nations calling for assessments on the treatment of Uyghur Muslims and citizens of the Tibet Autonomous Region, as well as excessive force used against protesters in Hong Kong. There is also increasing concern regarding a Chinese invasion of Taiwan, with Chinese President Xi Jinping ordering military exercises--including the firing of missiles over the island--in mid-August in reaction to a visit by U.S. Speaker of the House Nancy Pelosi. So, if China were to invade Taiwan, would the boards of American companies consider an exit from the Chinese market? To help answer that question, we should assess whether American companies made the right decision when they decided to leave Russia.

DEPARTURE FROM RUSSIA

To Norman Augustine, retired chairman and CEO of Lockheed Martin and United States undersecretary of the Army from 1975 to 1977, there is no question that boards of U.S. companies made the right choice in advising management to end business operations in Russia.

"Companies should not abet invasions of free and independent countries," says Augustine. "The U.S. government's position regarding sanctions, in this particular case, simplifies a firm's decision. Some matters are more important than business."

Lieutenant General David Deptula, a former director of the National Military Intelligence Association who served as chief of intelligence, surveillance and reconnaissance for the U.S. Air Force, agrees that the correct decision was made, while acknowledging that the decision was easier for larger companies than for small ones.

Deptula, a director for both AEVEX Aerospace and Genesis Systems LLC, says, "Russia represents a comparatively smaller market than some of the larger developed-country markets that larger companies operate in, so such companies can minimize the impacts of exiting the Russian market. But smaller companies, which cannot absorb the potential financial loss, appear to be staying in the Russian market."

Major General Barbara Faulkenberry, independent director for Target Hospitality, Callon Petroleum Company and USA Truck Inc., served over 30 years in the U.S. Air Force. She believes that before choosing to exit Russia, U.S. boards and companies had to consider a variety of...