FTI Consulting Public Affairs Snapshot: A Year of War – What the conflict in Ukraine has meant for global business and the world order

During the early weeks of 2022, governments and the media had been speculating as to what Vladimir Putin was intending on doing with the thousands of troops he had amassed on the Ukrainian border. Given the history, some were adamant that this mobilization was not a sign that an invasion was imminent, and that it was simply a demonstration of Russia’s military capabilities and capacity to amass, at speed, in a sensitive location. Others were less optimistic, asserting that movements of that scale were leading to only one outcome. Putin fueled this view when, on 21 February, he said that Ukraine was an integral part of Russian history and had a so-called ‘puppet regime’ managed by foreign powers.

On 24 February 2022, the Russian President authorised a so-called “special military operation” to begin in Ukraine and as rockets began to rain down on major cities, including Kyiv, there was little room for interpretation as to his intentions. Within days, western allies, including the UK, USA and Germany, announced significant new sanctions against Russia. These expelled key banks from global payments systems, to stifle cash flow for Russian businesses and restricted the central bank on the international stage.

In a speech last week, the Russian president blamed the West for provoking the war and escalating it, saying the US and its allies seek “limitless power.” He continued to refer to the conflict as a “special operation”, praised Russian soldiers and stated that the country had not been crippled by the economic sanctions imposed on it. Despite rumours that some senior figures within the Russian administration, including the Governor of the Bank of Russia, Elvira Nabiullina, are said to be privately opposed to the war Putin’s speech, and the outward narrative being put by the Kremlin, remains one of stubborn denial that the war is anything but a success and the right thing for Russia to be doing. Putin also announced that Russia was suspending its participation in the strategic offensive arms reduction treaty with the US, New Start. New Start was the last remaining nuclear arms deal between Russia and the US and it was extended for five years in 2021. Originally signed in 2010, the treaty limits each side to 1,550 long-range nuclear warheads, a lower number than under the previous Start deal. The end to fighting in Ukraine looks as unlikely now as it has at any time since the invasion, with perhaps only the supply of fighter jets from the West being enough to break to ideological resolve of Putin and Russia.

As the international community grappled with a rapidly unfolding situation and looked to put together the initial stages of a collective response, world leaders had to contend with the reality that the invasion put an end to years of Western hope for the future of relations with Russia, as well as being a damning inditement of foreign policy and recent deterrent efforts. In the UK, Boris Johnson’s government was met with early criticism for the scale of their response, with critics arguing it was not anywhere near the level of the robust rhetoric that Downing Street had been communicating in the days and weeks before. While this position has since evolved, with the UK delivering some £400m in humanitarian aid alongside significant military support, it highlighted the need for governments to be ready to back up their words with actions, particularly where Russia is involved. In recent days, Prime Minister Rishi Sunak called for a “military strategy for Ukraine to gain a decisive advantage on the battlefield… and a political strategy to win the peace.” Despite the UK’s own teetering defence procurement issues, Sunak ambitiously asserted that allies need to “double down on our military support.”

For businesses, choosing whether to continue operating in Russia has not been as simple as a binary ‘in’ vs ‘out’ choice, with organisations having to make quick decisions on if, when and how they would change their operations in Russia. Not only this, but they have also had to work out how to communicate their positions in a way that satisfied their commercial and moral obligations, whilst providing strong internal communications to ensure that their own teams were kept fully informed. Inevitably, some did this better than others and such was the anger being felt against Putin and Russia those that who did a lesser job were subjected to widespread criticism.

A recent report by the European Council on Foreign Relations (ECFR) thinktank, which surveyed opinions in nine EU member states, including France, Germany and Poland, and in Britain and the US, as well as China, Russia, India and Turkey, illustrated the range of differing perspectives on the war and what it means for the future of geo-political and, therefore, business structures and operations. Respondents from outside of the west suggested that those outside of the west see the war in Ukraine as a catalyst for a rebalancing of the ‘US-led liberal order’. What this could mean for business, particularly in terms of how financial centres are built up and in relation to practical elements of moving goods around the world, will be a new challenge to overcome.

From western respondents, the indication was that the emergence of two ‘bi-polar blocs’ led by the US and China respectively would soon become clear, but others were inclined to think that the future would be far more multipolar than it is now. In either of these situations, the agility and mettle of a business to withstand and adapt to change would again be tested and traditionally fruitful markets could be reshaped and diversified.

The war in Ukraine is a human tragedy above all else. The loss of life it has brought seems mindless to much of the world, and there are few outside of Russia’s political elite that are willing or able to argue in favour of the invasion. This tragic international event has also become sharply domestic in the form of rising energy prices and an increased cost of living, and of course this is linked closely to how businesses across the world have had to adapt to a new operational context. The war will end, at some point, and will leave deep scars that will not be easy to heal. Ukraine, and the rest of the world, must be ready for a period of convalescence and recovery that will be anything but straightforward.

It has been an incredibly fractious few years in British politics. The Brexit referendum and its aftermath, three quick-fire general elections and an unsure economic climate have left public discourse bruised and the body politic battered.  It is against this backdrop that the United Kingdom’s response to Russia’s bloody invasion has been so impressive: a uniting cause about which even those steeped in politics would struggle to find a difference in the outlooks of the government Conservative and opposition Labour parties.

The Prime Ministerial visits of Boris Johnson, Liz Truss and Rishi Sunak to Kyiv, as well as that of opposition leader Keir Starmer, have demonstrated that support of Ukraine is not a passing policy fad but rather a settled conclusion.

Beyond the support that the government has provided to Ukraine in the form of financial and military assistance, as well as refugee resettlements, the British business community has also stepped up to the plate and met both its moral and legal obligations towards the country.  Examples of donations from the business community of important equipment to ensure the continuity of energy supplies and telecommunications in conflict zones have been numerous and adherence with sanctions regimes banning the trade in certain physical goods, financial and transaction facilities and the majority of consultancy services have been near-universal.

It is already clear, from the work that the Department for Business and Trade is conducting in conjunction with the Ukrainian authorities, that British businesses will play a key role in the reconstruction of the country – a process that will cost upwards of £1 trillion by the war’s ultimate end.  This will offer an exciting opportunity for British firms to build new commercial offerings in a vibrant, young and well-educated country spanning thousands of miles of Central and Eastern Europe – whether it be in the ports, rail or logistics sectors, healthcare and life sciences, IT, advanced manufacturing or in agribusiness.

Less certain, of course, is what happens to prospects for future trade in Russia.  As long as Vladimir Putin remains in office, the prospect for any international business – let alone one which pulled out of Russia during the early days of the war and has likely seen any physical assets it had in the country expropriated by the Kremlin and its favoured oligarchs – remains bleak.  Without wishing to put too fine a point on it, the future of British trade and diplomatic relations with Russia must rest on the hope of regime change – however that is achieved.

Putting aside the basic moral imperative of Britain’s weighing in behind Ukraine’s position – and its survival as a nation state – is an important diplomatic consideration.  Whether one voted for Brexit or not, it is fair to say that perceptions of the United Kingdom’s commitment to working in partnership with its European neighbours have been impugned in recent years.  The UK had always been clear throughout the Brexit process that leaving the political European Union did not mean the surrendering of its obligations towards and commitment to the security of Europe – be it NATO members or those knocking on its door such as the Western Balkan and South Caucasus nations, Moldova and Ukraine.

The war in Ukraine has allowed the UK to put these commitments into practice; marshalling aid, providing state-of-the-art weaponry, training troops and heavily investing in the shuttle diplomacy that makes the European security apparatus work.  In the most unfortunate of circumstances, the UK has earned a considerable amount of goodwill from its European neighbours and demonstrated its centrality to the security of the continent.

This a conflict that nobody wanted – and for which only one country is responsible. Out of this disaster, however, can come some hope. For the UK and Ukraine, a truly “special relationship” lies ahead on a trade, military and diplomatic level.

Since the start of the war in Ukraine, stakeholders in Western Europe have had a consistent expectation for companies to indicate a withdrawal from the Russian market. At the same time, policymakers, commentators and activists have shown an unexpected appreciation of the complexity that many organisations face in enacting an exit.

This overarching expectation of an exit from Russia has led many organisations to develop mechanisms to incorporate reputational risk into their overall assessments of the situation – balancing reputation against more tangible measures of commercial and operational risk.  It has underlined the importance of effective information flows from operational teams to senior leadership (and back again) to identify emerging threats and implement mitigations ahead of time. Empowering individuals to raise concerns and establishing an up-to-date birds-eye view of the full range of threats at the executive level go hand-in-hand.

Even organisations for which reputation was not previously a significant consideration in strategic decision-making have sought to understand its drivers and better identify their key stakeholders This has presented an opportunity for communications leaders to contribute to strategic discussions at the most senior levels. A critical challenge has been striking the right tone in internal communications – leaders have had to demonstrate care and concern for employees, maintain internal cohesion across different subsidiaries, provide meaningful disclosure on executive-level decision-making to show progress and ensure the necessary confidentiality around material business decisions.

Through this period, some of the most effective responses have been from organisations that have successfully integrated reputational risk analysis into their strategic decision-making and have informed this by establishing robust processes to provide regular snapshots of stakeholder attitudes at the executive level. If successfully embedded, these systems will enable organisations to navigate the remainder of the war in Ukraine and make them more resilient to future disruption – regardless of the specific threat.

The war in Ukraine has materially disrupted European and UK energy markets, driving numerous companies inside and outside the energy sector to reassess their supply needs and in some cases, their corporate strategy, operations, and investment plans. A pertinent oil major has pinned shifts in strategy to the security of supply and pricing disruption caused by the war, while continuing to commit to a longer term energy transition to lower carbon fuels.

In particular, the disruption of natural gas supplies forced portfolio diversification, and, in some cases, heavy government intervention to seek alternative supplies. Coal has had an at least brief resurgence as a baseload generation source in Europe, and there has been a stronger than ever push to encourage investment towards a faster scale-up of renewable energy resources and technologies. Similarly, the impact of the war in disrupting production and transportation of critical minerals and metals has encouraged companies to explore new supplies in order to reduce reliance on geopolitically impacted resources. This has, in turn sped up the development of innovative technologies in Europe producing green lithium and steel.

The war has also raised broader questions about the role of the private energy sector in geopolitical conflicts and the relationship between energy companies and national governments. Where the impacts of geopolitical shocks to business have previously been perceived as limited or localised, the war has flipped this assumption on its head, prompting the majority of the private sector to respond quickly and decisively via sanctions on Russia. In the case of major off-takers of Russian gas, for instance, this has proved particularly powerful – and the impact on gas prices has been less damaging than initially anticipated due to rapid sourcing of global LNG, enabling storage across Europe and the UK to be filled ahead of winter. While some concerns linger ahead of Winter 23/24, there is a growing sense that a more significant gas price crisis may have been averted.

According to a study produced by Yale University earlier this month, whilst 34 of the companies surveyed in the energy or materials space have continued as business-as-usual in Russia, 56 have totally halted Russian engagements or completely exited Russia. 25 have postponed future planned investment/development/marketing while continuing substantive business, 19 have scaled back some significant business operations but continued some others and 21 companies have temporarily curtailed most or nearly all operations while keeping returns operations open. These are significant numbers, impacting potentially billions of dollars worth of new investment in Russia which will now be redeployed elsewhere across Europe, the UK and the US. In the US, the Inflation Reduction Act (IRA) is well-timed in turning investors’ heads towards a nation which is pushing to develop a truly green economy.

Fundamentally, the war in Ukraine has forced companies to rethink their risks and vulnerabilities to global shocks and ‘unprecedented’ events which are becoming increasingly frequent. As a result, companies are building a more robust understanding of their geographic and resource footprints, supply chain exposure, and relationships in order to bolster long-term resilience, sustainability and preparedness for such events.

Russia’s attack on Ukraine last February was met with disbelief across boardrooms in the West. Once the initial shock subsided, it became clear that many multinationals across the US, UK and EU had not fully considered how they would need to respond. Leaders scrambled to understand the rapidly evolving situation and consider their next steps – especially when Ukraine’s successful defences showed the war would be measured in months, not days.

Businesses that were able to react quickly and communicate a clear posture from the war’s earliest stages took a first-mover advantage in terms of reputational results. This was simpler for companies that only sold products into Russia – but nightmarishly difficult for multinationals with complex operations, including local workforces who were often profoundly upset and fearful, or with assets of strategic value to the Russian state if expropriated.

Despite these challenges, many listed multinationals with a Russian footprint announced rapid plans to exit in the opening months of the war. However, many of those companies are still there – grappling with threats to personnel and legal and financial obstacles to asset disposals thrown up by the Russian state.

Honest and transparent communications to shareholders and stakeholders about these difficulties have so far elicited sympathy and understanding – but this will not continue indefinitely. A year on from the start of the war, and as more companies announce they have successfully extricated themselves, government, investor and public patience will evaporate.

Hundreds of other companies and brands have, of course, chosen to stay – justifying their decision on humanitarian grounds, complex franchising arrangements, or the need to continue providing basic necessities. While surveys have shown US and UK citizens think poorly of brands who do this and say they are less likely to support them, consumers have short memories.

More severe reputational damage has mainly occurred where companies are thought to be hiding their intentions or their activities in Russia, or where re-entry into the market (for example, through a non-US or EU subsidiary) has been attempted. Consumers – and campaigners in Kyiv – have been quick to highlight such cases on social media.

Western supply chains and systems have adapted to the significant number of multinationals that have exited the Russian market in the twelve months. As we enter the second year of the war, there is a growing realisation that there is no going back to the way things were, and that hostilities may be prolonged over several years. With the US warning this week that China may consider sending material aid to Russia, companies should be preparing for the situation to become even more unthinkable – and consider how the next phases of the conflict will shape their corporate reputation.

1. https://www.bloomberg.com/news/articles/2022-05-09/full-transcript-here-s-russian-president-vladimir-putin-s-victory-day-speech#xj4y7vzkg
2. https://ecfr.eu/publication/united-west-divided-from-the-rest-global-public-opinion-one-year-into-russias-war-on-ukraine/
3. https://som.yale.edu/story/2022/over-1000-companies-have-curtailed-operations-russia-some-remain