15 March 2022
What we are all seeing unfold as Russia pounds Ukraine is heart breaking, humbling and, for many, simply incomprehensible. How can a regime, a human being, be so cruel and so callous?
We have made the mistake in the West, of course, of equating a rise in sophistication, wealth, social awareness and global interconnectedness with a decline in appetite for “traditional” warfare.
We assume the best of people because it’s nicer and easier - and we discount the bad. Should we not have had a sharper eye on the danger for Ukraine after events such as the incursion into Georgia, the annexation of Crimea and the tragic shooting down of MH 17?
So, the appalling events in Ukraine are a terrible reminder that our comfortable Western lives can still be shaken to their core by dictators willing to deploy brutal force to secure their ends. We had the naivety, or maybe the arrogance, to think that what happened in Syria could not happen in Europe.
At the same time we should be inspired by the bravery and kindness we see in Ukraine and all around - like the English woman who dropped everything and flew to Poland to spend the night standing on the Ukrainian border in the snow waiting to collect the young children of her Ukrainian friend and bring them to safety in the UK. Or the German lady who hired a 40-seater bus and gathered up desperate Ukrainian women and children to take them to safety.
We must remember this, the bad and the good, as we contemplate the kind of future which our children may have and do our best to shape a better tomorrow.
The fundamental things apply, as time goes by.
This shock of aggression is literally turning the world upside down. Aside from the horrific price being paid by the people of Ukraine, it is radically reshaping Government thinking around defence (look at Germany’s volte face on strategy and spending) and around “rational behaviour”.
It is also of course having a profound impact on the business world. It brings different perspectives to values, the discharge of directors’ duties, ESG, risk and leadership.
BP’s decision early in the crisis to exit its 19.75% shareholding in Rosneft was striking. Whist some commentators said that the move was overdue, it will nonetheless involve a non-cash charge of up to $25billion - so the economic cost is not negligible. Bernard Looney, the CEO, explained that it was the “right thing to do” and “in the long-term interests of BP”.
Since then, hundreds of businesses have announced that they are cutting ties with Russia - from other energy firms (Shell, Equinor), to big consumer brands (Disney, Apple, Adidas), to luxury brands (Chanel, LVMH) to financial institutions (Visa, MasterCard, Deutsche Bank). A raft of professional service firms, such as PwC and Linklaters, are also pulling out.
For many this is not an easy step to take, given the nature and extent of the underlying business in Russia. The CEO of McDonalds, which is closing its 850 restaurants in Russia (but continuing to pay its 62,000 employees there), described the dilemma of how to respond to the situation as “extraordinarily challenging for a global brand”. Business leaders have had a many facetted challenge.
I would draw two themes out of this exodus:
One can well see that many businesses would have needed time to reach a landing on the appropriate approach.
The above discussion gives a flavour of the challenges that Boards will have faced in deciding how best to discharge their fiduciary duties. For UK directors this means promoting the “success of the business for the benefit of the members as a whole” having regard to the interests of employees and counterparties, the environment and the company’s reputation for business conduct.
And, for me, the Ukrainian crisis does emphasise that directors thinking about the conscientious discharge of their duties should bear in mind that:
The Ukraine crisis sheds a new light of realism on the ESG movement which, as Oliver Shah observes, can err to the holier than thou.
Whilst we can appreciate that a values-based approach to disinvestment in Russia aligns with principles of good governance and (although it’s a mixed picture given likely suffering among ordinary Russians) tenets of social justice, matters become more confused for the ESG community around defence and energy. Defence companies have been widely shunned over recent years and traded on low tobacco-style multiples. Oliver Shah quotes Robert Stallard from Vertical Research Partners as saying that the sector has been “blacklisted by many European investors - and even if defence companies replanted the Amazon, they would still be on the blacklist”. Well, it is suddenly clear that hard power is not a nice to have. In this context I have been struck to discover that Germany, France and the UK have, between them 1,050 tanks - Russia has 12,420 tanks. Hold that thought.
In energy, whilst the concern about burning coal and oil is entirely understandable, there is necessarily going to need to be some short-term changes to many nations’ energy policies. In the UK the Government is promising to publish an energy independence plan soon. Whilst one would not want this to be grist to the mill of the climate sceptics and would want it to emphasise the importance of clean energy, it may well need to accommodate some short-term additional dependence on hydrocarbons.
All of this is a wake-up call for the ESG warriors. Many ESG principles are highly desirable but the Ukraine crisis demonstrates that some flexibility and pragmatism is necessary in the mix. And that goes for the burgeoning advisory and ratings industry as well as for the principals.
Who could have thought, two years ago, that we were on the eve of a global pandemic and that that would be followed by a war in Europe? Very few people. Two major Black Swan Events in two years.
What should Boards and Audit Committee Chairs take from this in terms of risk analysis and strategy for risk mitigation?
We have all been struck by the leadership which Volodymyr Zelensky has demonstrated. He has inspired the Ukrainian people with his regular posts (“I don’t hide and I’m not afraid of anyone”) and he pushes the West hard for support (“I need ammunition, not a ride”). This is leadership which makes a difference on every level and its very humility strikes a startling contrast with Vladimir Putin’s style. This reminds us resonantly that leadership counts. It counts in politics and it counts in business. Leaders who evidently love their business, set a clear course, communicate clearly and walk the talk often make a huge difference internally and with external stakeholders.
We are heading into much economic turbulence with higher inflation than we have known for many years, very high energy prices and continuing supply chain disruption. As Herbert Diess, CEO of Volkswagen has said, a prolonged war in Ukraine could be “very much worse” for Europe’s economy than the pandemic. So inspiring business leadership will be all the more important.
Like kisses and sighs, bravery and kindness, it’s one of those fundamental things.
31 August 2023
For some days in July the business world was transfixed by the NatWest Saga...
18 July 2023
Things we are never gonna not do again. In the hope that vou will forgive the indulgence here are eight ideas.
12 June 2023
It does seem to be a good moment for public companies and other business organisations to take stock and ask themselves a few questions.
03 May 2023
Whilst the deal environment is stirring, it is not yet buzzing and the world out there is in a fragile state.
29 March 2023
There is a sense of fragility out there and it might be worth looking to see if there are useful takeaways
17 February 2023
We take our seats “in the round” and a man casually wanders on stage, sits at a piano and starts a gentle refrain.
12 January 2023
One well-informed Russia observer told me confidently recently that this would be Putin’s last winter in power. I’m not so sure...
12 December 2022
The baby boomers amongst us will remember Ian Dury. His big hit was essentially a list of quirky reasons to be cheerful. It resonates with me now because 2022 has been such a difficult year. So, it behoves us to celebrate the “good bits” of the year.
03 November 2022
“We prefer Global Elite”, he explained with a wry smile, “Magic Circle is a bit too UK centric”. What’s going on?
28 September 2022
She reigned for 70 years and 214 days, 7 years more than Queen Victoria, and has been the very embodiment of constancy.
26 July 2022
Some rhythms just happen (breathing) and some are created, like music and regular behavioural ways of doing or saying things.
21 April 2022
After the largesse of 2021, what are the levers needing to be pulled ahead of 2022
11 January 2022
7 Themes which I believe will be relevant for PLC Directors to keep in mind in 2022
22 November 2021
Inspired by the exciting nip and tuck of a TV story to get our board and pieces out
05 October 2021
The need to balance pragmatism with positivity.
23 August 2021
Will we look back on the Summer of '21 as a 'Key Moment'?
09 June 2021
Are we all guilty of over-reaction to events or just the lack of the will to make things simple?
12 May 2021
What causes us to 'keep up' with those who are moving faster than we are?
19 April 2021
With its 230 pages and 98 consultation questions
22 February 2021
Do you buy the 4-pack of standard Magnum Almond or the 6-pack of Mini-Magnum Almond?