Nestlé, the world’s largest food and beverage company, faced a difficult choice last February as Russian tanks rolled across Ukraine, and the 24/7 news and social media cycle amplified the company’s every move.
CEO Mark Schneider was petitioned directly by Ukraine President Volodymyr Zelensky to join the growing group of international corporations, including Renault, Volvo, Boeing, ExxonMobil, and Microsoft, that were pulling out of Russia to punish the country and pressure its leaders. Schneider weighed the good Nestlé could do by adding its voice to the boycott against the responsibilities to its Russian employees and civilian customers of baby food and nutritional formula if it withdrew.
"You don’t want to support war, but at the same time you don’t know if you will be making things worse or not."
“It really gets at the challenges of operating at a global scale,” says Nien-hê Hsieh, the Kim B. Clark Professor of Business Administration at Harvard Business School, who explores those challenges in a case study co-written with HBS research associate Christopher Diak. “There’s the question of how you deal with these tradeoffs, where you don’t want to support war, but at the same time you don’t know if you will be making things worse or not.”
As the war grinds on, and Ukraine’s key military gains are offset by Russia’s surprising ability to buffer its citizens from sweeping international, political, and corporate sanctions, the situation provides a window into the complexities today’s leaders face when confronted with a moral dilemma.
Even though the business in Russia represented a small portion of Nestlé’s worldwide sales, staying in the country could have had an outsized impact on the company’s reputation. “A company must articulate and defend its actions in a way that might be different from other forms of political corporate engagement,” says Hsieh, about the challenges of maintaining customers’ trust in an international fishbowl.
A pressure play
Based in Switzerland—a country that prides itself on remaining politically neutral—Nestlé had become a market darling under Schneider’s tenure, with about $95 billion in 2021 revenue. Nestlé had six factories in Russia, and sales there accounted for roughly 2 percent of the company’s 2021 revenue. It employed 7,000 people in Russia and 5,800 in Ukraine.
Some of its products—like Kit-Kat bars—were considered nonessential, but others—like Gerber baby food and Peptamen formula for critically ill patients—felt morally difficult to pull from shelves, says Hsieh.
Ukraine Prime Minister Denys Shmyhal took to Twitter to broadcast his dissatisfaction with Schneider’s inaction, writing: “Talked to Nestle CEO Mr. Mark Schneider about the side effect of staying in Russian market. Unfortunately, he shows no understanding. Paying taxes to the budget of a terrorist country means killing defenseless children & mothers. Hope that Nestlé will change its mind soon.”
Zelensky called out Nestlé during a televised address, chiding, “‘Good food, good life.’ This is the slogan of Nestlé—your company that refuses to leave Russia.”
A Yale University-based research team began compiling a “naughty or nice” list of companies who did or didn’t withdraw from Russia, influencing media coverage and pushing McDonald’s, Starbucks, Coca-Cola, and other corporations to quit serving the country. Eventually, the hashtag #BoycottNestle began trending on social media, as activists supported a boycott of the company for delaying its exit.
Nestlé’s critical decision
Nestlé executives didn’t want to be associated with Russia’s unprovoked aggression toward its neighbor, and apart from paying corporate taxes, it was hard to say the company was complicit in the war effort. And arguably, it was providing stable jobs and lifesaving foods for innocent people. It also had to consider the logistical difficulties of closing its plants, laying off employees, and selling assets and real estate.
Ultimately, Nestlé chose a middle ground. The company announced on March 23 it would halt the “vast majority” of its sales, including nonessential items such as chocolate, while maintaining its assets and continuing to produce essential products such as baby formula. At the same time, the company declared it would donate all profits to humanitarian relief organizations, and would therefore not pay any corporate taxes to the Russian government, although it would continue to pay real estate taxes.
"You have to ask yourself, can I minimize the harm in the situation?"
In doing so, Hsieh says, the company was both reducing any complicity in Russia’s invasion and improving the lives of average Russian citizens, as well as Ukrainians affected by the conflict.
“You have to ask yourself, can I minimize the harm in the situation? And then, can I make a positive difference?” says Hsieh. Also, he says, companies must ask in a more granular way, “How would I carry this decision out?”
A matter of trust
The case epitomizes the dilemma for companies operating in a global environment, says Hsieh, who suggests that companies weigh three factors when dealing with a fraught moral situation.
- Connection. “There are some things that you just can’t be associated with no matter what,” he says.
- Complicity. That is, how much are you aiding and abetting morally reprehensible acts?
- Contribution. Companies must consider what they are doing to improve or ameliorate the situation.
When it comes to decisions on such moral issues, consumers play an important role in the eventual impact on the company. In Nestlé’s case, soon after the company announced its strategy, calls for a boycott faded, signaling that stakeholders had accepted its compromise.
“A lot of these decisions ultimately come down to corporate trust,” Hsieh says.
That trust can be broken down into two types, he notes. “One is just the idea that you are trusted because you are reliable. You do what you say you will do.” The other, more important, type is called “trust as goodwill,” Hsieh says. “You are trusted because customers and other members of society believe that you are not just advancing your own interests—but that you have their interests in mind as well.”
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Feedback or ideas to share? Email the Working Knowledge team at hbswk@hbs.edu.
Image: Unsplash/Karollyne Hubert