Peter Boone, the CEO of Barry Callebaut, says it doesn’t ‘feel right’ to exit the Russian market. He is wrong, and the result will be to give more ammunition to their critics and add them to a widely published list, shaming companies that are failing the moral imperative.
The Yale School of Management maintains a list of over 600 companies with business in Russia and has grouped them by their responses, with the final group being “digging in” for those who are ignoring the issues.
Barry Callebaut is one step up from that group in the “buying time” section, which is for businesses that continue to operate but aren’t making new investments.
In this article, I’m going to argue why, as Russia threatens the use of tactical nuclear weapons and cuts gas to Poland, the company should get off the fence and plan an exit, even if that exit is executed in stages.
Don’t accuse me of being an ideologue; I recognise practical solutions are the best.
Take, for example, the tobacco company Phillip Morris. Would you be surprised to hear that in 2021 they lobbied the UK government to ‘regulate them to death! That’s right, a tobacco company has asked for a government to ramp up regulation until they can no longer survive. Put another way, the CEO, Jacek Olczak, told reporters they want to “Unsmoke the World”.
In recognising the damage they were doing, they determined to transition to a ‘Health and Wellness’ company. The important word here is ‘transition’. I watched an interview on Bloomberg where Olczak was asked the question, why do you continue to sell cigarettes when you know it’s killing people?
Shutting the company down overnight would destroy its shareholders, Olczak said, which would include pension funds that people rely on to live in their retirement. So there needs to be a transition plan.
Whether you believe them or not, the actions they have already taken to taper the sale of their product to a final point is evidence of their conviction. They have put themselves on a moral path. So what is Barry Callebaut’s moral path, and why do I think they’re not doing enough?
Exiting the Russia Market
The decisions might seem easy for an observer, but it’s not as simple for company Directors. Let’s consider some different sides to the argument.
Reasons to Leave
- Supporting the economy is supporting a regime that started a war on a peaceful Nation
- The message it sends to your customers
- The message it sends the Russian Government
- Avoid potential sanction infringements
- Because you have Principles
Reasons to Stay
- Money. Potential loss of revenue, loss of investments
- Leaving means laying off local workers
- Letting down their Russian customers
To justify their Boards decision to stay in the country, Mr Boone cited reasons 2 & 3.
Letting down their Russian customers:
Mr Boone stated
The war in Ukraine by Russia was started by the Russian government, not by the Russian peoplePeter Boone, CEO, Barry Callebaut
This is true; some businesses that have come to rely on Barry Callebaut’s products will have to find alternatives. In the worst-case scenario, their business might suffer. But I wouldn’t count on it; the Russian people, whom I admire, are among the most stubborn and strong in the world.
My friend, Igor, runs a chain of car dealerships in Russia. The day the war broke out, we were texting each other at 4 am. He was very dark and pessimistic. “It’s all over,” he wrote.
A few weeks later, I reached out to him again, expecting to hear the worst. But he had transformed the business by taking back the old cars he had recently sold people, who were now worried about the economy, which he bought at a discount and was reselling to others who were more optimistic and looking for a bargain.
The Russian people will be OK without Barry Callebaut.
Employees Might Lose their Jobs
Is Barry Callebaut offering them jobs for life? If there was a drop in profitability, I doubt the company would hesitate to make redundancies.
So if these two reasons to stay don’t hold up, that leaves money, or to be fair, money and reputation among their customers, for whom they want to stand as a reliable business partner.
Weighing the Decision
Mr Boone’s comments give an insight into what they value most. This is what he said:
This is a distinction we have kept in mind in taking these difficult decisions. Furthermore, we are a company that will support its customers.Peter Boone, CEO, Barry Callebaut
You know, customer focus is one of our values. Our customers bring daily food to consumers in all kinds of shapes and forms. It was called essential during the pandemic for a reason and is regarded as part of the daily diet of many. Pulling away from our customers and leaving them without a possibility to bring their products to consumers who have not asked for this war does not feel right to us.Peter Boone, CEO, Barry Callebaut
The first reason on his list is customer support, which indicates they believe it would be more damaging to their reputation to abandon their customers in Russia than the backlash by staying in the country.
Secondly, Mr Boone makes a slightly bizarre reference to chocolate being an essential part of the daily diet. I’m guessing the Board has led a comfortable and privileged life to believe that a luxury item outweighs the principles involved. Let’s not sugar-coat this. Ukrainians have been forced to flee for their lives, abandoning loved ones and seeing their livelihoods and their lives destroyed.
The Ukrainians did not ask for the war either, so a choice has to be made. I do appreciate it’s an uncomfortable one, but in my opinion, they got this wrong.
Switzerland, Barry Callebaut’s home, one of the oldest democracies in Europe, has championed Human Rights not just at home but on the International stage. Here are some excerpts from the relevant Wikipedia page.
“The United Nations Human Rights Council (HRC) was an initiative put forward by Switzerland in 2006. Switzerland has continued to be an active member in all HRC promotion and enforcement internationally. In this most recent application to the United Nations, Switzerland deemed the protection of human rights on an international level to be one of three main voluntary pledges.”
Meanwhile, back at HQ, Business is booming.
Barry Callebaut announced an operating profit of 331 million Swiss francs ($351 million) for the six months ended Feb. 28, which was up 12% from 297 million Swiss francs at the same time of the previous year. Sales revenue rose 16% to 4.03 billion Swiss francs ($4.28 billion) from $3.48 billion.
However, Mr Boone voiced concern that the Russia-Ukraine war disturbed supply chains.
In the first couple of weeks, we saw a lot of problems getting the transport… At this moment, that pressure is a little bit less. So at this moment, we can still support our local-for-local business and keep our three factories running.Peter Boone, CEO, Barry Callebaut
By continuing operations, while freezing new investments, the company is trying to walk a path that keeps everyone happy. Another way to put it is that they evaluate the impact of their inaction and hope there’s no backlash. Additionally, the CAPEX freeze allows them to claim they’re doing something, although we don’t know if they planned new investments anyway.
There are times for risk calculations and a time just to do the right thing. If you don’t stand for something, you stand for nothing. If Barry Callebaut fails to follow the moral imperative now, they will lose the ability to claim moral leadership for years to come. I wonder if that cost was factored into their calculation?