Russia’s unprovoked, brutal attack on Ukraine in February prompted a global crisis with far-reaching impacts, reverberating into the C-suite at companies in the United States.
Shareholders and consumers now expect companies to account for any ties they have to Russia or Russian affiliates. Executives and their general counsel have been forced to navigate a new world order that emerged overnight.
What new environmental, social and governance (ESG) considerations do companies now face? How can their legal advisors help steer them through the unparalleled crisis?
As we have seen from the Russian invasion, there is often little time to respond and delay is not an option. One day it was acceptable for companies to invest or operate in Russia and the next day companies were grappling with whether and how to divest their Russian operations. Some companies were required to cut ties with Russian interests because of prohibitions imposed by the U.S. sanctions list, and many other companies quickly pledged to pull out voluntarily.
But for some companies—such as those that make necessities including diapers, baby formula and medical supplies—withdrawal was more complicated, posing ethical dilemmas and risks. Ceasing business in Russia entirely would expose its employees to risk. And how should companies respond if they are the sole source of provisions used in nurseries, schools and hospitals?
Companies must consider how their actions will affect not just their global brand, business and reputation, but also their employees and innocents affected by whatever decision they make. At the same time, companies may have difficulty getting reliable human rights information from Russia or the war zone. Even if a company’s actions are technically lawful, the question of morality must be addressed, especially here, in circumstances that starkly pit “good” versus “evil.”
Scenario Planning
As the war drags on and as atrocities are chronicled daily, companies can expect the microscopic scrutiny on their actions to intensify further. This is where GCs, who are trained to spot and mitigate risks, can take a leadership role. Scenario planning, traditionally used by the military, can help companies respond nimbly and strategically.
Another skill that GCs can bring to the table is their ability to pressure-test data. Pressure-testing ensures that companies have an accurate picture of the current situation, giving them sound information to make important decisions about human rights in Russia and other ESG considerations.
Pressure-testing can also be used to validate that a company has followed through on an ESG commitment such as severing all ties with Russia. A diligent lawyer can make sure there are no unexpected surprises hidden in an M&A contract, supply chain agreement or human rights questionnaire. A company’s reputation is only as strong as its weakest link.
Revisiting ESG Priorities
Against the backdrop of Russia’s war against Ukraine, most companies are finding that they not only need to respond quickly and forcefully, but also they need to proactively revisit their overall ESG priorities.
When it comes to human rights, a company’s legal team can help by reviewing the promises and commitments the company has made and whether it is living up to them. For example, if a sustainability report declares the company is using ethical vendors and suppliers, the legal team can ensure the claim is substantiated to avoid the blowback and downstream consequences if those statements turn out to be inaccurate.
When it comes to governance, the legal team involved in screening board members would be wise to check for Russian connections, even lawful ones. That way, if an oligarch’s boat turns up in the company’s harbor, the company can react before it sinks the company. Instead of waiting for media questions to come, companies should anticipate those questions now and role-play a response.
Staying Ahead of the Ongoing Crisis
Companies can expect to encounter new ESG challenges as the war progresses. Legal teams should keep an eye on the war-related challenges competitors are facing to avoid the same fate. Be on high alert for blind spots. As we saw recently, even rating agencies trained to look for ESG vulnerabilities misjudged Russia’s belligerence.
GCs will continue to play a key role in guiding their organizations through uncharted territory. As legal advisers, GCs can ask probing questions and insert themselves into areas that have traditionally been the purview of marketing, public relations and human resources professionals. Lawyers can offer their strong written communication skills to help their colleagues be clearer in public documents and speeches. Lawyers can also draw on their visibility across an organization to help leaders spot and correct any inconsistencies.
Finally, lawyers can also evaluate multiple zones of engagement to monitor for the possibility that conduct that is lawful today could become an ethical dilemma tomorrow.
Be on the lookout for geopolitical or other clues that the ground will shift once again and update scenario plans frequently. As the Russian invasion has shown, the lens of scrutiny has gotten sharper. There will be no grace period. And the consequences of a mistake in this environment are incalculable.
Dave Curran is co-chair of the sustainability and ESG advisory practice at Paul, Weiss, Rifkind, Wharton & Garrison and executive director of the ESG and Law Institute, a forum of solutions-oriented ESG intelligence. Brad Karp has been the chairman of the firm since 2008. Karp has successfully guided numerous Fortune 100 companies, global financial institutions and other companies and individuals through litigations, regulatory matters, internal investigations and corporate crises.
