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Companies should be required to disclose their ties to Putin’s Russia

March 2, 2022, 4:31 PM UTC
Investors need to know if a company is exposed to the Russian economy in order to assess their financial and reputational risk.
ANGELA WEISS - AFP - Getty Images

Russia’s aggression in Ukraine, and the condemnation and sanctions that ensued, highlight an economic risk to companies that do business in or with Russia or otherwise are economically tied to Russia or Russian companies.

Sanctions on Russia and Russian businesses will affect those who associate with them, including companies outside of Russia. Regulators and shareholders alike must require companies to disclose these associations.

The U.S. Securities and Exchange Commission (SEC) should propose a new rule that requires public companies to disclose that risk–on each reporting company’s website and in public reports to the SEC–as well as the extent to which a company has minimized that risk following Russia’s aggression.

A similar rule should be proposed for investment managers whose funds invest in businesses that are tied to Russia or Russian companies. Wholly apart from a moral interest in knowing whether a company is tied to Mr. Putin’s Russia, investors should be made aware of the risks of investing in a business whose financial well-being will be affected by sanctions.

Russia risk merits special attention due to Mr. Putin’s belligerence and his disregard for international law and the sovereign rights of Russia’s neighbors. The ongoing risk of further aggression, and the impact on Russia and its businesses of unprecedented global sanctions, merit an SEC requirement that companies highlight the particular risks they face from continuing to be exposed to the Russian economy.  

The global outcry against Mr. Putin’s war also makes the reputational impact of associating with Russia and Russian business particularly material. We see this reflected in decisions across the globe of businesses and organizations to disassociate with anything Russian. If management chooses to continue doing business with Russia, that decision should be clearly articulated so that investors understand their rationale in the face of this growing risk. Reputational risk also attaches to managers who today choose to continue those relationships, even in the face of the widespread suffering all of us see each day in the news.

Of course, shareholders need not wait for a new SEC rule. The SEC’s Division of Corporation Finance has clarified that shareholders can raise proposals in a company’s proxy statement that focus on a significant social policy, irrespective of whether the proposal might otherwise deal with a company’s ordinary business operations. Shareholders can choose to propose that management make these public disclosures in advance of any formal SEC rulemaking.  They may also propose that a company promptly minimize its association with, and risk exposure to, Russia and Russian business.

Certainly, ties to Russia raise issues that transcend the ordinary business of a company and should properly be discussed among a company’s investors.

There are limits to what governments can do. Companies may choose to continue to work with Russian business, but they should be held accountable by their shareholders for that decision.  To do so requires that they disclose the nature of that association, their rationale for continuing to do business with Russia, and what–if any–economic and financial risks this entails.

Charles K. Whitehead is the Myron C. Taylor Alumni Professor of Business Law at Cornell University and Founding Director of the Law, Technology & Entrepreneurship Program at Cornell Tech. 

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