IKEA CEO Jesper Brodin on the decision to halt business in Russia

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Transcript

[Sounds of people yelling and gun shots]

Ellen McGirt (00:07): On February 24, Russia fired missiles into Ukraine, launching a war that has displaced millions and likely killed thousands. One week later, on March 3, mega-retailer IKEA announced it would pause all production in both Russia and Belarus, and shutter its namesake stores. It wasn’t the first company to make this call, but it was an early mover. Hundreds of companies have since followed suit.

[Recording of a TV news report] (00:32): The social pressure has continued to grow and several companies have now announced they will stop doing business in Russia. A big one, Starbucks,

[Recording of a TV news report]  (00:39): …many businesses are leaving Russia in protest—companies like McDonald’s, Starbucks, Intel, and Apple.

McGirt (00:46): Others continue to do business in Russia, and they face some serious public criticism. That may make IKEA’s choice seem simple.

[Recording of a TV news report] (00:54): The risk of doing business with Russia has never been higher, especially in the U.S. Americans are calling on companies across all sectors to leave Russia.

[Recording of a TV news report] (01:03): I think those companies are going to pay a significant economic price if they do not pull out of Russia immediately.

McGirt (01:09): But as we’ll hear today, the decision to halt operations wasn’t black and white. And it was anything but simple.

Alan Murray (01:22): Leadership Next is powered by the folks at Deloitte, who, like me, are super focused on how CEOs can lead in the context of disruption and evolving societal expectations. Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray, and you were just listening to my fabulous co-host, Ellen McGirt.

McGirt (01:47): Thanks, Alan, and welcome. everybody. I am really looking forward to hearing from our guest today, the CEO of Ingka Group, better known as IKEA to most of us, Jesper Brodin. The complicated decision to leave Russia is a real-life, real-time, and painful case study of stakeholder purpose driven leadership and action. And it’s costly: in the year through last August, Russia was IKEA’s 10th biggest market, with retail sales of €1.6 billion or $1.8 billion. That’s 4% of total retail sales, Alan. That’s a lot.

Murray (02:17):  Yeah, I’m really glad we’re having this conversation, because I think the way businesses responded to the invasion of Ukraine was kind of unprecedented in the history of modern business, and IKEA was a big part of it. So I’m glad Jesper is going to talk about that. But even before the conflict in Ukraine, I was eager to get Jesper on the show because of the work he’s done in both sustainability and inclusive culture. So we have a lot to talk about. Jesper Brodin, welcome to Leadership Next.

Jesper Brodin (02:46): Thank you so much. Thanks for having me.

Murray  (02:48): Let’s start with Russia and Ukraine. Talk about how important those two markets are to your business and how they’ve been affected by the war.

Brodin  02:57): Well, obviously let’s let’s start by just acknowledging the incredible tragedy that we are experiencing and that, I think, very few people had on the radar as one of the options. It’s impacting us, as you say, of course heavily on the business side, but also emotionally. I have myself been part [hard to understand] IKEA that for more than 20 years have been building up the business in Russia. We recently, a year ago or so entered Ukraine, so our operation there was a bit smaller, but it’s nothing less than a tragedy and of course, a bit like the pandemic.

There is no manual or guidebook for us here. It’s about weighing all aspects and trying to in a short time, get a 360 perspective of the situation and use our moral and ethical compass to do the right thing. So it is correct. We decided to pause our activities for IKEA in Russia fully, including the whole value chain impacting more than 12,000 coworkers. Our first activities has been of course, to safeguard our colleagues in Ukraine but shortly after was to make sure that we secure to start with at least three months paid for the coworkers we have in Russia.

And then we are currently working with assessments, scenario planning and looking into both short-term but also the long-term types of scenarios for the business. And I would need to be honest, I would say at this moment, I think there are more questions than answers from those topics.

McGirt (04:33): Can we go back to the original decision-making process. Who was around the table? Who did you call to weigh in and how did you decide to move forward?

Brodin (04:41): Well in the decision making in such an important part, we of course have a governance structure with our board of directors being part of any any type of decision like that. But we have, I would say since a few years back we have been operating in crisis so we are well trained at the moment for operating through crisis management which I think most of the companies out there are. Obviously the weeks leading up to before the invasion of Ukraine we were not idle. So we had some scenario planning as well in order to prepare for the decision. Still, it was a very hard call to make, I must say and admit.

Murray  (05:23): Jesper, we frequently talk on this podcast about tensions between the shareholder—the owner—and other stakeholders. But it seems to me that in this case, you were dealing with a conflict among stakeholders. You had one group of people who said for the sake of the world, for the moral right thing to do, we have to pull out of Russia. But hey, we have 12,000 employees, these are these are stakeholders too. These are people we care about, who have been working hard for us. How do you balance something like that?

Brodin (05:55): Well, it is I think it’s true dilemma. That decision might not be so obvious what what is the right thing to do, in this case, up to the decision, but also at this moment for us. And I would claim for any leader out there is a very [hard to understand] dilemma where on one side to put the economic pressure on the system in order to act in favor of peace and humanitarian perspectives. On the other hand, doing so of course, leads to a lot of challenges for the Russian population for ordinary people. For co-workers, the centers that are often connected to the IKEA stores are still kept open, where they provide food medicine, and so forth to people. So again, you know, what is the right thing to do depends on the angle you take here. I think that as much as I sympathize with the emotional aspect of where we are, we will also have to start a debate on the long-term perspective, which is, what is the pathway back for the Russia and Russian population? Because of course, there is not the possibility in the long run, that we tried to achieve things by polarization and distancing. It can even be the opposite impact. When it comes to the answers of the questions, I think with the rest of the world leaders here and business leaders, we’re trying to find we’re trying to do what’s right for people. And then we will have to basically time see what is the right decision to take.

Murray  (07:25): There are, Ellen, if I can follow on that there are some companies that have made the opposite decision. I think Renault in France, Koch Industries in the U.S. have said, we’re siding with our Russian employees here. We’re going to keep the businesses open. What do you say to them?

Brodin (07:41): I think it puts a spotlight on the dilemma. So, do you side with your business? Do you side with shareholders’ interest? Do you side with a political statement? And as you know, corporate leaders have ended up in a situation that I think is unheard of in our generation, possibly something we are practiced in the pandemic as well. What is the moral and ethical right thing to do? And I can just witness this from an Ikea perspective and for my company.

None of the scenarios are good for business that we can take out of the equation. It all looks incredibly challenging, both pausing losing top line, but also anything when it comes to cost or mitigation. There is simply no good business path for us in any of the opportunities. And therefore I think I would say at this point I understand that companies have found different ways of reasoning and I think maybe we have to look at what type of business people are in or what type of footprint they have as well. If you’re smaller, if you belong to an industry, which is less of a necessity, probably the decision is a bit easier. But then again, when it comes to the moral and ethical right to do, I guess that goes beyond size of business or what the line of business you’re into. And it’s a difficult question, I think, for all of us.

McGirt (09:02): I want to talk about your cultural footprint, because IKEA is beloved in so many interesting ways and it probably differentiates itself around the globe. And I’m curious how you thought about that in Russia. We’re already seeing, it looks to me, like a clever patent infringement clone of IKEA popping up across Russia. How did you factor in the cultural impact and the relationship that you had with the DIY furniture-loving crowd there?

Brodin (09:32): Well, I think IKEA has the benefit is that we are being a company owned by a foundation, as you often speak to, Ellen, we feel that there is very little distance in the view between the management of the company and the board. It’s very aligned. Based on long term-ness, based on purpose, and where the IKEA vision is basically to support people in creating a better everyday life, primarily through improving homes and making your homes affordable. And there, IKEA has been from a business perspective in Russia, for instance, there has been more than two decades of building that business and to be honest, even if it’s been growing, it’s not been our most profitable business over the years. But we have furnished a lot of people’s apartments, a lot of ordinary, hardworking people out there.

And of course, when we think is that IKEA should be, try to be wherever there is a lot of people. And you know, sometimes things looks quite grim and quite dark on the horizon. And we try to always remind ourselves as our founder used to say, you know, we, we need to think long term and when we asked him how long-term he said the 200 years is good. I spent the last week thinking about that comment from him because in a way we are not about ultimately asset protection, we’re about investing in making that vision happen for the many people.

Murray  (11:04): And that could partly explain your deep, deep commitment to sustainability. I mean, you have a governance structure that encourages that. You have a long-term focus that encourages that. But still I want to ask you about that because it’s not obvious that a company whose initial purpose was to make homes and home furnishings inexpensive, would also be committed to sustainability. I mean, you’re you’re making the you know, much of the furniture at some point in its lifecycle ends up on the trash heap. So it wasn’t a natural pairing it seems to me. How did you get there?

Brodin (11:37): Well you can say I think, actually I would like to, and I think it’s an important aspect of doing business today. So I will say twofold. The first one is of course, our founder decided to set up the company and basically give it away to a charitable foundation, with only purpose except for, say protecting the assets. So that’s just the structure we live by. And then it happens to be synonymous with a vision of the company as well, which is quite unique.

Brodin (12:06): But the second part, which I think it goes for any company out there, and that is I would say my lifelong learning working for IKEA from starting in Asia-Pacific many years ago, if you do the right thing for people and planet is equal to the right for the business, if not now, in the middle- long term. This proves to be the right thing, and I’ve so many examples of that through the climate work, but also the people side that we have worked with securing working hours on a correct level in our supply chain, all the way to investing in renewable energy. It’s morally, ethically right. It’s good for the brand. But it’s also the only way that IKEA serving the many people can actually be cost smart of the future. And I think again, at any time we’re happy to—and I’m happy to engage in discussions around consumption—because at the end of the day, IKEA is serving people that people with [hard to understand] typically not people consuming for the fun of it, but people fulfilling basic needs of storage, sleeping, eating, etc. in life at home. So we are part of a very big responsibility to make sure that that is, and will become, not in a too distant future, in harmony with the planet and people, of course.

McGirt (13:21): You mentioned your give us a couple of examples. Why don’t we start with sustainable energy, or excuse me, renewable energy. How did that work and that commitment come about?

Brodin (13:29): You can say it was quite, I would say quite early, from a corporate perspective. There were some visionary leaders who basically were seeing where we were heading. And there was a discussion within the company that we might need to do macro hedging, since we also dependent what businesses are more or less dependent on, energy, of course, in the equation. And being a foundation-owned assets-strong corporation with a quite low, so to say, expectations on returns, we are conservative from a financial perspective. We were capable to start to invest some more than 10 years ago, and today we are heading towards basically a 6 billion€ into renewable energy. We have since more than a year passed 100% of our own consumption [hard to understand]. We’re still working on making sure that we also can connect it and everyplace in some places, we we have yet to get started. In some places we are at 300% maybe of our own consumption. Interesting enough during these last years, which was not part of our plan, that has also shown to be an incredibly smart decision from an economic perspective. So it’s really contributing to the bottom line result of the group.

Murray (14:46): Jesper, how about the materials that are going into your furniture? How is that changing to meet your sustainability goals?

Brodin (14:53): You can say obviously one dialogue to be had is to reduce the unnecessary consumption which is often discussed. I would say that it’s important to remember that’s only a small part of what we need to do. I don’t think there is spontaneous purchases of of mattresses. It’s a need-based product but at the end of the day in a growing world population, we need to simply make sure that the core of the issue sits in mattresses in itself. And therefore we need to make sure that mattresses can be climate neutral, at the least.

And we have already actually in IKEA in the first market the Netherlands implemented a model where we have reversed flows of mattresses which are bulky and has a negative impact of course on the carbon footprint. We are right now taking back not only IKEA’s mattresses but we have the capacity to take back all mattresses in Netherlands, and it’s turning out to be a good business as well. So again, this needs to happen in in a…

Murray (15:55): What happens to the mattresses when you take them back? You recycle them into other products?

Brodin (15:59): Exactly. It’s fairly straightforward actually. So again, we are capable for our reverse production units, if you like, to take back split up in metals, styrofoam and polyester. We’re basically providing it back to the supply chain. Some of it goes back to our own suppliers. Some we are selling. And today all of these components are attractive from a price point meaning that we are capable to offer better prices than virgin. And this is to say, in order to together achieve that sooner, which is possible and will happen and I would say any material which about the virgin material, passage to high time footprint. Our job together with governments is to speed up, to make that curve there’s upside the crossing of the curves happen to some extent that it’s economically viable.

Murray (16:54): And scale it from the Netherlands to 7 trillion people around the world.

Brodin (16:59): Exactly. And since you mentioned that, that is what we are trying to do now. We are running into some headaches. In certain countries we are facing the issue that we are meeting subsidies of incineration, for instance. But then you have to understand, of course, that governments have tried to move away from landfill to incineration so that’s why they subsidize. That when we can provide a solution when which has an incredibly positive impact on climate of course, I’m sure it will happen, but we need to find ways in dialogue between corporates and governments to speed up that change.

[Music]

Murray (17:40): I’m here with Joe Ucuzoglu, the CEO of Deloitte US, and the sponsor of this podcast for all three of its seasons. Thank you for that.

Joe Ucuzoglu (17:48): Pleasure to be here, Alan.

Murray (17:49): So business is facing so many challenges these days: the continued pandemic, the battle for talent, supply chain problems, rising inflation and now, on top of all of that, war in Europe. How are company’s responding to all this disruption?

Joe Ucuzogl (18:05): Alan, you’re seeing a remarkable level of optimism in the face of so many varied challenges. And by and large, I attribute that to a recognition that this is just the new normal, the constant curveballs that will be thrown at us. But at the same time, given how successfully so many of these organizations have navigated through these things over the past couple of years, of growing confidence that we’ll be able to continue to navigate the issues that get thrown at us and grow our businesses. But to do that, we are absolutely seeing a new brand of leadership emerge, grounded in resilience, in agility, in a learning mindset. These are the most important leadership attributes in an environment where we should just expect that change and disruption are going to be at a consistently high level of intensity.

Murray (18:55): The problems aren’t going away though, right?

Ucuzoglu (18:58): I had a CEO say to me recently that if you put together a list of the top 20 risks one week, something big is going to hit the next week, and it probably isn’t even on that list. And that’s just a reflection of the number of different phenomena in the world right now and the level of complexity that businesses are managing through.

Murray (19:17): Joe, thank you.

Ucuzoglu (19:18): Alan., it’s a real pleasure.

[Music]

McGirt (19:25): I’m just wondering if you could tell us a little bit about your path through IKEA? And I can tell you what our listeners are going to be listening for: the moments that really helped in retrospect prepare you for the job that you now have.

Brodin (19:38): Wow. Well, that’s something I would reflect on when I’m done with this job. But there are some defining moments, right. I think one of the moments, I was invited by the head of our foundation, Mr. Per Heggenes, asked to join him on a trip to Jordan a few years ago. So Jordan was a receiver of refugees from Syria, in the conflict there, and I think we some approximate numbers we talked about that the population of Jordan went from, please forgive me if I’m not exact, but some 8 million to close to 10 million people. So we talked about the massive refugee crisis.

The foundation stepped in from the start to support with providing shelters. But what Per connected with me was that the insight from him and organizations like UNHCR, that, in order for people to rebuild a dignified life, and not be a burden, but an asset to society, we need to be able to provide jobs. So I was actually engaged in setting up a structure where 400 women were capable to be to gain employment from IKEA. And that was a big moment for me. And it was, I can tell you, it wasn’t an easy project there to see through.

We took that learning and we created something called skills for employment, which is a program we’ve been running in most of our markets last two to three years. And right now we are in the absolutely tragic refugee situation we see from Ukraine where 4 million people to this moment have actually been forced, were seeing themselves forced to leave the country. So we are [hard to understand] organizations which in the total IKEA families actually at the scale of 55 million euro already. We’re also now scaling the activities of doing our part of employing people. And the interesting thing again, which which will be the title of my book one day, is that this is this is a you know, we have to see this as something good for business. Qualified people with a willingness to rebuild their lives in a market that has a fairly low unemployment, of course, could be a liability. But let’s see, the situation is as much as a humanitarian support, and I think we will get to the right place even faster.

Murray (22:06): Jesper in your spare time—and I can’t imagine listening to you that you have much spare time, frankly—but in your spare time. I understand you like sailing. I guess that’s why you’re on the western coast, the beautiful western coast of Sweden, and you play the guitar.

Brodin (22:20): Not at the same time normally, but you’re correct.

Murray (22:23): That’s good. Those both help keep you sane in this crazy world?

Brodin (22:28): Absolutely. Absolutely. I think it’s important for everyone and not at least in this moment, say you know, we’re in for a long haul for a marathon of challenges. But I think as a leader, you need to find a way to channel your energy and to refuel and this latest years I think that’s taught me that leaders, and I myself, I’m more fragile than I might think. And we need to be super careful about our own mental health and our own capability of recharging because otherwise we will not be able to do the right things and maybe take the wrong decision, send the wrong signals, or not basically last in what seems to be a very important moment of the history of human time. So therefore I have some time for sailing and to my neighbors’ sometimes agony, I also like to play very loud guitar from once in a while.

McGirt (23:30): Are we ready for our lightning round, Alan?

Murray (23:32): Go for it.

McGirt (23:32): Jesper this season we’ve been asking all our guests to just give us top-of-mind responses to some of the really pressing issues facing all leaders everywhere. So first question is what’s top of mind for you when you think about COVID?

Brodin (23:45): I think when I think about COVID It’s humanism is the word that springs to mind.

McGirt (23:53): Humanism?

Brodin (23:54): Yeah, I think what I’ve seen the last years it’s just an incredible amount of mobilization of caring. But the amount of caring I’ve seen and experienced last years is something that touches me deeply. Unselfish caring for other people that I’ve seen on my leaders, I’ve seen it in the societies where we operate. I’ve seen it in the relations between the company and unions, and I’ve seen it on so many areas when, when it’s really a crisis, you see the best of people.

McGirt (24:30): That’s a wonderful answer. So next question, what’s top of mind for you when you think about the global economy?

Brodin (24:36): The challenges. I think for sure, we are in, we will have to accept that the coming 12 to 24 months is going to be a bumpy ride. And I have mixed emotions about it. In one way I would say, I learned that through my years, in working in some difficult environments that what I can’t change I try not to worry too much about. So when it comes to the economy, I think it’s just accepting that it’s going to be a bumpy road. In the IKEA perspective, you can say that means that our role is sometimes even more important because people have less money in their wallets. And we simply need to do a better job on providing affordable solutions for people. So in one way you can say it means both challenges and opportunities for a company like IKEA.

What we are experiencing now is also some new elements and I would maybe add to that also, humbleness for that there is no history book that helps us predict the future. And I would love to discuss deflation, because you know, the inflationary economy that we see now is built up from a pandemic and a globally-traded world. And when all of that gets settled and right, which will happen, we will experience other types of economic factors as well. So I guess humbleness for the unknown is also one of the things I would like to share.

McGirt (26:05): And finally, what’s top of mind for you as you think about your growth as a leader?

Brodin (26:09): Well, it’s Friday afternoon. So some, some guitar, some great time with my family and I guess as a leader, I think it’s just a reminder of the importance of spending quality time with the people that you love, and make sure that you recharge yourself. I think again, the importance of staying fresh, the importance of having a balanced perspective, the importance of finding the optimism within yourself, and myself. And I think that need is something that we should remind each other often. I do remind myself from time to time.

Murray (26:49): Well Jesper Brodin, please do stay refreshed, balanced and optimistic. We appreciate your optimism and everything you do. Thanks so much for being with us on Leadership Next.

Brodin (27:00) Thank you, Ellen. Thank you, Alan.

Murray: Leadership Next is edited by Nicole Vergalla, written by me, Alan Murray, along with my amazing colleagues, Ellen McGirt and Megan Arnold. Our theme is by Jason Snell. Executive producers are Mason Cohn and Megan Arnold. Leadership Next is a production of Fortune Media. Leadership Next episodes are produced by Fortune‘s editorial team.

The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.