With Publicis, IPG, WPP, Dentsu and Accenture all in the process of exiting Russia, we look at why their rivals might choose to stay operating in the country.
Three weeks into the invasion of Ukraine, some of the biggest names in advertising have pulled out of Russia or suspended operations. But some are staying despite the difficulties posed by economic sanctions and political pressure.
Big-name brands such as Lego, Ikea and Spotify have each taken a stand, and the UK’s chancellor of the exchequer Rishi Sunak called upon firms to exit the country on Sunday. So far, WPP, Publicis and IPG have announced that they will cease trading in Russia, while consultancies Deloitte and Accenture have also said they will leave. Just today (March 15), Dentsu announced it was going to transfer ownership of its operations to local manangement. Omnicom has since announced that it too would depart.
But other agency networks with major European presences, such as Serviceplan or Media.Monks, remain. Havas, meanwhile, has only one foot out of the door – last week it said it wouldn’t be going ahead with a planned investment in its Russian affiliate partner, but is keeping the partnership in place... for now.
Businesses considering leaving Russia have the backing of the public to do so in the west. A Forrester survey of US, UK and Canadian consumers conducted last week found considerable support for companies speaking out against the war, involving themselves in Ukrainian humanitarian efforts and withdrawing from Russia. And a poll from the World Federation of Advertisers (WFA) found 75% of its members, representing some $43bn in ad spend, had cut their activities in Russia.
But shutting down a business presence isn’t as simple as it seems. Marks & Spencer, Burger King and hotel chain Marriott, for example, have all been unable to extricate themselves due to franchising agreements in the country.
Starbucks – a Havas client – said it’s leaving Russia, though its agency will remain. The French agency network services its clients in Russia through a partnership with another company, ADV Group.
Just last week, a spokesperson told The Drum that “We have agreed to freeze all the new investments in the country until a peace resolution is reached,“ and that policy would be dictated on a client-by-client basis. “Whether they continue to operate with the affiliate partner in the Russian market is their decision,“ they said.
Though not every holding company owns its Russian agencies outright – Havas operates through Moscow affiliate ADV, and Dentsu had a joint operation with OKS Group dating back several years – their presences there still represent long-term investments.
“It’s a complicated issue for agencies to contemplate,” says Jay Pattisall, global agency analyst at Forrester. Agencies face “a competing set of responsibilities” to shareholders and clients keen on a clear break, and staff that need job security.
“On the one side you’re trying to be true to those that want immediate action taken to try to resolve and mitigate, or at least hold Russia accountable for, its actions, juxtaposed with trying to support employees that didn’t make this decision and likely may not agree with this decision ... and are caught up between the unilateral actions taken by the government without any regard for how the citizens of Russia feel about it. That tension is super clear.”
Agency bosses are wary of leaving their employees isolated and subject to the whims of a pariah state, which has launched a fresh crackdown on political and civic freedoms.
In Tuesday’s address to staff, Publicis chief executive Arthur Sadoun said: “The 1,200 Publicis employees in Russia are our people too. Let me be clear: we have a duty to protect them too. And I was not prepared to abandon them with a short email and a few roubles in compensation. Those are not our values.”
The latter concern was likely the reason why IPG chief executive Philippe Krakowsky chose to announce the firm’s departure from Moscow in a public letter to staff, rather than via press release or formal notice to investors. Omnicom hasn’t yet said how its departure will affect its 2,000 Russia-based staff.
Agencies have been working hard over the last three years to improve their reputation as employers, notes Pattisall.
“Historically the agency business has been thought of as subpar for its employee experience. The industry is trying to combat that perception in the midst of one of the most complicated talent markets we’ve seen in years.
“They are struggling to understand the best way to fulfill and live up to their values as companies and stand up to oppression and against these unilateral decisions, but also support their employees. The tension in these decisions is very palpable.”
Though IPG’s Russian teams will be disbanded, the company plans to pay Russia-based employees for a minimum of six months as part of their severance packages, Krakowsky said. WPP has said it’s not winding up its Russian agencies, but divesting or transferring ownership to management, meaning many of its former staff may keep their positions – it’s also promised them financial support. The chief executive of German agency network Serviceplan, Florian Haller, echos those sentiments when he tells The Drum “We are in contact with our 210 colleagues in Russia and monitor the situation day by day. As a family-owned business we have a duty to protect our people in Russia too.”
Exiting the Russian market might not undermine agency reputations among staff in western Europe and the US, but it will likely be remembered by the staff directly affected – and could prompt staff to leave the country altogether, just as many Russian activists and journalists were forced to do this year.
Pattisall adds: “The marketing and advertising professional affected by these moves will need to eventually find new employment. That might not necessarily be in Russia – they could potentially be part of the brain drain that is being anticipated as a result of Russia’s isolation from the rest of the world.”
Consequently, Pattisall notes that agencies considering an eventual return to Russia might find re-entry difficult, having dismantled their operations.
“When this issue is resolved and there is no more conflict in Ukraine and the war stops, the companies that pulled out will want to re-establish a footprint inside the Russian marketplace. A brain drain like this will make that much more complicated and difficult,” says Pattisall.
Departure might not just endanger investments and relationships already minted, but get in the way of forming new ones further down the line.
“This decision is not simply about the topics of what it looks like for US or European employees, or shareholders concerned about exposure. It’s not just about the short term, but about the years to come.”
This article was last updated at 3.30am GMT on March 18.