Russian Economy Takes a Hit as Companies Halt Business | April 2022
WeWork said recently that it is planning to divest its operations in Russia, one week after its CEO said the real estate company's "assets do incredibly well" there.
April 2022 | Volume 13, Issue 9
“WeWork Says It Is Finalizing Plans to Divest Its Russia Operations”
WeWork said recently that it is planning to divest its operations in Russia, one week after its CEO said the real estate company's "assets do incredibly well" there and he didn't think it would need to pull out of the country. "Together with our colleagues, members, and landlords, we have been finalizing solutions to divest operations in Russia and we've suspended all expansion plans for the business in this region," the company said in a recent statement. "We unequivocally condemn the unprovoked and unjust war that is bringing senseless devastation to the people of Ukraine."
WeWork, which operates 700 locations globally, has four locations in Moscow. The company faced some criticisms last week over comments made by CEO Sandeep Mathrani in an interview with Bloomberg at a JPMorgan conference. Asked whether WeWork would have to retreat from Russia in response to its invasion of Ukraine, Mathrani replied: "I don't think so. ... Like I said, our assets do incredibly well. We hope for a resolution of the conflict and hopefully we can continue to do business in Moscow."
In the interview, Mathrani said, "We are, as of right now, over 90% occupied. It's a small part of our business. Top line revenue is about $10 million on our base of several billion dollars." After a disastrous attempt at taking itself public in the fall of 2019, WeWork finally made its Wall Street debut in October 2021 when it went public through a SPAC. During the two-year interim, WeWork's organization was overhauled, including top leadership changes, a return to focus on its core real estate business, and weathering the pandemic. The company's stock is down more than 50% from its first day of trading.
One day after Mathrani's comments, the company appeared to pave the way for a course change, telling Barron's in an emailed statement that it was "prepared to take action as necessary to ensure an orderly shutdown of our business [in Russia]."
WeWork's announcement comes on the heels of a number of big name international companies, ranging from Apple to Exxon, that have recently announced plans to pull back from Russia. In its recent statement, WeWork said: "We continue to focus on the safety of our colleagues and all those affected by the ongoing conflict. We stand in solidarity with Ukraine and have a partnership with the UN Refugee Agency to support refugees fleeing in Eastern Europe, assist with aid and resources, and provide free space for those in immediate need."
Discussion Questions
1. With specific regard to Video 2, should foreign businesses cease operations in Russia due to the war in Ukraine? Why or why not?
As indicated in response to Video 1, Discussion Question Number 3 above, in your author’s opinion, this is both a business decision and an ethical decision that only the individual company can make. Corporate stakeholders and the media can certainly influence a company’s decision regarding whether to cease business operations in Russia.
2. With specific regard to the article accompanying Video 2, should WeWork divest its operations in Russia? Why or why not?
As the article indicates, WeWork has faced a great deal of negative media attention in recent years, especially regarding its controversial founder Adam Neumann, so this makes the company’s decision regarding divestiture of operations in Russia more problematic. The fact that divestiture would end its successful business in Russia (according to CEO Sandeep Mathrani, its rental space is 90 percent occupied there) makes the decision even more difficult. Media attention and stakeholder outcry, however, could “force the issue” for WeWork.
3. As the article indicates, WeWork's announcement comes on the heels of a number of big name international companies, ranging from Apple to Exxon, that have recently announced plans to pull back from Russia. From a strategic standpoint, is it a good idea for companies to “follow the lead” and adopt the business practices of large corporations like Apple and Exxon? Why or why not?
As your author has indicated previously, this is both a business decision and an ethical decision that only the individual company should make. WeWork’s business model is different from Apple’s and Exxon’s, and WeWork is at a different stage of its “business life cycle” than Apple and Exxon are. With that being said, decisions made by large, successful corporations like Apple and Exxon can certainly influence other businesses, if for no other reason than the rhetorical question “If they are doing it, why shouldn’t we?”
