For many corporations, the current tumultuous conditions globally may cause shareholders to raise concerns about international operations. The Russian invasion of Ukraine and the lingering effects of the Covid-19 pandemic are perhaps two of the biggest issues that will affect corporate revenues abroad. Corporate directors will need to assess the range of impacts these issues could have on their company’s future growth and communicate how the board intends to mitigate any potential losses while capitalizing on any potential opportunities for expansion.
The Russian Invasion
Russia’s invasion of Ukraine is an unfortunate tragedy, and many companies have been under pressure from investors and consumers to take actions that might encourage an end to the war. However, boards must make sure that any risks created by the war do not severely impact their company’s ability to operate overseas. At the onset of the war, we saw many companies suspend operations in Russia or make pledges to curtail business conducted with the country. With the conflict now set to enter its third month, the impact of decisions to curtail business with Russia will likely start showing up on second quarter and third quarter earnings reports.
Boards will need to be prepared to answer investor questions that may include: Can you provide estimates of how much business has been lost? What are the potential long-term effects of abandoning that area of business? Is there a strategy to recapture the suspended business after the war ends? Do you have plans to replace this year’s lost revenues over the short-term and into the future? What happens to employees and other financial assets of the company while business operations in Russia are suspended?
Clearly, there are any number of issues surrounding the war that need to be considered, and board members will need to have serious conversations to determine which issues are of primary concern for their shareholders and other stakeholders. Boards will also have to consider if their company can benefit from business opportunities created by the war. For example, if refugees from Ukraine begin settling in other European countries (or elsewhere), they may create a new customer base that some companies can begin to cultivate.
Boards may also need to reassess whether they have enough directors with the right type of international experience to make the best decisions to mitigate any risks associated with the Russia/Ukraine conflict. Adding a board member with more international experience with European economies might be an appropriate move to reassure investors.
The ongoing effects of the Covid-19 pandemic will also impact company earnings this year as new variants of the virus emerge and affect each country around the globe differently. Sub-variants of the virus are spreading around the globe and resources to provide vaccines and testing are likely to be less plentiful than they were last year.
As countries grapple with how to deal with the mutating aspects of Covid 19, companies with operations in many nations may find their ability to operate significantly impacted. Reports that China has instituted a city-wide lockdown of Shanghai has many fearing extended disruptions to supply chains due to the shutdown of Shanghai’s major port. The continued high Covid-19 positivity rates in countries of the European Union have also slowed business growth for some companies since last year. The possibility of new disruptions due to surging Covid-19 variants just as companies are adjusting to major supply chain disruptions from last year may cause many to recalibrate their earnings for the rest of 2022.
Expect shareholders to ask how the continued emergence of Covid-19 variants across the globe may impact company growth. Boards will have to communicate the seriousness of the risks and outline steps the company is taking to mitigate any possible damage. Engaging with international shareholders and stakeholders can be helpful in crafting strategies that can provide an edge to avoid major business losses abroad.