Russian Sanctions Put McDonald’s in Line of Fire: Are You Next?

Russia’s possible sanction-related strike at McDonald’s raises concern for all companies that do business in the country, as the Russian government is once again threatening to take its political frustrations out on U.S. companies.

In the wake of the House of Representatives’ overwhelming approval of new sanctions by a vote of 419 to 3 this week, Russian officials are considering imposing “sanitary sanctions” on McDonald’s restaurants in their country. Russian senator Alexei Pushkov took to Twitter the day after the sanctions were approved by the House, suggesting that McDonald’s restaurants in Russia could be subject to “targeted sanitary sanctions” due to reports of unsanitary conditions reported on social media. “[McDonald’s] is not a ‘holy cow,’” Pushkov tweeted.

McDonald’s now finds itself with a target on its back in Russia for the second time in three years—the Russian government had shut down a dozen McDonald’s restaurants (including its’ flagship Moscow location) in 2014 for sanitary inspections that conveniently coincided with U.S. sanctions in response to the Russian Federation’s controversial annexation of Crimea.

This isn’t great news for CEOs who are either doing or are considering doing business in Russia, as it illustrates how American-owned businesses could be targeted for retaliation over political decisions that are entirely out of their control. For U.S. CEOs who do business in overseas markets, having a contingency plan in place should their business become a pawn in a political chess game is a must.

“Don’t get yourself or any employees in any legal trouble. You want them to understand the restrictions, communicate the restrictions to the head office and then follow whatever directions are issued.”

Advice for moving forward
Gary Karp, partner with Chicago-based food industry consultants Pentallect, told Chief Executive that communication with employees is key for businesses that find themselves in these types of scenarios in foreign markets, and that people on the ground in the effected locations should be instructed to follow directions.

“Don’t get yourself or any employees in any legal trouble,” Karp says. “You want them to understand the restrictions, communicate the restrictions to the head office and then follow whatever directions are issued. You want to have a contingency plan to communicate with your employees and to make sure that they understand the nature of what’s going on and the nature of whatever regulations are put upon them.”

CEOs also need to establish a contingency plan with suppliers in foreign markets, which can be especially challenging for businesses like McDonald’s in the food industry, where some of the foods in the supply chain have expiration dates.

“If you think you’re going to be shut down, that’s one thing. If you think you’re going to be limited in the things you can offer, that’s another,” Karp says. “But you want to be sure you communicate with your suppliers so that they can be supportive of the operations.”

Businesses also should have contingency plans in place for shutting down operations if required, and for opening back up in the shortest period of time after being shut down.

If McDonald’s is sanctioned for sanitary reasons, for example, its executives would need to decide how to handle the situation with its customer base from a communication standpoint, whether that means making an official media statement or posting a sign in restaurant windows addressing the sanitary allegations, so that its image is not damaged beyond repair.

“At some point in time you’re hoping that, whatever the sanctions may be, they are going to be lifted, and you don’t want to do permanent damage to your brand image,” Karp says.

While overseas expansion is common, the issues raised by political instability and increased sanctions can call expansion into question and raise red flags for companies. Due diligence when expanding in foreign markets is becoming more important than ever.

“It’s an extreme example, but let’s say you were considering going into the Philippines,” Karp adds. “There are some regions of the Philippines that are politically unstable, and it’s not just the leadership and the potential of a unit being closed—there are actually some areas that have the potential for violence. That’s why when we say political stability, we mean it in the broadest context. You need to be sure that the areas you’re going into are both safe and stable.”