Michael W. Peregrine

Russia’s invasion of Ukraine will have many ramifications, some of which may only become apparent over the course of years . For those of us whose job is to worry about the liability exposures of corporate directors and officers, one question has been whether the developments in Ukraine will have legal implications for companies and their executives. Among other concerns for companies and their executives is the sanction regimes that the governments of the U.S., U.K. and other countries have put in place.  In the following guest post, Michael W. Peregrine, a partner at McDermott Will & Emery LLP, examines at the corporate governance implications for U.S. companies arising from the sanctions. A version of this article previously was published by Forbes. I would like to thank Michael for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Michael’s article.


The global economic sanctions against Russia, and the potential impact of their application, will have significant governance implications for U.S. corporations. This will be the case regardless of whether they have been direct participants in the sanctions process or are just observers, indirectly affected by what is expected to be a significant spillover effect.

The sweep, size and scope of the sanctions have been referred to as economic warfare, and experts predict that they will continue to affect the Russian economy for several years. But as is increasingly becoming obvious, the application and continuation of the sanctions will have important, perhaps lasting repercussions across the broader commercial spectrum as well, which U.S. boards will be called upon to identify and monitor.

The most immediate governance impact will likely be with respect to decisions on conducting business in Russia or with Russian-based companies, as well as participation in the delivery of humanitarian aid to Ukraine and its citizens. The more long-term impact may be on the need for more focused board oversight of the economic, social and political implications of a possible return to a global West/East Cold War environment.

Global considerations have long been a staple of sophisticated corporate enterprise risk programs, but have been monitored with varying degrees of commitment by the board’s audit and risk committees. They have typically addressed risks which are grounded principally in “whole world” environmental, social, health and cultural issues. Particular “ERM” global risk focus has been on such recognizable topics as climate change, climate inaction, infectious diseases, erosion of social cohesion and natural resource deterioration.

Additional risks, as identified by the World Economic Forum’s 2022 Global Risk Report, include labor market gaps, protectionism, educational disparities, greater barriers to international mobility, and crowding and competition in space, as well as supply chain and operating challenges impacted by foreign economic trends. All of these are, of course, legitimate enterprise risks. They are worthy of consideration by the boards of directors of U.S. companies, especially when viewed through the experience of a multi-year global pandemic. But they have not always been addressed with any degree of priority or urgency by the board.

That all has changed with the advent of a land war in Eastern Europe, concerns with global authoritarianism and a possible return to the Cold War. Those are global enterprise risks that are real and tangible, not speculative.  They are likely to have risk implications for most U.S. companies regardless of whether they are directly engaged in business in Eastern Europe—or are likely to experience the related spillover effects. Restructuring the board’s enterprise risk focus to include these concerns has become a paramount governance task.

Specific elements of these new global risks to be considered by the board, or its ERM committee, might include the following:

Leaving, or Staying: For companies conducting business in countries with recognized authoritarian governments, the complex, overarching question is whether to continue those relationships, or to suspend or terminate them. As has been well publicized, many U.S. companies have already made a decision to exit the Russian market.

Among the difficult issues to be addressed by the board when confronting such a decision are those related to loss of revenue and market share, the risk of nationalization of resident assets, and possible threats to its resident employees.

Supply Chain Disruption: Many U.S. companies either directly or indirectly conduct business with suppliers in Russia and Ukraine. These are particularly concentrated in the areas of software and IT services and consumer services as well as energy products and commodities such as wheat and corn. It will be important for the board to understand the extent to which the company’s supply chain could be disrupted by the invasion.

Financial Volatility: The dramatic increase in the inflation rate is partially attributed to closing access to Russian energy resources and the rising cost of gas (along with such staples as rent and food). The extent to which the Ukrainian conflict continues to contribute to inflationary pressures, and the resulting impact on corporate operations, remains uncertain. Related financial concerns arise from global instabilities related to access to Russian and Ukrainian crops; the major write-downs incurred by companies walking away from Russia, and the potential for Russian default on foreign bonds.

Humanitarianism: Decisions reflecting an extension of ESG principles and an appreciation for corporate symbolism will include whether, and it so to what extent, companies will consider it consistent with their “sense of purpose” to make extraordinary financial and in-kind contributions to Ukrainian and related humanitarian efforts.

External Pressures: From a corporate citizenship perspective, boards will need to evaluate whether pressures from employees, politicians and social media should reasonably influence decisions concerning business relationships with Russia, and with other controversial regimes. How responsive must the company be to the voices of its corporate constituents, and other third parties, on these issues? What are the implications for future crises or social controversies?

Workforce Culture: Given its oversight obligations for workforce matters, the board should be attentive to how concerns with rising global tensions and the overt signs of war and human misery may affect such key matters as employee morale, job participation and the labor supply.

Individual Clientele: Decisions with respect to terminating mainstream corporate operations are likely to be different than those with respect to terminating significant corporate relationships with individuals and families, such as investors, personal service clients and individual business owners. In addition, charities face difficult decisions with respect to philanthropy sources such as individuals closely associated with controversial leaders, such as the so called oligarchs.

The End Game: More existential-yet real-risks arise from the ultimate resolution of the current crisis. What is the risk that Russia will retaliate against the West, and if so to what degree? Will it be limited to cyberattacks (for which most companies are preparing) or will it through other, more powerful means? Is there a reasonable limit to the obligation of the board to plan for extreme, conflict-driven risks?

The impact of the Russian invasion of Ukraine, and of the sanctions applied by the Western allies, carry the potential for broadly affecting all U.S. companies. They expand, in unique and unexpected ways, the enterprise risks for which the board is expected to address. More broadly, a return to a Cold War environment and the rise of authoritarianism will require U.S. boards to reorient their agenda to more closely focus on global trends and events.