OF Discussion Board n°27 – 29 April 2022

Question asked : The invasion of Ukraine by Russia has prompted western businesses and/or high-profile brands either to exit the country, to stay or to suspend operations. In reaction, Russia is threatening to nationalise tangible and intangible assets of exiting western companies. Should corporations be encouraged (why and by whom) to take decisions on non-economic grounds (for instance moral)? Is today the moment to re-open the debate of the 1990s on “do corporations have consciousness”?

Thanks for those of our contributors who ventured to react to the this question posed in this Discussion Board.

Difficult times for “doing well by doing good”

by Virgile Perret & Paul H. Dembinski

The invasion of Ukraine by Russia has prompted many of the world’s biggest companies – among which BP, McDonald’s, IKEA, Apple and Coca-Cola – to stop doing business with Russia without being compelled to do so by sanctions. Others like Nestlé continue “business as usual”, arguing that they have a social responsibility towards their own employees and the to the Russian people.
Corporations don’t have a conscience of their own, recalls Domingo Sugranyes, but decision makers have, as do consumers, employees, suppliers, subcontractors and so on. So why should they stop doing business with Russia? After all, the famous economist Milton Friedman proclaimed 50 years ago that the social responsibility of companies is to maximise their profits. For Etienne Perrot, companies should base their decision on cost-benefit calculation, taking into account the (often divergent) interests of all stakeholders. Provided a company in Russia does not violate the international sanctions in force, why should it not continue to meet the demand of local customers, asks Edward Dommen with reference to Nestlé.
On the contrary, Kara Tan Bhala states that “it’s not radical to postulate corporations should have as a foundational principle, that they are to make business decisions on moral grounds.” In her view, the war in Ukraine “will continue to add to public disapproval of the profit maximization credo and increase its rate of decay.” One may ask, however, whether companies withdrawing from the Russian market act on moral grounds or if it is only an attempt to minimise potential damage to their reputation and brand.
Rather than an alignment on moral principles or a result of pure cost-benefit thinking, the behaviour of companies may rather reflect the strength of Western public opinions and values (Valerio Bruno) in the condemnation of Russia’s invasion of Ukraine, which exerted strong pressures on firms to reassess their position beyond simply complying with regulations and sanctions.
Today, companies are regarded as political actors and they are called upon to embrace a bigger role in society, for instance in the area of ESG. They are required to go beyond the trade-offs between stakeholders’ interests and develop their own “consciousness” of how their activity serves the common good. This means that companies (top management, management and boards) may have to learn that sometimes enhancing free society principles may come at a cost but should pay off in the long term by preserving free society. Difficult times for “doing well by doing good”.

 

 

… meet the demand of local customers … ”

Towards the end of World War II, Nestlé was summoned to Washington, D.C. The U.S. armed forces had boarded a German submarine in the Rio de la Plata off Argentina. They found Nescafé in the galley, and demanded an explanation. Nestlé told them that it had factories in many countries, including Germany. What could be more normal than for them to sell their products to consumers in that country? Provided that Nestlé in Russia does not violate the international sanctions in force, why should it not continue to meet the demand of local customers?

Edouard Dommen
Specialist in economic ethics, former university professor and researcher in UNCTAD and president of Geneva’s Ecumenical Workshop in Theology

… the discernment of this decision cannot be based on a general moral principle … ”

Like any strategic decision, the decision to stay in Russia, suspend business relations or leave the country does not belong to a collective (state, company, trade union, association) but to the people in positions of responsibility. The discernment of this decision cannot be based on a general moral principle of right or wrong; instead, it must consider the cost, in Russia and also in the other countries, for every stakeholder (employees, suppliers, employment pool, public authorities, shareholders, creditors) whose interests are very variable and often divergent according to the risks incurred, depending on the time horizon and the economic space considered. This is why the temptation is to get rid of responsibility over others.This is what the president of the French business union (MEDEF) did, when he said that French companies will do what the French government decides. The responsibility is shifted; but its contradictions remain.

Etienne Perrot
Jesuit, Dr. Economics sciences, editorial board of the magazine Choisir (Geneva), editorial adviser of the journal Études (Paris)

… political considerations cannot abolish duties towards stakeholders … ”

Every investment or disinvestment decision has ethical dimensions, whether explicit or not. Companies don’t have a conscience of their own, but decision makers have, as do consumers, employees, suppliers, subcontractors and so on. No decision ever is taken only on profit-oriented calculations, although these can never be ignored. War imposes factual restrictions on companies, and political authorities can impose decisions, as in the case of sanctions and retroaction from Russia. Western companies owning or operating assets, factories, distribution networks or suppliers in Russia and Ukraine are faced with difficult issues, where political considerations cannot abolish duties towards stakeholders, wherever they are. There are no simple answers in business ethics, even when faced with the horrors of war.

Domingo Sugranyes
Director of a seminar on ethics and technology at Pablo VI Foundation, past Executive Vice-Chairman of MAPFRE international insurance group

… the effectiveness of individualized recourse by companies to codes, standards, ad sanctions is questionable … ”

Western businesses are already subject to various sets of codes and standards that include coverage of ethical issues. Outstanding examples are the OECD Principles of Corporate Governance and the Core Principles for Effective Banking Supervision (negotiated in the Basel Committee for Banking Supervision). These codes and standards typically include references to the integral importance of business ethics to their successful application. Institutional and transactional coverage is not uniform, dependent as it is on subject-matter. Nevertheless the codes and standards are the outcome of often laborious negotiations. And expansion of their range to still other issues is generally difficult – and costly without some kind of conduct guarantees within competing groups. However, the effectiveness of individualized recourse by companies to codes, standards, ad sanctions is questionable. Reliance for companies on collective approaches to action on ethical and humanitarian issues is thus likely to continue.

Andrew Cornford
Counsellor, Observatoire de la Finance; past staff member of UNCTAD, with special responsibility for financial regulation and international trade in financial services

… it’s not radical to postulate corporations should have as a foundational principle … ”

It’s not radical to postulate corporations should have as a foundational principle, that they are to make business decisions on moral grounds. This proposition grounds itself on the largely consensus agreement on corporations being moral agents and therefore, have (a) moral obligations, and (2) freedom to act. The idea of shareholder primacy whereby corporations have only the duty to maximize profits forms a central part of the Friedmanite ‘markets know best’, neoliberal creed, now in decline, albeit at glacial speeds. Perhaps the war in Ukraine and the ill-conceived behavior of some corporate actors will continue to add to public disapproval of the profit maximization credo and increase its rate of decay.

Kara Tan Bhala
President and Founder of Seven Pillars Institute for Global Finance and Ethics

… business as usual with Russia entails a great reputational cost …”

Believing that multinational corporations can have their own moral conscience that allows them to take a position on sensitive issues makes little sense, at least for the moment. It is instead fundamental that public opinion at the level of individual nations, but increasingly also at the international level, can act in such a way as to direct the actions of multinational corporations. In this sense, a fundamental role is currently played by social media, as well as by traditional media, in a lesser and less effective way. As demonstrated by the case of the recent Russian invasion of Ukraine, multinational corporations that think they can continue to do business as usual with Russia must understand that this entails for them a great reputational cost at the global level.

Valerio Bruno
Researcher in politics and Senior Research Fellow at the Centre for Analysis of the Radical Right (CARR)

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