Corporate sanctions against Russia indicate a new level of social responsibility

The war in Ukraine has resulted in many of the world’s biggest companies deciding to stop doing business with Russia. McDonald’s, IKEA, Apple are just some of the well known corporations making a stand.

But why have they done this? After all, a famous rule of economics states that the social responsibility of business is to “increase its profits”. Surely by closing themselves off from such a large country, these companies will take a financial hit?

Perhaps then, the social role of business has changed, and the professional duty to maximise shareholders’ interests and keep businesses growing is no longer all encompassing. After all, the leaders of these large organisations are also citizens of the world; moral beings who want to do the right thing. And employees who feel anguish over the images coming from Ukraine will also expect their bosses to respond appropriately.

Of course, we could also interpret such a “moral stance” as having no altruistic motivation whatsoever. Withdrawing from the Russian market may be nothing more than an attempt to minimise potential damage to a company’s global reputation and brand – particularly if they are seen as being out of step with a competitor.

For, as the Scottish economist and philosopher Adam Smith proclaimed back in 1776: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.” According to this view, the purpose of supplying what a customer needs is no more (or less) than an exchange process designed to generate profit.

But there is an alternative explanation for McDonald’s, Starbucks and the rest closing their outlets in Russia – something called “enlightened self-interest”. This is where acting to enhance the interests of others will eventually benefit your own interests. Put simply, it means a business doing well by doing good.

I am part of a research group examining this approach, with the aim of showing how a sense of responsibility and purpose can be both financially profitable and also generate what we refer to as “good dividends” – developing a new theory of business which integrates profit, people and the planet.

This does not mean the idea of acting solely in the interest of shareholders is dead. But we are in a very different context now. Corporations are involved in climate change conferences like COP26; they respond to sustainable development goals set by the UN; they invest in and report on their environmental and social responsibilities.

We have found that a developing moral awareness from corporate decision makers is helping to undo a traditional “us and them” form of leadership which is being replaced with a sense of “us with them”. Businesses of all sizes and in all sectors – coffee sales, metal manufacture, house building, public relations – are raising the value of their business while making a positive social impact at the same time.

Profit and power

Decisions about doing business in Russia show how this works at a global level, where many corporations are as large as countries. Indeed, comparing the value of the largest companies (revenue) to countries (GDP), 150 out of the 200 richest global entities are businesses.

The US retail giant Walmart is wealthier than Australia. The “economies” of Shell and Toyota are each larger than those of Mexico or Sweden or Russia. So alongside a country’s political sanctions, many large companies have the financial muscle with which to make an impact; when they walk away from doing business with a country, the citizens (and politicians) of that country cannot fail to notice.

This is why I’m inclined to see corporate actions against Russia as more than just good PR. Business leaders are not immune from society’s concerns, and nor do many of them want to be. So maybe the business world has turned an important page, and the stand it is taking is evidence of a new way of understanding its purpose and role in society.

For away from the horrors of Ukraine, there are many issues – climate change, poverty, oppression – which demand the business world’s urgent attention. Perhaps future generations will point to the early 2020s as a time when the relationship between business and society fundamentally changed. For humanity’s sake, let’s hope so.

 

By Steve Kempster

Professor of Leadership
Lancaster University

 

Article courtesy www.theconversation.com
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