By Gabriel Donleavy

Honorary Advisor

Macau Institute for Corporate Social Responsibility in Greater China (MICSRGC)

In normal circumstances a business takes care of business by making profits through a combination of increased sales income and controlled costs, in some case supplementing operating profits with well-chosen investments that generate sustained capital gain. In the abnormal circumstances of war, a minority of companies will be able to preserve their models by taking advantages of the gaps of demand and supply that war brings.

Gabriel Donleavy

Most companies, however, will not be able to do that, and most companies will also experience a conflict of interest between what is most profitable for their shareholders and what is their duty as corporate citizens of their country. Before Russia’s invasion of Ukraine on 23 February 2022, it would have been natural to expect the conflict of interest to be resolved in favour of the shareholders, and the narrative would be it is not the province of business to get involved in politics.

This time it was different. Within a month of the invasion, most of the largest western and Japanese firms had closed down their operations in Russia, and the few that had not by then virtually did so in the second month, presumably not wishing to suffer the opprobrium of being out of step with the majority of the western corporate population. This withdrawal from the Russian market by the western firms, as a swift response to Putin’s aggression against Ukraine is a turning point in history, not just economic or business history. Never has the corporate population of the democratic world acted so quickly or so decisively against their narrow financial interests in favour of their responsibility to society as corporate citizens. This finally justifies the granting of limited liability to the shareholders of corporations on grounds other than the original one of encouraging more individuals to take entrepreneurial risks. We could compare this event to a teenager coming of age, going from boy to man, from girl to woman. It is incontrovertible proof of corporations reaching their maturity.

This phenomenon was not confined to North America and Europe, but extended to East Asia and Australasia too, albeit with greater delay and with a smaller proportion of the quoted corporate population taking part. Why should companies headquartered outside Russia’s near neighbours do this at all though? In some cases the universality of US economic sanctions against Russia would be a major factor. In other words, the desire to indicate to China that the Russian aggression should not be copied by China against Taiwan, as there would be immediate and significant sanctions if that should happen. And just as nobody in the democratic world took Putin’s designation of his attach as merely ‘a special military operation’, so few would take a mainland attack, if there should be any, on Taiwan as strictly and exclusively an internal affair that is nobody else’s business.

Why, though, is corporate social responsibility economically justified? Normative stakeholder theory, codified by Ed Freeman in 1984, asserts that the long run interests of the shareholders is also the long-term interests of the principal stakeholders such as consumers, employees and suppliers. Accordingly, the executive of the firm should engage with all stakeholder groups and arbitrate their conflicting claims in the long-term interests of the whole corporate entity. This view is underpinned by a belief that long term survival and growth of a firm is caused by playing a positive sum game, not a zero sum one. That is, survival in business means creation of value. Short term conflicts between stakeholder groups are zero sum games in which a fixed pool of value is fought over between groups, like hyenas fighting over possession of a carcass. Only if a fighter in a zero-sum game has overwhelming strength and strategic wisdom will it avoid the tit for tat revenge by the losing side in the next round of the conflict. It is obvious that Putin sees Russia as a country of such overwhelming strength and chess refined strategic cunning that he could not conceive of losing this zero-sum game he so confidently began. More recently he has asserted that the West must lose the economic war as his response to its sanctions, especially to the imposition of a price gap on its energy exports, is to close off all energy exports from Russia. It is the population of individuals in countries as France and the Czech Republic, taking to the streets in protest against soaring energy bills and demanding government appeasement of Putin in order to keep people warm in winter, that is encouraging Putin to take this stand; not, not, not any weakening of resolve by the corporate populations of Europe. We might almost think that corporations are behaving more like patriotic citizens than are the individual human citizens themselves.

It was common twenty years ago to talk of a post-industrial society to describe the effects of the rise of IT and AI. It looks now that we could be justified of looking at the period from now as one of a post society industry, as corporate citizenship has moved so decisively from a normative prescription to a positive empirical fact of life.