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Conflict is not inevitable, but ask yourself: what if?

Magazine

Conflict is not inevitable, but ask yourself: what if?

Published 18 January 2023 in Magazine • 6 min read • Audio availableAudio available

Stakeholder capitalism has forced CEOs into taking political positions, even on controversial topics. Tensions over Taiwan make it critical for companies to plan ahead for the next values-driven conflict. 

If I told you a year ago that within three months, Russia was going to invade Ukraine, that massive land war would return to Europe for the first time since the Second World War, and that a very large number of Western multinationals would leave the Russian market virtually overnight, I suspect few would have believed it. Neither would I. 

Yet, as we know, that’s exactly what happened. Why did companies react so quickly, effectively abandoning a market that they had spent many years developing? And what does it mean for the future, both with respect to the role of business in society and the role of communications professionals positioned at the interface? 

In my view, we have witnessed the confluence of two distinct trends: the rise of stakeholder capitalism on the one hand and on the other a new era of global ideological struggle that is reshaping geopolitics.  

Stakeholder capitalism 

In a world of global challenges, from climate change to gender equity to pandemics, in a world in which companies’ moves are scrutinized by an army of NGOs and activists, one in which anybody with a smartphone can reach hundreds of thousands or even millions, companies must carefully balance the expectations of a growing number of demanding stakeholders. 

What is relatively new, however, is the expectation that businesses – and often CEOs personally – take political positions, often on controversial issues. I frequently speak with executives who wonder why stakeholders believe that their stance matters on, say, LGBTQ rights or abortion – after all, they usually didn’t end up in the top job because of their political philosophy or eloquence when discussing political matters. 

There are two reasons why we have seen this growing demand for CEOs to speak out. On the one hand, politics in many countries has become increasingly polarized. This means that less gets done and stakeholders consequently look to other actors in society – especially business – to address pressing problems. However, intense polarization also means that there is increasingly no middle ground, forcing key societal actors – including business – to choose a side. 

Taiwan Strait crisisThe next frontline in the global struggle between democracy and autocracy cuts right through the Taiwan Strait.

Second, the growing importance of values. Key stakeholders, especially younger customers and employees, want to know exactly where a company stands and, crucially, where the CEO stands.  

Businesses have partially brought this upon themselves. Over recent decades, marketing moved from being product or feature based to being lifestyle based. And then, more recently, it shifted from lifestyle based to values based. The same has happened with recruitment: gone are the days when top talent could be enticed with the promise of a nice cubicle, a good salary, and job security. Increasingly, employers speak about the community a prospective employee would join, and about the values that define it. That is why CEOs have become more visible, not just to communicate quarterly results but to convey the values that define the brand and organization. 

It’s therefore entirely logical that, when there are key moments in our politics that touch on central values, CEOs and the companies they lead are asked to take a stance. In the US, for example, that was clearly the case with the murder of George Floyd, the violent attack on the Capitol on 6 January, and the Supreme Court overturning the constitutional right to abortion. Similarly, the murder of Jamal Khashoggi led many Western CEOs to shun high-profile events in Saudi Arabia, at least for a time. 

Was it inevitable that Russia’s invasion of Ukraine would be such a moment? I think not. After all, Russia’s 2014 annexation of Crimea did not prompt a massive business response, nor did its earlier war against Georgia in 2008. Similarly, Saudi Arabia’s de-facto war in Yemen has not triggered such a response. 

What was different is that Russia’s war against Ukraine has been cast explicitly in ideological terms. Once key stakeholders accepted that framing, it left many Western firms no choice but to take drastic action consistent with their professed values. 

Ideology and geopolitics 

At least in the West, Russia’s invasion has been clearly framed in ideological terms – democracy against autocracy, freedom against fear.  

The two people most responsible for casting the war in this way are Presidents Joe Biden and Volodymyr Zelensky. For Biden, the democracy-autocracy framing links his foreign policy to his domestic agenda, which seeks to mobilize democratic forces, including some within the Republican party, against the authoritarian MAGA faction led by Donald Trump. President Biden, defender of democracy, at home and abroad. 

Similarly, in the days following the invasion, Zelensky told Europe in dramatic appeals that Ukraine was being attacked simply for espousing European values, for wanting to be a free, democratic country within a peaceful European order. It worked. Many months after the invasion, with runaway inflation and fears of winter gas shortages, support for Ukraine remains strong. 

The nature of ideological conflict is such that there is no middle ground. Even Europe’s right-wing populists who had long had a love affair with Vladimir Putin have had to reassess. In 2020, 67% of Silvio Berlusconi’s Forza Italia voters had a favorable opinion of Russia; after the invasion of Ukraine, it was down to 18%.  

Gone are the days when you attracted top talent with the promise of a nice cubicle, a good salary, and job security

It is then only logical that leading Western businesses would not be able to remain on the sidelines, although some tried. Nestlé, for instance, argued that as a food company, and especially as the leading supplier of infant formula, it should remain in both Russia and Ukraine. That certainly seems like a defensible position. But grumbling among employees, customers, and other key stakeholders became hyper-charged when Zelensky connected live to a rally in Bern and accused the company of funding Russia’s war machine, triggering major changes in Nestlé’s policy within 48 hours. 

What’s next? 

It is already clear that the next frontline in the global struggle between democracy and autocracy cuts right through the Taiwan Strait. The growing likelihood of conflict over Taiwan involving the world’s two largest economies should send shivers down everybody’s spine.  

Surely, you might think, the economic interdependence between the US and China, as well as between Europe and both major economies, is such that conflict of the kind seen in Ukraine is highly unlikely. 

Indeed, there is a book by a British author that makes exactly this point. Nations, the author argued, had become so economically interdependent that the costs of making war between them far outweighed any potential gains. The book, The Great Illusion, was written by Norman Angell. It was published in 1911. 

“The growing likelihood of conflict over Taiwan involving the world’s two largest economies should send shivers down everybody’s spine”

While some commentators are already speaking of a second Cold War, it is important to remember three major differences from the 20th century version. First, when Presidents Ronald Reagan and Mikhail Gorbachev were in charge, total US-Soviet trade was about $5 billion. Total trade between the US and China today is over 100 times that. Second, during the “original” Cold War, the world was split into two blocs and most countries were clearly on one side or the other – hardly any had deep economic ties with both. Today, just about every developed economy is deeply connected with both China and the US. Finally, stakeholder capitalism has not gone away even if great power conflict is returning.  

What is to be done?  

I know several CEOs who are annoyed that stakeholders are demanding to be told whether their offices have gender-neutral bathrooms. Yet that’s a considerably easier question to answer than one about what the company will do if the Chinese navy threatens to seal off Taiwanese ports.  

Great power conflict is not inevitable. But now is the time to prepare the business and to ask the question – what if? And that means first and foremost being clear about the company’s values and working to ensure that all key stakeholders – both internal and external – know what these values are and trust that the company will act in accordance with them when things get tough. 

This is a critical – perhaps the most critical – task for communications professionals over the next 12 to 24 months. If we are indeed entering a period of values-driven global conflict, making it up as you go along is probably not a good idea. 

Authors

David Bach

David Bach

Professor of Strategy and Political Economy

An expert in strategy and political economy, David Bach holds the Rio Tinto Chair in Stakeholder Engagement at IMD. Through his award-winning teaching and writing, Bach helps managers and senior executives develop a strategic lens for the nexus of business and politics.

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