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Sat, March 25, 2023 | 01:02
Andrew Hammond
Why Ukraine is major moment for business, not just politics
Posted : 2022-03-29 16:25
Updated : 2022-03-29 20:49
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By Andrew Hammond

The Ukraine crisis is, primarily, a human tragedy. One of the most striking examples of this is the approximately 3.5 million refugees, around 10 percent of the population, who are estimated to have already been forced to flee the country.

Geopolitically, the situation is fast becoming the worst crisis in Europe since 1945, with the possibility of hostilities spilling outside of Ukraine's border. Perhaps most alarmingly, there is growing concern about Russia's possible use of tactical nuclear weapons, which could kill millions.

For corporations, the month since Russia's invasion has been a dizzying period that has seen, what Yale professor Jeffrey Sonnenfeld has called, an unraveling of "capitalistic diplomacy" as commercial relationships have been severed on a scale thought unimaginable as recently as February.

London School of Economics professor Vladislav Zubok has also commented that the corporate retreat from Russia may well be a bookend on the era whose beginnings he witnessed while passing Moscow's first McDonalds on his way to work each day soon after the collapse of the Soviet Communism.

Governments around the world have taken coordinated action, using sanctions to target areas like Russia's banking system, state-controlled companies and powerful oligarchs. Under these legal mandates and wider self-imposed restrictions, several hundred companies have also severed commercial ties, rupturing supply chains.

Yet, despite the widespread actions taken so far, which has rattled Moscow so much that it has said that they are akin to a declaration of war, there are calls for corporates to do much more. This includes from former Ukrainian Finance Minister Natalie Jaresko who argues that the Russian invasion should prompt a wider ESG reckoning for the corporate community.

She even suggests that Ukraine could be "the 21st-century equivalent of the late-20th century anti-apartheid movement, in which business, across many sectors and societies, banded together to counter the systemic and systematic racism of the white nationalist South African regime. The fastest way to end the war is to stop trading with Russia, divest Russian assets and refuse to finance Putin's regime".

Step back from the immediate situation in Ukraine, and it is clear that the crisis is only the latest incident to underscore the growing potential for businesses to become intertwined with foreign relations between states in political, human rights, technological and legal issues. There have been numerous other such challenges in recent years in what is sometimes uncharted territory, whereby individual firms and sometimes entire industries find themselves under the political and stakeholder spotlight in diverse polities across the world.

While this is not a wholly new phenomenon by any means, of the 21st century, it nonetheless appears to be increasing in incidence and salience driven by globalization in the volatile, uncertain, complex and ambiguous (VUCA) world we now live in.

The last decade and a half alone have already seen a succession of first order international crises, including the 2007-08 financial upheavals and the coronavirus pandemic. The degree of instability accompanying the high level of international interdependence of the last several decades may now mean that crises are recurrent ― and thus, the rule rather than the exception.

Beyond adhering to the law and other government mandates, corporates are guided in this VUCA landscape by international codes of conduct, including the U.N. Guiding Principles on Business and Human Rights. However, some companies have recognized the need to go even further, including in what has been termed corporate foreign policy.

Corporate foreign policy aligns activities, including public affairs, risk management, ESG, and operational planning, in a clear strategic framework. Recognizing the need for an unusual mix of core competencies in some international corporate functions, capability ― including tools, training and infrastructure ― can be enhanced where any gaps exist.

ESG frameworks are often an area of capability in which firms need bolstering. This includes the need for clearer internal guidance for determining decision-making, protecting stakeholders ― including employees and customers ― and remaining faithful to corporate values, in fast-moving, unpredictable crisis situations such as those with the Russian invasion of Ukraine right now.

One related area of activity is foresight, horizon scanning and scenario planning which enable firms to better anticipate and plan for social, economic and political opportunities and risks, helping to embed resilience through organizational structures.

The march of globalization during much of the last few decades means that few international companies will escape these pressures completely. And, at the same time, owing to the proliferation of media and the influence of NGOs and related stakeholders, the actions of firms are increasingly under the microscope.

For those companies which are proactive and invest in their capability, the prizes ― both in terms of mitigating risk and seizing opportunity ― are potentially ever more significant. Yet for those which are perceived to misstep, the fallout can be damaging, both reputationally and also for the financial bottom line.


Andrew Hammond (andrewkorea@outlook.com) is an associate at the London School of Economics.


 
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