The stakeholder theory It has been criticized on several fronts. One of the criticisms is that it allows managers to adopt initiatives and criteria that make it difficult to evaluate their performance, which must be done according to a single metric: the generation of profits. On the other hand, its defenders point out that the 360-degree vision is the only way to generate value for shareholders in the long term and that the company that does not do so, sooner or later, loses the trust of the different interest groups and eventually loses its license to operate and destroys value.
Efforts to stop climate change, as well as the COVID-19 pandemic, are two recent examples of the important role of business in solving large-scale and complex problems. In recent weeks, the Russian invasion of Ukrainian territory has highlighted the complexity of managing a multinational company in a volatile, complex, uncertain and ambiguous environment.
A survey conducted by Morning Consult shows that 75% of Americans support companies cutting ties with Russia, stopping the offer of products and services in that country, as a measure of pressure against the Russian government. This opinion is shared by a considerable number of employees, consumers, civil society organizations, as well as political and opinion leaders around the world.
This expectation, coupled with the need to observe the economic and commercial sanctions imposed by different countries, is a difficult test for business management with an ESG perspective and the stakeholder theory. Managers and boards of directors face a complex reality and there is not always a clear path, nor a perfect solution.
For example, if your company has a sales office with 20 employees, the solution seems ‘easy’: close operations and terminate staff. However, if your company has several factories and thousands of employees, the answer is more difficult. Is it responsible to cancel operations and abandon your collaborators to their fate?
Now, if your company’s income depends, to a greater or lesser extent, on public contracts (eg weapons production, financing for state companies, consultancy for government entities), it is clear that continuing to operate can be perceived as enabling and even supporting the regime in power, in violation of trade sanctions imposed on Russia by various countries.
However, if your company is in the business of producing consumer goods, are you expected to go out of business and contribute to shortages? What if it’s essential supplies? Suppose it is reasonable to continue producing milk and bread, as well as clothes and shoes, but what about soft drinks, sweets and chocolates, or alcoholic beverages? Sports shoes and designer clothes?
If you decide that the responsible solution is to continue operating, you will have to be very careful in the way you develop your business. What happens if you raise prices in the context of a shortage? Should you allocate all or part of the profits to a support fund for displaced people? Does continuing to pay taxes imply supporting the regime in power?
A wrong, untimely decision or one that is perceived as a marketing opportunity lacking in substance can have important consequences for the company in the short and long term, both legal and reputational.