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The swift – and not-so-swift – decisions being made by global brands and smaller companies alike to pull out of Russia might appear to signal that a battle of extremes is waging in board rooms across the globe between practical/financial concerns and adherence to philosophical principles. The choice is being portrayed as one pitting potentially crippling financial impacts to the company and its shareholders on the one hand, to fulfilling the company’s oft-highlighted ethical responsibilities on the other.
Our research and experience tell us, however, that these two seemingly opposing factors challenging corporate leadership today are – in fact – inextricably intertwined and aligned in ways that are not often recognized by the casual observer.
Our analysis of the increased importance and heightened role of Corporate Social Responsibility (CSR) reveals a world in which Environmental, Social, and Governance (ESG) ratings have become a core determinant of corporate policy and management action. ESG is an investment community rating based on considering all relevant stakeholders, and – unsurprisingly – many of these stakeholders are institutional investors with significant clout and influence over the firms that they invest in.
To be clear, academic research has long found that companies that are the most socially responsible also deliver the highest financial performance. Investors have found that higher ESG scores translate into improved profitability, lower employee turnover and better relationships with the legal and regulatory community. So, the decision to exit Russia may actually be financially beneficial in many ways.
Any U.S. or NATO member firm that stays in Russia is rolling the dice that consumers, employees, competitors, investors, communities, and regulators may take significant action that negatively impacts their firm. While governments have so far been resistant to putting ‘boots on the ground in Ukraine’, companies can immediately join governments in negatively impacting Russia’s economic situation due to Russia’s unprovoked incursion into Ukraine.
Don’t think you can continue operations in Russia and make philanthropic donations to ‘make up’ for this behavior. The eyes of the world are watching who is staying, who is leaving and how quickly these companies come to terms with their decision.
Whatever ways a given company chooses to act, that decision will have significant, long-term implications that will extend well beyond the current conflict.
So, choose wisely.
Linda Ferrell is the John Roth Family Faculty Fellow of Marketing and Business Ethics at Auburn University’s Harbert College of Business. Her research interests include marketing ethics, ethics training and effectiveness, the legalization of business ethics as well as corporate social responsibility and sustainability.
O.C. Ferrell is the James T. Pursell, Sr. Eminent Scholar in Ethics and Director of the Center for Ethical Organizational Cultures in the Harbert College of Business at Auburn University. He has written leading textbooks in business ethics and marketing and serves as an expert witness in high profile cases dealing with marketing ethics issues.