Businesses have long pursued global expansion under the shared assumption that foreign investment and free trade inexorably foster democracy and social progress. Expansion in authoritarian countries or conflict areas and even assaults on our environment could be reliably defended, typically on the basis that market growth has a fundamentally positive impact.
But as geopolitical uncertainty increases and political risk roars back, this argument is wearing thin. The political stability that benefits investors is often a consequence of surveillance and repression. Democracies in general are turning more populist and dysfunctional. Citizens increasingly focus on how commercial support for dominant political interests shores up corrupt power structures and negatively impacts their lives. And in an era rife with rising inequality, corporate lobbying, and tax avoidance, it grows challenging to argue that a rising tide will lift all boats.
Amid growing anger over corporate hypocrisy, greed, and social and environmental impacts, employees are now openly questioning C-suite strategic decisions over where companies do business—and with whom. Google’s struggle to address employee consternation over its commercial relationships in China, for example, began in 2017 and shows no sign of resolution. Questions of values are becoming inseparable from incentives, culture, and strategy.
In some ways, this aligns well with new visions for the role of companies in society. From BlackRock chairman Larry Fink’s now-yearly appeals to CEOs to consider their purpose, to the Business Roundtable’s abandonment of shareholder primacy, to the new rhetoric of “stakeholder capitalism” in full force this year in Davos, the momentum for a new type of capitalism rooted in advocacy seems unstoppable.
Yet the timing of this pivot, which coincides with a huge increase in political activism around the world, is highly risky for business leaders.
In 2020 and beyond, companies will need to decide whose interests they should prioritize. Will it be those of the governments that award their regulatory licenses, the young consumers rallying in the streets, the employees demanding a voice in business decisions, or the shareholders that want to see relentless quarterly growth and expansion into new markets?
Each of these stakeholders is essential. But committing to deliver value to all is to undertake a journey fraught with potential for employee revolt, expropriation, litigation, and disinvestment.
Increasingly, the dispute over Google’s activities in China looks less like another example of techlash and more like a warning signal for multinational corporations everywhere. Companies including Nike and Activision-Blizzard have been heavily scrutinized over attempts to silence or neutralize employee support for the Hong Kong protests. The same could be said of the National Basketball Association, which clumsily navigated the conflict between the Chinese government and Hong Kong protestors, and as a result found itself attacked by the unlikely bipartisan alliance of Democratic US representative Alexandria Ocasio-Cortez of New York and Republican senator Ted Cruz of Texas.
Given that neither geopolitical tensions over technology nor protests in Hong Kong seem likely to diminish, negotiating the trade-offs between Chinese and US interests can only become more difficult.
Where else in the world might companies find it harder to do business as usual? Protests in Chile have started to engage mining unions, and activists in Egypt are monitoring relationships between companies and the government. Prime minister Narendra Modi’s treatment of Muslims in India poses looming reputational risk for companies that choose to do business with India’s central government, not least because of the government’s decision in 2014 to permit foreign funding for political parties.
Meanwhile, global climate activism, which gained enormous momentum in 2019, will become more fraught and litigious. In December, the Philippines government concluded a major inquiry into the links between human rights and climate change, with a determination that 47 foreign fossil-fuel companies can be held legally liable for their actions. While some companies will manage to deflect scrutiny by supporting climate action, others will face existential threats from policymakers and investors.
The past year was a vintage one for popular protests against recalcitrant, unpopular governments. Popular unrest swept both the developed and the developing world, from Hong Kong to the UK and to Spain, Bolivia, Chile, Sudan, Algeria, and beyond. In some cases—as with metro fare rises in Chile, fuel-price increases in France, or taxes in Lebanon—the immediate triggers were economic. In others, such as those in Hong Kong and India, questions of human rights, freedom of expression, and social identity dominated.
While the forces that drive people into the street are highly country- and context-specific, the protestors themselves claim global solidarity in their resistance to irresponsible political officials: Catalan protestors waved the flag of Hong Kong, and Lebanese protestors carried anti-Brexit placards. Chile’s government released a document claiming that domestic protests were caused by “international influences and media” … including Korean pop music. There is every reason to think that street protests in 2020 will expand and become even less predictable—affecting 40% of all countries, by one estimate.
Meanwhile, corporate activism, often viewed as a phenomenon peculiar to Trump-era social and political polarization in the US, is gaining momentum and going global. Shareholder activism became more common in Europe and Asia-Pacific, even in nations historically unfriendly to activists. A report from UK law firm Herbert Smith Freehills found that 95% of global respondents foresee rising employee activism across all dimensions during the next five years.
The new era of political activism has coincided dramatically with rising skepticism of corporate strategy, and about the origins and effects of value creation. In this new risk environment, stakeholder trust is a company’s most valuable asset. Companies that aspire to be stakeholder capitalists can begin by mapping and understanding the social and political systems in which they operate, so that at least there is a clear view of trade-offs between divergent interests and the consequences of key decisions.
As the scope for win-win solutions is narrowing, trust will come with a considerable premium. Developing a deep understanding of the stakeholder landscape will be a critical success factor, as will developing a robust approach to values and integrity that goes well beyond legal compliance.
All stakeholder groups are important, but none more so than a company’s own employees, who can have a disproportionate impact on a company’s reputation simply by leaking internal information on social media. Their demands will not be satisfied by feel-good corporate social responsibility initiatives disconnected from the core business. Leaders who can develop a clear moral narrative for their organizations, with an eye on resilience over the long term, will have the greatest chance of success.