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Staying or going? Stakeholder backlash to organizational conduct during the war in Ukraine

Datum:26 april 2022
Auteur:Peer Stiegert
Staying or going? Stakeholder backlash to organizational conduct during the war in Ukraine
Staying or going? Stakeholder backlash to organizational conduct during the war in Ukraine

Due to the ongoing Russian invasion of Ukraine in February, international companies experience mounting societal pressure from western countries to cease business activities on the Russian market. Importantly, major stakeholder groups, such as consumers and activists, demand organizations to minimize their indirect contribution to human suffering in Ukraine through their tax payments to the Russian government and to go beyond the legal minimum requirements in the form of political sanctions. Failing to address stakeholders concern by continuing business would constitute immoral behaviour, leading to consumer boycott and protests. For organizations, this means deciding to either (a) continue doing business in Russia, maximising profits (b) to scale back operations, or (c) to exit the market entirely in order to appease consumers and activist groups.

Interestingly, companies comply with stakeholder demands regarding Russia to different degrees. On the extreme ends of the curve, Heineken and KPMG are being praised for deciding to withdraw from the Russian market completely, while organizations such as Lacoste and MSI continue to conduct business as usual without any self-imposed restrictions and are consequently shunned by consumers. However, some organizations, such as Bosch or General Electric are still reluctant to commit to drastic measures and decided to scale back only parts of their business in Russia instead, leaving other business areas operating normally. Other organizations, for instance Adidas or Amazon, opt for a temporary suspension of activities with a possibility for a return to the Russian market in the future, while companies such as Nestlé or Danone only pledged to postpone future investments, but defy demands to exit the market entirely.

These less severe forms of withdrawal from the market aim to appease stakeholders, while at the same time preserving the opportunity for future profits. The interpretation of whether these measures are perceived as sufficient remains with the individual observing them. Therefore, some stakeholders may regard them as adequate while others may interpret them as not reaching far enough. In addition, some stakeholders may perceive hypocrisy as companies are seemingly unwilling to sacrifice profit in the face of a humanitarian crisis, even though some measures do go beyond minimum legal requirements.

In my ongoing research, I propose that organizations’ prior moral reputation influences whether stakeholders perceive hypocrisy when organizations react to the current crisis by only partially withdrawing from the market. Specifically, a strong prior moral track record, evident by past above average environmental-, social-, and governance performance may increase perceptions of hypocrisy as they form baseline expectations against which the organization’s subsequent actions are measured. Such expectations have been shown to increase punishment after moral transgressions.2 When expectations for moral conduct are high, even partial withdrawal may be perceived as immoral and potentially hypocritical by stakeholders.

Understanding when stakeholders perceive hypocrisy in organizations’ partial withdrawal strategies is crucial for companies in order to avoid backlash from, potentially well-meant, self-imposed measures.

Peer Stiegert (p.stiegert rug.nl) is a PhD candidate at the Department of Human Resource Management & Organizational Behavior at the University of Groningen. His research focuses on public perception of organizational scandals, attribution theory and decision-making.

 References:

1 Stoll, M. L. (2008). Backlash hits business ethics: Finding effective strategies for communicating the importance of corporate social responsibility. Journal of business Ethics78(1), 17-24.

2 Stoll, M. L. (2008). Backlash hits business ethics: Finding effective strategies for communicating the importance of corporate social responsibility. Journal of business Ethics78(1), 17-24.