As bombs started to rain down on Ukraine and Russian troops set off across the country in earth-shaking tanks, business leaders around the world began strategizing, sketching out plans and plotting strategies.
For companies, the response to mass protest movements, poor human rights records and war is typically filtered through a complex decision-making process. The decision to exit a market is a calculated affair, right down to the language.
When Nissan pulled out of Russia after suspending production at its St. Petersburg plant in March 2022 “due to supply chain disruptions,” the company said in a statement that the move was a result of there being “no visibility of (the) external environment changing.” Uniqlo operator Fast Retailing, which in March last year reversed its initial decision to maintain operations in Russia after international backlash, was quick to promote its humanitarian efforts in a bid to repair its image.
From singing the praises of authoritarian regimes to contributing to environmental destruction, the range of ethical transgressions that businesses make are varied — as are the levels of scrutiny and resulting costs they experience.
Indeed, businesses headquartered in highly regulated countries that fail to meet ethical standards in overseas markets risk incurring reputational damage, consumer boycotts and — and in some cases — legal ramifications, but many argue that the price of such lapses still isn’t enough.
For companies in Japan, international regulations combined with reputational risk are often motivators, said lawyer Sakon Kuramoto, who developed JaCER, a forum for employees of Japan-headquartered companies to report human rights grievances.
“Fast Retailing has faced action by (nongovernmental organizations) and the U.S. government in relation to (using) Xinjiang cotton,” he said, referring to allegations of forced labor in China’s northwest. “Many Japanese companies have had to take action in order to be compliant with U.S. laws and regulations — especially outside Japan. The business executives at Japanese companies recognize that they need to correspond to the laws and regulations (overseas).”
At the same time, businesses are understanding the importance of proactively taking action toward so-called environmental, sustainability and corporate governance (ESG) issues, he said.
In terms of climate and sustainability issues, companies increasingly recognize the risk of litigation.
According to a 2022 report by the London School of Economics, the number of climate change-related litigation cases has more than doubled since 2015. And in February in a case that drew global attention, four Indonesian citizens announced they had mounted a legal challenge against Swiss-based construction materials firm Holcim over its alleged environmental damage.
Tom Sparks of the World Lawyers’ Pledge on Climate Action, said that while some companies have shifted the way they view climate change, “as yet they don’t go far enough,” with companies largely “treating climate change as a strategic risk,” rather than an ethical consideration. The toll isn’t “high enough yet” for companies, he said.
“In many places, and especially for global corporations, the main sanction has been reputational,” he said.
Reputational impact is something Hong Kong pro-democracy activists overseas have attempted to harness in the aftermath of Beijing's crackdown on dissent, as prominent businesses still maintain operations in the beleaguered finance hub.
In February, heads of prominent foreign chambers of commerce appeared in a video promoting the benefits of Hong Kong as a business hub, with one citing its legal system. The same month, 47 pro-democracy activists were put on trial under the city’s controversial national security law.
Human rights advocate Sam Bickett, who previously worked as a corporate lawyer in Hong Kong, said U.S. and British business leaders’ decision to promote the city illustrated a calculus had been made that “the consequences ... are going to be pretty low in the West.”
But the equation may be changing: That video prompted a U.S. congressional panel scrutinizing China to inquire about the American Chamber of Commerce in Hong Kong's stance on the national security law. And in a further instance of businesses being placed under the magnifying glass, last month British lawmakers found HSBC complicit in Hong Kong human rights abuses for siding with authorities and denying pension payments to those who had left the city.
While activists appeal to lawmakers, on a consumer level there is rising awareness of corporate complicity, with boycotts and pressure campaigns over business actions in overseas markets are on the rise.
A Bain & Company report in 2022 found consumers in Asia-Pacific were concerned about ESG issues “on par with Europe and the U.S.,” while a 2022 LendingTree survey found that 1 in 4 Americans were boycotting a product or company in part by the way companies had handled social issues. This number was also on the rise in the U.K.
“What consumers in increasing numbers are saying is, ‘We don’t want to be complicit in things that we believe are wrong by supporting an economic model which encourages or enables a corporation to abuse human rights or spoil the environment, and we have some agency in this,’” said Simon Longstaff, executive director at the Ethics Centre in Australia.
“We may not be able to change legislation or force major changes in boards through shareholder activism, but what we can do, sometimes only a dollar or a yen at time, is affect change by the aggregate of our decisions about what to buy or what not to buy,” Longstaff said.
What motivates businesses to act ethically is a philosophical question for many experts.
Sparks said we may be “seeing the limits of moral arguments, here: For every company that is trying to do the right thing — and there are many of them — there are others which care only about the bottom line.”
“The question then becomes: If we can’t trust companies to do the right thing just because it is the right thing to do, what is the alternative?” Sparks said. “We think that law has an important part to play here: If corporations won’t make the transition on their own, society has to put in place rules which require them to shift to a business model that doesn’t cost the Earth.
“The sheer fact that the oil majors have been able to pocket these vast profits and pay indecently large dividends to stockholders at this crucial moment for climate action is proof enough of that,” he added.
Longstaff takes the view that businesses should be motivated to operate in and foster an ethical, stable and well-regulated environment in order to be profitable and support the free market.
The societies where businesses operate “need to have a certain kind of health as a whole” for firms to prosper, he said. “You cannot have free markets if you lie, or cheat or use power oppressively.”
While some view companies as “parasites” within the body of society that can carry on in a self-interested manner so long as they provide tax revenue, jobs and dividends, Longstaff said, there is another view where they are “an organ of the body, they are part of it.”
“Just as a heart must be healthy for a human body to be able to flourish, so the rest of the body must be healthy for the heart to be able to flourish,” he said.
But for some businesses with operations in overseas markets, the focus on overall social conditions may be less of a motivator.
Bickett, looking at the Hong Kong market, suggests a more cynical view, saying those who wanted to motivate change must “make it a business decision.”
“They’re capitalist companies, you’re not going to convince them to be better. You’re not going to convince them on moral grounds (or) on human rights grounds. You’re going to convince them on financial grounds,” he said.
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