Why global firms are pushed to take sides in wars, and how they can avoid it

Russia’s war against Ukraine has changed how global firms respond to geopolitical events. Whereas in the past foreign companies often preferred to stay neutral in times of war, now they increasingly take sides.

When Russia invaded Ukraine three years ago, global firms like Google and Amazon were swift to offer support to Ukraine with donations and supplies. Others, like Renault and Deutsche Bank, harmed the Russian economy by suspending operations and investment^[1].

Overall, more than 1,000 foreign companies^[2] reduced their activity in Russia, with nearly 300 of them leaving the country completely. These firms acted in line with the geopolitical position of their home countries, but often did so before their governments had issued any official policy.

In our study^[3] of corporate responses to the Russia-Ukraine war, we call this “partisan behavior” – as it supports one side, while harming the other.

But taking sides often comes at a cost^[4]. Shell, for example, lost almost US$5 billion^[5] (£3.9 million) by leaving a joint venture with Russia’s energy giant Gazprom, and the US digital communication company Cisco lost almost £200 million^[6] from pausing its operations in Russia.

Supporting one side over another has also backfired for many firms in the conflict between Israel and Gaza. For example, McDonald’s restaurants in Israel (then owned by a franchise group) donated free food to Israeli soldiers^[7], while Ben & Jerry’s sought to stop sales to Israelis in the West Bank^[8].

Both actions led to a considerable backlash, mostly in the form of consumer boycotts, which led to reduced growth for McDonald’s^[9], and big losses for Ben & Jerry’s parent company, Unilever^[10].

So why do companies take such economic and reputational risks? One reason could be that geopolitical divides along with ongoing culture wars^[11], amplified by social media outrage, have increased public pressure^[12] on large multinational firms to take a political stance.

Yet continuing with business as usual does not seem to be an option either. After Coca-Cola continued to operate as normal during the Israel-Gaza conflict, it was accused by one Palestinian-led movement of being “complicit in a war crime”^[13].

Firms that maintained operations in Russia, such as Carlsberg and Unilever, were not only criticised for doing so by their home countries^[14], but also faced the prospect of a takeover by the Russian state^[15] – since their western influence was perceived as threatening. In comparison, many Chinese firms took the opportunity and expanded operations in Russia^[16] – supported by the Russian government.

A survey by the American thinktank the Conference Board confirms that western companies find it increasingly challenging to “maintain neutrality”^[17] in times of conflict. Yet geopolitical conflicts^[18] are on the rise, and multinational firms will continue to feel pressure to respond.

Of course, sometimes foreign firms have little choice about what to do. For example their home governments may issue sanctions on a conflict party, making it difficult to continue business. This was the situation for many foreign firms operating in Russia during the war.

But often, foreign firms can choose how to respond. In those cases, our research suggests that they should take a non-partisan humanitarian position, and focus on supporting the victims of a conflict – on both sides – as much as possible.

For example, two large US companies, Comcast (media) and Verizon (telecommunications), each committed US$1.5 Million^[19] to support humanitarian efforts, such as the charity Doctors Without Borders, in both Israel and Gaza. Neither firm has faced criticism or any kind of backlash.

A further step would be for large corporations to develop a shared code of conduct which focuses entirely on non-partisan humanitarian measures in line with international law^[21].

Under this law, conflicting parties have an obligation to ensure passage of humanitarian aid, freedom of movement of humanitarian workers and the protection of civilians, refugees, prisoners and the wounded.

Multinationals could play a constructive role in this effort. They could partner with NGOs and charities to finance essential services, provide logistical support and ensure the continuous flow of aid.

Such a shared commitment to the humanitarian cause could also be a useful approach for other organisations, like universities. The resignations^[22] of US university presidents^[23] after they criticised pro-Palestinian campus protests could have been prevented with a clearer non-partisan approach^[24].

A politically polarised world can be difficult to navigate, and one that global businesses should be increasingly wary of. But a non-partisan humanitarian approach, which helps those who suffer the most, offers a balanced and ethical alternative.

References

1. ^{^} suspending operations and investment (som.yale.edu)
2. ^{^} more than 1,000 foreign companies (som.yale.edu)
3. ^{^} our study (link.springer.com)
4. ^{^} at a cost (link.springer.com)
5. ^{^} lost almost US$5 billion (www.forbes.com)
6. ^{^} lost almost £200 million (www.lightreading.com)
7. ^{^} donated free food to Israeli soldiers (www.aljazeera.com)
8. ^{^} Israelis in the West Bank (www.bbc.co.uk)
9. ^{^} for McDonald’s (fortune.com)
10. ^{^} for Ben & Jerry’s parent company, Unilever (nypost.com)
11. ^{^} culture wars (www.economist.com)
12. ^{^} increased public pressure (www.esgdive.com)
13. ^{^} “complicit in a war crime” (bdsmovement.net)
14. ^{^} by their home countries (edition.cnn.com)
15. ^{^} takeover by the Russian state (www.politico.eu)
16. ^{^} expanded operations in Russia (www.politico.eu)
17. ^{^} “maintain neutrality” (www.esgdive.com)
18. ^{^} geopolitical conflicts (www.visionofhumanity.org)
19. ^{^} committed US$1.5 Million (www.philanthropy.com)
20. ^{^} Anas-Mohammed/Shutterstock (www.shutterstock.com)
21. ^{^} international law (civil-protection-humanitarian-aid.ec.europa.eu)
22. ^{^} resignations (www.bbc.co.uk)
23. ^{^} university presidents (www.lemonde.fr)
24. ^{^} non-partisan approach (forward.com)