The Past Speaks

Business-historical research is particularly useful in understanding the impact on companies of rare but highly consequential events, such as the outbreak of wars involving great powers. By business-historical research, I mean small-N, high-detail studies using corporate archives and other primary sources generated by business people. The pioneering historical research on the late Alfred Chandler illustrates these types of research methods. (Business-historical research is thus distinct from, but related to, econometric historical research).  Within the business-historical research community, particularly outside of the United States, understanding the impact of war and more geopolitical conflict on the strategies and structures of multinational firms is a major focus of researchers. How MNE managers responded to the world wars, the Cold War, and the collapse of the European colonies empires, is a subject that has been explored by such leading business historians as Geoffrey Jones, Ben Wubs, Pierre-Yves Donzé, Marcelo Bucheli, Takafumi Kurosawa, Heidi Tworek, Teresa da Silva-Lopes, Simon Mollan, Kevin Tennent, and others including me.

The recent dramatic events in Ukraine (the invasion of a fledgling democracy and EU-candidate member by a state that is controlled by a former KGB colonel and which has the implicit backing of the CCP) has had major implications for multinational firms and for the cluster of trends we call globalization. The sudden severing of ties between Russian and Western firms, the concerns that the conflict could result in a NATO Article 5 situation, and the trillion-dollar question of what this conflict means for ties between Chinese and Western firms are all issues that we are thinking about. A striking feature of this crisis is that Western firms have engaged in extensive self-sanctioning of Russia: rather than waiting to see whether Western governments will force them to stop trading with and in Russia, Western firms have announced they will cease to do business there. The closure of all McDonald’s restaurants in Russia is representative of this development.  My impression is that these companies have dropped Russia because of a mixture of consumer pressure and fear of a boycott in their core Western markets, the realisation that their Russian subsidiaries are probably going to become unprofitable anyway, and the internal moral compass of the executives. A disproportionate number of corporate managers are ex-military, particularly in US firms that recruit from the Harvard MBA programme, so a certain amount of corporate patriotism may be at work.

 In this blog post, I would like to draw on my business-historical research and the research other business historians in thinking about what we can expect.

My first main observation is that in we shouldn’t model the individuals who direct multinational firms in times of geopolitical crisis (the top management teams) as concerned exclusively with profit-maximization or trying to preserve as much value as possible for the shareholders. Nor should we model these individuals as self-maximizing economic actors (Econ 101 humans) whose behaviour in this crisis can be predicted just by referring to their pecuniary interests. MNCs CEOs and board members are far more complex than that. I recently published a co-authored paper that a micro-historical study of the individual who led the bank now known as HSBC during the First World War. Immediately prior to this war, this bank had extensive ties to German firms (the German citizens on its board of directors resigned in August 1914). Very soon after the war began, the British government banned most but not all forms of trading with German citizens. During the war, the chief executive of this firm incurred great personal risks in the course of speaking up on behalf of German firms and liberal-internationalist principles, doing so as a time when other British businessmen (albeit those with less social capital) were being literally imprisoned for the crime of trading with the enemy. I concluded that the bold actions of this MNE manager, which made him unpopular, were not motivated by personal self-interest or even the economic interests of his principals (the shareholders of the firm) but were instead a dictated by his own moral code. We know from the work of other business-historians that businessmen of a more militarist/nationalist cast of mind have behaved in wartime in a fashion that is totally at odds with what the Econ 101 model of human nature would predict. The lesson here is that we can’t assume that everything a CEO or a MNCs does in this crisis is somehow designed to promote the long-term self-interest of the CEO or of the firm.

Second, business-historical research can help us to think about the likely impact of this crisis, and of major war more generally, on the ongoing debates about the relative merits of the shareholder primacy and the stakeholder philosophy that says that corporate board members should not be conceptualized as having a primary duty to maximize profits for shareholders. As I have suggested in this paper, major wars in which firms need to behave patriotically in supporting the war effort have the net effect of promoting the stakeholder philosophy. The doctrine of shareholder primacy tends to do well in times of peace among major economies (e.g. Victorian England, late 19^th century America, the US and the UK after the alleged End of History in 1990).

Third, we should not view businesspeople as simply responding to changes in the geopolitical environment that are produced by politicians. Businesspeople can, in a subtle but important way, influence the incidence and severity of warfare in a way that is totally invisible to the Realist perspective on geopolitics that many academics unthinkingly default to using in crises such as this. Entrepreneurs can end and prevent wars through backdoor diplomacy and other means. (The literature on Business and Peace shows that). In a paper in the journal Enterprise and Society, I and Laurence Mussio explored how Canadian entrepreneurs promoted peace between the British Empire and the United States in the 1860s, a time when those two powers were drifting towards war. Last month, as the Ukraine crisis was escalating, I recorded a podcast with a Canadian think-tank in which I talked about that paper and what it means for the present. The Jerusalem Post recently reported that the oligarch Roman Abramovich was acting as a go-between in peace talks between Ukraine and Russia. This report made me think of my earlier research on Sir John Rose.  I concede that there is a big difference between these two episodes, as it is probably easier for a businessman to patch up relations between two liberal countries (Britain and the United States) than between the West and an autocracy.

Fourth, a striking feature of this crisis is the swiftness with which Western firms, particularly consumer-facing ones like McDonald’s, have pulled out of Russia. There is a marked contrast here with the great reluctance to divest from South Africa that Western firms displayed when anti-apartheid activists pressed them to do so. (Please look at this excellent historical paper on Shell in JIBS on this subject).   I think three factors explain this difference. First, stakeholders in the West thought that apartheid was terrible but they never believed that South Africa posed an existential threat to their countries in same way that Russia does. Second, disgust with the Russian invasion of Ukraine and the associated belief that it is immoral to do business with Putin’s Russia is now evenly distributed across the political spectrum, at least in the UK and the US, whereas in the 1980s support for boycotts of South Africa was primarily found on the left of the political spectrum.

 Third, and I hate to say it, race is probably a factor here: sympathy for Ukrainians is probably intensified by the fact they fall into the socially-constructed category of “white”. This is not to say that they are not 100% deserving of our support, but there is a discrepancy in how Western countries have treated the victims of Russian aggression in Ukraine and the victims of Russian aggression from Syria. (My personal view is we should be more generous in how we treat all refugees, Ukrainian and non-white).  The EU, which is in some subtle ways a systemically racist organization, has displayed a massive double-standard as just a few months ago it supported the efforts of Poland to keep a handful of Middle Eastern refugees from crossing the Belarus-Ukraine border. It is now being far more generous to the Ukrainians, which is great except for the double standard. Sadly, the UK government, which has recently introduced a new colour-blind immigration system and has a strikingly non-racist policy aimed at helping BNO refugees fleeing Communist tyranny in Hong Kong, appears to be moving towards a similar double-standard policy. I’m disappointed that a Cabinet that includes so many non-whites has followed the EU in this way.  Even more strikingly, American journalists employed by previously “woke” companies have expressed essentially racist ideas when discussing the Ukraine crisis on air (I’ve shared two video clips from Novara Media, a pro-Corbyn media source I don’t normally agree with, below). The sad fact of the matter is that race and a certain amount of white privilege influences the cultural context in which MNC managers make decisions about whether to do business with odious regimes. The same firms that have boycotted Russia continue do to business in other Eurasian autocracies, even those that are engaged in genocidal policies towards (non-white and non-Christian) populations. Public opinion in the West lets them get away with doing so, in part because people in Western countries are more upset about human rights abuses where the victims are within the imagined community of the white race.  In the past, I have published papers that deal with cultural and intellectual legacies of colonialism for multinational firms (see here). The historical periods covered in those two papers end around 1980, which I then regarded as the effective end of the era in which ideas of racial superiority and inferiority ceased to be relevant to understanding how multinational firms operate. I may need to revise that view.