Op-ed views and opinions expressed are solely those of the author.
If there is one lesson to come out of the Russia-Ukraine conflict, it is that businesses should not take their marching orders from the social-media mob. Milton Friedman’s dictum stands that “the social responsibility of business is to increase its profits,” not to play politics or placate misdirected outrage. That means putting owners, workers, and customers first.
Insults and threats from people with no skin in the game—both politicos and social-justice warriors—have intimidated hundreds of companies into hastily closing and/or selling operations in Russia. Predictably, however, the #BoycottRussia social-media campaign’s effect has neither halted the conflict nor hurt dictator Vladimir Putin. Sadly, the so-called list of shame and anticapitalist boycott have targeted not the pernicious regime but innocent and often struggling companies—those staying in business or pulling back in an orderly manner—and those who depend on them.
The consequent self-sanctioning from international companies, which means the divestment of assets in Russia in a rush and on the cheap to oligarchs, has worsened the stench of cronyism and played right into Putin’s hands. He barely needs to confiscate and nationalize assets when foreign firms are nigh giving them away to de facto wards of the state.
The Twitterati Do Not Represent Americans
Rice University Professor of Business and Public Policy Douglas Schuler writes that “Until relatively recently, companies rarely took stands on social or political issues.” They feared it would be unnecessarily divisive and likely to push away as many customers as it would attract.
The winds of change in this arena, manifest in the prominence of ESG ratings, have coincided with the rise of intense online scrutiny, often with fleeting mass hysteria, and a managerial class increasingly disconnected from Middle America. The conflict in Ukraine is just the latest case of corporate virtue signaling that appears contrary to profitability. The apparent conflict between business interests and sociopolitical activism gave rise to the saying: go woke, go broke.
What the subservient executives fail to see is that the vast majority of consumers are not on Twitter and simply patronize companies for their products and services, not their political stances. Only one American in five is on Twitter, and only a quarter of Twitter users produce 97 percent of all the content. Further, the platform of supposed opinion influencers and their media partners has a heavy partisan tilt with twice as many Democrats as Republicans.
A chief leader of the naming and shaming, Jeffrey Sonnenfeld of Yale University, has been surprised by which companies have and have not jumped on the train out of Russia. “Oddly,” he says, “fashion, fragrances, consumer goods, casual dining, even advertising agencies—people who pride themselves on reading public sentiment—were surprisingly late to the game.”
Even if they vehemently oppose the Russian invasion, consumers know better than to conflate US companies with the Russian government. Perhaps these very companies also read public sentiment better than Sonnenfeld did.
What Rational Engagement Looks Like
The painful irony of the knee-jerk boycott campaign is that it has generated self-inflicted harm. It has also simplified a messy, complex situation for many firms that provide important supplies such as medicine and safety and emissions-reducing parts for vehicles. Over and above the pressure from targeted formal sanctions, which are blunt but at least defensible, sweeping self-sanctions have lowered supplies of many items, especially energy, and exacerbated out-of-control inflation in the United States.
The cat is out of the bag. Bloomberg reports that even the Joe Biden administration is concerned about capital flight from Russia. While maintaining various forms of economic pressure on the Putin regime, the administration is “quietly encouraging agricultural and shipping companies to buy and carry more Russian fertilizer” to ease “spiraling global food costs.”
That poses the question of what a smarter response would be from companies, and one need not look far for an answer. Koch industries took plenty of heat, including from Sonnenfeld, for not immediately cutting and running. What Koch Industries did, however, was “not walk away from [its] employees,” as explained by a company spokesman. Koch Industries took prudent measures to find a fitting buyer of its glass manufacturing facilities with 600 employees. This took a few months, but it ensured continuity for its workers, suppliers, and customers, and it made business sense.
The finger-pointers—who are right to oppose the invasion—would do well to consider the tradeoffs, whether their own livelihoods are at stake, and what the effect will be on the Russian people. When it comes to inflation, the social-media mob have proved willing to shoot both Russians and themselves in the foot, albeit unintentionally. Self-righteousness, although it feels good, is not going to expel Russian forces from Ukraine, nor from Georgia or Moldova, for that matter.
The best policy approach to opposing the Russian military occupation is a difficult question, but answering that is not the job of private-sector companies. They specialize in adding value for their shareholders, and their decision to serve Russian customers does not mean they endorse the Putin regime or the invasion.
Fergus Hodgson is director of Econ Americas, a financial consultancy in Fort Collins, Colorado.
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