A host of companies cut their links with Russia after the invasion of Ukraine, but research finds that many adopted an ethical stance only to the extent that supported “shareholder value maximisation”.
The findings, from researchers at the Stockholm School of Economics and Harvard Law School, cast doubt on the assumption that companies ended Russian operations because it was the right thing to do. Some may even have engaged in “woke-washing”.
However, the research found that campaigns launched on Twitter had a big influence on corporate decisions and their consideration of reputational risk. This is early empirical evidence that social media content may have a big influence on corporate decision making.
In a paper published recently, Anete Pajuste and Anna Toniolo look at the decision-making of 665 companies listed on the S&P 500 and the STOXX 600. After examining Twitter traffic in relation to the companies, the researchers have found a strong link between social media campaigns and a decision to quit Russia.
However, this mainly affected the largest companies. Pajuste and Toniolo write that the findings suggest companies announcing their withdrawal from Russian soonest “actually had little revenue exposure to the country”. Twitter boycott campaigns had a big effect on their decisions but this was mostly large companies. Mid-cap companies were, on average, more exposed to Russia but faced very little by way of Twitter activity.
“Our analysis,” the researchers write, “shows that the decision to withdraw from Russia is significantly positively associated with boycott campaigns.”
This suggests “stakeholder” values were not the key influence on companies, despite the overwhelming ethical considerations presented by the war.
Ethics or marketing?
Pajuste and Toniolo argue the evidence “suggests that corporate leaders tend to promote stakeholder interests when they face potential reputational damage that could affect shareholder wealth, or when it represents a good marketing move, so called “woke-washing’.”
That doesn’t mean stakeholders interests are entirely irrelevant. “Stakeholder pressure on management,” the duo write, “can be an important and effective factor in achieving a socially desirable outcome, but it tends to focus on large, high-profile companies, while other market participants are left free to operate without this meaningful managerial constraint.”
This is not the first time doubt has been cast on the willingness or ability of companies to turn their decision-making in favour of stakeholders. In 2019, the Business Roundtable (BRT), a club for leaders of the largest US companies, rocked global business by announcing its members would in future manage their companies to deliver value for all stakeholders. “Each of our stakeholders is essential,” a statement said.
Two years later, Harvard researchers looked closely at the behaviour of Roundtable members and concluded the stakeholder statement had been “mostly for show”.
“Overall our findings support the view that the BRT statement did not represent a meaningful commitment and was not planned or expected to bring about meaningful improvements in the treatment of stakeholders,” they wrote.
The latest research indicates companies may well have applied the same thinking to their activities in Russia. Happily, on this occasion, reasoning along shareholder lines coincided with stakeholder sentiment.