Businesses must take action on geopolitical issues or risk losing public trust: Edelman

Business has emerged in the past three years as the most trusted institution in the Edelman Trust Barometer. Its greatest advantage is competence, more than fifty points higher than Government. This ability to get things done has led to an increased reliance on Business to step in where Government has failed on cross-cutting issues like climate action, workplace equity, structural racism, and sustainability. That means going beyond its core remit of financial performance, operational excellence, and innovation.

The Russian invasion of Ukraine has now added geopolitics to the list of business priorities, according to the 2022 Edelman Trust Barometer Special Report: The Geopolitical Business, conducted in 14 countries with 14,000 respondents in the past month. Just under 6 in 10 respondents now say geopolitics is a business priority, compared to 85 percent citing economic responsibilities and 77 percent, societal issues, as agenda-topping items.

The exit of 1,000 companies from the Russian market in the three months since the invasion is evidence of the new values standard for Business. According to Jeffrey Sonnenfeld, Lester Crown Professor at the Yale School of Management, who has compiled a list of companies exiting Russia, this historic massive, speedy, and voluntary business retreat from Russia is unmatched in scale and impact. It is five times the size of the previously unprecedented, 200-company withdrawal from South Africa over apartheid that took 20 years—protracted, grudging and under pressure.

There is a new expectation of Business action in the geopolitical realm. Nearly all (95 percent) expect corporations to act in response to an unprovoked invasion in countries where they do business, from applying political and economic pressure to publicly speaking out against the aggressor. Key stakeholders, consumers, and employees, who have pushed companies on societal action, are also endorsing a muscular geopolitical response. Nearly half of respondents (47 percent) have bought or boycotted brands or companies based on their response to the invasion of Ukraine. Employees are significantly more loyal to an employer (79 percent vs. 55 percent) and willing to recommend that employer (80 percent vs. 54 percent) if the Ukraine response has met their expectations.

Geopolitics is now a litmus test for trust. There is a huge potential boost in trust for a company that ceases doing business in Russia (while protecting former employees, +31 points) while there is a huge trust loss for companies continuing to do business in Russia (-38 points). No sector gets a free pass for continuing its work in Russia; even the life-sustaining healthcare and food sectors are under pressure to depart (only 40 and 36 percent support staying, respectively).

The Ukraine invasion has elevated a broad array of issues that go well beyond the invasion of a sovereign nation. Our study found at least ninety-five percent want a strong Business response to such issues as repressive governments and abusive labor practices. Business is literally seen as able to influence geopolitics and national policy through its investment decisions; two-thirds believe that Business can move the needle on climate change and human rights reforms through strong corporate intervention. It is expected further that Business will draw a moral line in the sand, with 62 percent saying companies must punish bad behavior by departing or curtailing operations.

The CEO is expected to be the face of the new geopolitical corporation. More than 60 percent say that the CEO should shape policy debates on continuing to do business in Russia and nearly 6 in 10 say they should prioritize home country interests. This is comparable to the 70 percent who also expect the CEO to shape policy on societal issues such as wage inequality, climate change, racial justice, or automation and reskilling.

There is a watch-out in the Trust Barometer special report; the worsening Mass-Class Divide on trust in institutions. What we see manifestly is the impact of inflation, rising interest rates, and fear of job loss, all on top of the staggering human and economic loss of the pandemic. There is a surge in trust (4-6 points) in three of the large democracies whose governments have led the response to Russian aggression: Germany, the UK, and the US. But these trust gains are concentrated among those in the top income quartile, while the bottom quartile has remained in the doldrums. This has led to record trust gaps in five countries, most egregious the UK at 34 points, followed by Germany (28 points) and France (23 points); U.S. trust inequality, while not a record, is still a big problem, at 23 points. The biggest trust gap for institutions is with Business, with 72 percent trust in the top income quartile and 52 percent trust among the bottom quartile. The high cost of food and potential for fuel shortages are likely to wind up at Business’ doorstep, especially if there is an economic downturn that requires reduction in workforce.

CEOs who have been juggling financial and economic performance with societal impact now have a third, geopolitical, ball to keep in the air. They drop any at their peril, and the job is only going to get harder. With rampant inflation and a possible global recession, CEOs may have to double down on their core economic remit, without abandoning their commitment to societal issues; on these, it is possible for business leaders to meet their mandate for action, without being activists.

On the geopolitical front, the exit from Russia has set a precedent, and there will be even higher expectations of action next time there is a crisis. The U.S. and China are the world’s two great powers, and the economic cost to Business will be far greater if a future crisis between them demands action. Trade-offs among economic, societal, and geopolitical responsibilities are inevitable. The wise CEO will act in ways aligned with corporate values—and be ready to explain those actions to stakeholders with starkly different priorities.