War in Ukraine: what have corporate leaders learnt, one year on?

(Originally posted on LinkedIn, March 1, 2023)

“The cost of war is like an immeasurable tremor that knows no borders, its shockwaves reverberating across the world resulting in universal suffering.” — Aysha Taryam, The Opposite of Indifference

What Taryam, the first female editor-in-chief of a Middle Eastern English language newspaper in the Gulf states, wrote more than 10 years ago still holds true today. Unfortunately, so. 

Just after the war in Ukraine began last year, we convened our alumni and faculty at Competent Boards to discuss the situation from a board-member perspective. Their immediate takeaways, many of which are still on collective to-do lists, included:

• Reduce our dependence on Russia and its fossil fuels
• Be hypervigilant. Make ransomware and other IT defences a priority for your company
• Look to your suppliers. What sanctions might they be under?
• Immediacy is critical; there will be victims of modern slavery and human trafficking
• Rethink everything; the system is broken. Political, military, corporate
• Stop being reactive and get more proactive. Although boards are good at short-term thinking, they must think of long-term planning
• Take your financial and non-financial information next to your ESG factors and integrate them
• Boards should form committees that address systems risk
• We need stronger leadership from all leaders in corporations and governments to support peace and work together as humans, not countries

One year on, and there is no end in sight to Russia’s war in Ukraine. It may not hold as much territory as it did in March 2022, but the Russian bear still has its claws deep in many southern and eastern areas of Ukraine. 

The World Economic Forum (WEF)’s Global Risks Report 2023 has geoeconomic confrontation ranked third in its top 10 risks for the next two years, with large-scale involuntary migration, a common factor in conflicts, also on that list. 

WEF places the cost of living crisis as the number one risk for the next two years, an economic situation that was largely triggered by rising global energy prices and huge supply chain disruptions caused by the war in Ukraine. 

The price for this war has been heavy on the ground. Recent estimates suggest that the Russians have suffered up to 200,000 casualties (killed or wounded). Ukraine’s troop losses are likely in six figures, too. And The UN Human Rights Office says at least 8,000 Ukrainian civilians have been killed, with more than 13,000 other wounded.

The price for this war has been heavy, worldwide, too. According to the UN High Commissioner for Refugees, there are now more than eight million Ukrainian refugees in Europe, more than 20% of its former population. Food supplies of basic staples such as wheat and sunflower oil from Europe’s former breadbasket have been hugely disrupted, and fields ruined, causing hunger and famine to millions more. 

Indeed, according to a study conducted by scientists for Nature Energy, the huge hike in global energy prices could push up to another 141 million people around the world into extreme poverty. The study estimates that the cost for energy in households worldwide has risen between 62.6% and 112.9% since the conflict began. According to one of the report’s authors, Yuli Shan, a professor at the University of Birmingham: “This unprecedented global energy crisis reminds us that an energy system highly reliant on fossil fuels perpetuates energy security risks, as well as accelerating climate change.”

What of companies? How have they responded? A report last year from the European Corporate Governance Institute, Corporate Response to the War in Ukraine: Stakeholder Governance or Stakeholder Pressure?, examined the global corporate response to Russia’s invasion. The corporate reaction has generally been seen as “a clear signal that the world is pivoting toward a stakeholder capitalism model”. Yet the research showed that the companies that had rapidly announced they were pulling out of Russia were actually those that had little revenue exposure there.

The report indicates that this is part of a business trend, “woke-washing”, whereby corporate leaders promote stakeholder interests to avoid potential reputational damage that could affect shareholders’ wealth, or if it looks like a shrewd marketing move.

Many global corporate giants have indeed pulled out of Ukraine in the past year: Oracle, SAP, Volkswagen, Shell, Maersk, HSBC, Siemens, H&M, McDonalds, BBC and Netflix, to name but a few. However, in general, the report concludes that although stakeholder pressure on senior leadership and boards can be highly effective around social outcomes, that pressure only really works best on large, high-profile companies. That means other, small enterprises can still operate more in the shadows and without similar constraints.

Therefore, one year on, we assembled our alumni and faculty again to examine how companies, and the world, had reacted in the last 12 months, and to look at what board directors and senior executives could, and should, do next. Here is some of their collective wisdom:

• The Ukrainian war has been a tremendous learning ground for people involved in  corporate governance, because this is a type of crisis that no-one has thought of. These fantastic “classes” have unfortunately come at a very high price, but we cannot afford to ignore this lesson. 
• In the first months of the war, Ukrainians as a nation behaved like an ideal corporate culture, with everyone helping each other. That fantastic atmosphere gave Ukraine such resilience to withstand these awful circumstances. and it is something board directors could learn from in terms of corporate culture. If people can behave like this in extreme circumstances, just think how much better the world could be if people acted like this in normal life. 
• Leadership has become even more important. So when a company’s CEO or its senior management follows the rules and goes to the bomb shelter, only then will their employees do that. Even if they themselves don’t think it’s necessary.
• The IT sector is huge in Ukraine, but it is struggling. When companies can say that their team is based in Poland, they get a contract, but if they say the team is based in Ukraine, they don’t get a contract. That is the reality Ukraine is facing now.
• What does it take to make people actually change? That is the multi-trillion dollar question. One answer is that people change when they get scared of losing their freedom, and then that becomes their prime motivator. But wouldn’t it be better if instead we focused on loving, and being loved, and caring as our prime motivator?
• We were all surprised by the pandemic. Many in the UK were surprised by Brexit. And the world got shocked by the invasion of Ukraine, despite the fact that Estonia had been shouting from the rooftops that it was going to happen. Collectively, we just chose to ignore it and did not build it in any of our plans. Boards and senior executives must think of the unthinkable. We need to better equip future leaders with insights and ways of considering scenario planning. 
• Diversification is one important way of addressing business vulnerabilities. Diversification of supply chains, diversification of customers, diversification of website traffic, diversification of energy supplies, diversification of food types. The list goes on. 
• In the 1980s, IBM had a strict rule that no supplier and no customer could be in excess of 5% to IBM in either direction. IBM at that time was, according to Fortune Magazine, America’s most admired corporation and having this discipline meant that it had diversification. This is a basic business risk management rule.
• Ukraine has been a wake-up call for the world order to pay more attention to geopolitics. Everybody is now not just talking about Eastern Europe and Russia, but also what is the long game that China is playing.
• There is a whole raft of both macro and micro decisions that business leaders need to influence to create a world in which we are more resilient.
• Ukraine will have a huge challenge to rebuild and to restore itself because the damage that has been done to the people to the land is enormous. Companies can do two things to help Ukraine win not only on the military front but also on the economic front:
  • Hire Ukrainians who are abroad not only at a lower level, but also at the middle and more senior levels
  • Purchase some of the services that you are already getting elsewhere from Ukrainian companies and Ukrainian suppliers instead

Confronted with this grim reality in eastern Europe, I would like to take heart instead from the speech that US President Joe Biden gave recently in Warsaw, Poland. “The work in front of us is not just what we’re against, it’s about what we’re for. What kind of world do we want to build? 

“We need to take the strength and capacity of this coalition and apply it to lifting up — lifting up the lives of people everywhere, improving health, growing prosperity, preserving the planet, building peace and security, treating everyone with dignity and respect.

“That’s our responsibility.”