While the shareholder-driven focus espoused most famously by Milton Friedman has perhaps abated somewhat in recent years, the notion of doing well by doing good is still not the default across businesses.
Research from London Business School explores the motivating factors behind any support multinationals provide to help economies recover from system-wide shocks, such as natural disasters and epidemics.
Sources of support
The study reveals that multinationals have been the fastest-growing source of support for communities, even ahead of NGOs and governmental agencies. The researchers reveal that while there has been ample exploration of philanthropic activity by multinationals during stable periods, there has been less attention given to their acts during crises. What attempts there have been have generally ascribed the same motives during crises as during stable periods, with these typically including building reputational capital, political lobbying, and altruism.
The researchers suggest, however, that far more important to multinationals is the restoration of functioning markets again after the crisis, as without that, they cannot operate. These are obviously significantly disrupted by events such as a pandemic or a natural disaster, which can have significant financial implications for the firms involved.
The researchers assessed the role the economic importance of the country to a firm plays in its philanthropic involvement by looking at the behavior of the 2,000 largest multinationals, who between them have headquarters in 63 countries. They compiled a database of responses to various disasters from 1990 to 2019, with 265 shocks assessed in total across 129 countries.
Self-interest
The results show that there is a clear link between the economic importance of a country and the scale of the response given by the multinational. In other words, the bigger the financial impact on their operations, the more inclined the multinational was to invest in supporting that community in getting back on its feet.
Indeed, the researchers believe that by measuring the economic importance of a region to a company they can predict which firms will offer support in the event of a crisis unfolding.
There are, however, factors that can influence a company’s decision to help. For instance, support could be affected by the availability of other sources of help, such as aid from other countries or spending from the government of the country in question. Similarly, if the company was not confident in the regulatory quality in the country involved that would also disincentivize the company from getting involved. Firms were also more likely to contribute when they dominated that particular market.
As such, there are clear strategic motives behind much of the philanthropic involvement by multinational companies in the wake of a disaster. Of course, we may argue that the motives are irrelevant if their involvement is helping a community to recover, and the motivations of both the multinational and society at large may be closely aligned in this instance. While their motivations may not be as altruistic as we might think, therefore, that doesn’t mean that their actions can’t be societally beneficial.
