Climate change. Globalization. Inequality. Over the next 20 years this trifecta will produce a period of uncertainty that will make the previous two decades look positively stable. How can business leaders ensure that their companies are confident, nimble, and successful instead of timid and unprofitable? The answer lies in three strategies that have been proven to work around the world: elevating community relationships to true partnerships, looking beyond government authorities for guidance, and making principled, consistent political choices. For smart firms, preparing for crisis will mean not only calculating strategic risks and being more efficient but also developing stronger social licenses to operate.
Today we stand at the precipice of not one but three converging and potentially catastrophic long-term trends: climate change, globalization, and growing inequality. On their own, each of these makes the occasional crisis worse: We might see a more destructive hurricane, a more widespread financial meltdown, or longer or more violent civil unrest. Together, though, these trends magnify challenges. The Covid-19 pandemic, for example, was not just a health crisis but an economic and political one as well.
Welcome to the era of uncertainty, when constant crisis threatens every business in every place on earth. We see it in supply shortages that are no longer merely short-term inconveniences but disruptions that drag on for years. It’s evident in power outages that last for a week or more, and in social unrest and protests over injustices that have persisted for decades. Millions of managers are desperate to do the right thing in these situations, but they have no clue just what that is or how to figure it out. That’s because the most common ways companies have responded to crises in the past are no longer applicable today.
For the past two decades, for example, many have argued that the key to weathering a storm is nimble, decisive action by a courageous leader. Advocates of this approach assume that a crisis is a singular event — typically a market-related or other financial upset — that happens, requires a response, and is then followed by a return to business as usual. Other executives and managers believe that when their companies are fighting to survive, prioritizing ethical action is a luxury. They do whatever it takes to protect themselves. A third approach is to use avoidance mechanisms, such as promising but never delivering solutions, in hopes that the crisis will simply pass.
As upheavals become more common and complex, those strategies will fail. Things will not simply go back to “normal” after pandemics, wildfires, and socioeconomic turmoil. Firms that act selfishly are not immune from struggling during a crisis; indeed, because they burn every bridge at the first sign of trouble instead of building critical relationships, they are likely to fare worse than their peers. And claiming to be ready to tackle a challenge without following through exposes companies to reputational damage; consider, for example, the public dissatisfaction with organizations that pay lip service to supporting the Black Lives Matter movement but then do precious little to make meaningful changes.
Some firms, however, have learned and perfected ways to manage the uncertainty that constant crisis brings. They do so in some of the most volatile places on earth: conflict zones. To understand what works in those conditions and why, we have conducted interviews with more than 300 business owners and managers in conflict-torn regions; held discussions with leading practitioners and scholars; and researched affected companies. In total, we studied hundreds of cases of businesses thriving, scraping by, or crumbling as they faced a broad range of violent and nonviolent political and social conflict from 1985 to today.
What we found was that successful companies intentionally made more contributions to their local communities than their peers did. In some places they helped stop wars. In less-fraught settings, they reminded people who disagreed with one another that they needn’t be perpetual enemies. Whether the companies were small entrepreneurial ventures or large multinationals, they had a blueprint for engaging with society in a positive way.
Preparing for Crisis
Business leaders often recognize political, social, and environmental changes as they happen. But in interview after interview, owners and managers told us they regretted not taking those developments more seriously. Why did we keep hearing the same laments? For one simple reason: a mindset that left leaders reacting to crisis, rather than preparing for it.
It’s tempting to worry that a proactive approach creates a signal-versus-noise problem: How do you know you’re preparing for the right crisis? With so much information to consider, it can feel like searching for a needle in a haystack. But we’ve learned that successful crisis preparation is more like holding up a giant magnet to the haystack, revealing the needles and extracting them before they can do damage. Once you realize which problems might impact your operating environment, you can get ready for them.
Our playbook outlines the three most important lessons we took away from our fieldwork and illustrates them with real-world examples. In all these cases, the red-flashing danger signals were always apparent to anyone reading the local news or talking to local people. The companies we studied — even the ones that failed to cope well with crisis — were all trying to do what they thought was the right thing. But the ones that both survived and thrived had more than good intentions or strong leadership. The secret to their success involved three strategies: paying as much attention to the community as to the business, looking beyond local authorities for solutions, and making principled political choices even when they may be unpopular. These practices can help any company trying to navigate the age of uncertainty. And we’ve found empirically that they constitute the most profitable approach.
Partner with the community.
You can’t do effective strategic risk planning without understanding your sociopolitical context. Our research showed that companies that had little engagement with local communities, viewing them merely as sources of consumers or raw materials, were unlikely to outrun upheaval. When crisis hits, such companies often cut local ties by closing factories or country offices, laying off workers, or withdrawing in other cost-saving ways. Shutting out the local community multiplies the risk that the project at hand, or even the company itself, will fail.
Small corporate social responsibility (CSR) initiatives, such as sponsoring a local sports team or funding scholarships, are wonderful, but they don’t go far enough and aren’t likely to last. Instead, companies must build deeper ties with the broader community, because those connections are integral to business survival during crises. This means developing relationships with local leaders within and beyond the corporate world and working across societal dividing lines instead of siloing within the “safest” segment of the community.
A cautionary tale comes from the Lake Toba region of Sumatra, Indonesia, where, around 2010, Starbucks started buying coffee beans from local farmers and sharing the profits from the resulting (and pricey) limited-edition product. Initially, community members we interviewed thought the project was promising. The U.S.-based coffee chain worked with the farmers on enhancing production, building their capacity, and improving the quality of their goods — the hallmarks of creating shared value. But by 2018 it all ended.
When Starbucks came in, it introduced CAFE Practices (industry standards for ethical sourcing) and paid a premium to its suppliers, some of whom got involved in politics with the money. But the “land mafia” — an extensive network of criminals and politicians with de facto control over the local farmland — reportedly countered the new threat to its power by destroying farms and threatening disappearances. As a result, we learned, some of Lake Toba’s most productive farmers stopped growing coffee.
Farmers and distributors told us that they think those operations could have been saved had Starbucks studied more about local politics, learned how to defuse the mafia’s influence, and worked with the growers. But that didn’t happen. And buyers for the company said they instead turned their attention to more productive valleys, depriving the local farmers of a promising livelihood and depriving customers of Lake Toba’s most exceptional beans.
Compare that story to another — this one involving the National Beverage Company (NBC) in the Palestinian Territories. In 1993, shortly after Israel and the Palestine Liberation Organization signed the Oslo Accords, CEO Zahi Khouri struck a deal with Coca-Cola to bottle and bring the iconic soda to Palestinians. It was a gamble. Through its 40 years of operating in Israel, Coca-Cola was loathed by most people in the Territories because it was seen as a collaborator with the occupation. Khouri’s timing was also terrible. While he was trying to set up NBC, a right-wing Israeli group assassinated Israel’s prime minister, triggering a violent Palestinian rebellion. The peace accords were in tatters, and each new attack jeopardized Khouri’s investment. But he pushed on with opening his bottling facilities, even as people told him it was financial suicide.
Today, after two intifadas, multiple failed peace negotiations, and intractable economic troubles in Gaza and the West Bank, NBC boasts more than $100 million in annual revenue and employs hundreds of Palestinians, all while indirectly supporting the livelihoods of thousands more through supplier and contractor networks. NBC was one of the only startups from that period that survived.
How did Khouri do it? He wasn’t harder-working or more ambitious than leaders and managers at other companies in Palestine at the time. But he was smarter about engaging key community leaders and building bridges. He leveraged his business experience with Western brands to persuade Israeli companies and officials to let him ship supplies through Israeli-controlled ports and border checkpoints. He then leaned on the trust he’d built with Palestinian leaders to get their help processing shipments and win their support for the operation, patiently explaining how it would provide jobs and a popular consumer product.
Khouri took major financial and reputational risks to engage with both communities. He could very well have been blacklisted by one or the other for “working with the enemy,” which could have meant losing both the substantial sum he’d invested and the relationships he’d spent years cultivating. But he didn’t shy away from those risks, and he was transparent about his plans. Everyone knew he was partnering with both sides (without favoring either one) to create something important.
Khouri’s example illustrates the first rule in the new crisis playbook: Leaders must gain the trust of all the stakeholders in the communities where they operate.
Work beyond the government.
The second, related rule is this: Companies must work not just with, but also beyond, government agencies and office holders. In our research, the most common mistake we’ve seen is businesses partnering only with local appointed or elected officials as if they are synonymous with community interests. When public institutions are inadequate or are thwarting progress, that approach is a recipe for disaster.
A good example comes from Odisha, India, where the South Korean steel manufacturer Posco tried in the early 2000s to launch an ambitious $12 billion project that would have provided thousands of jobs and $1 billion in development aid to local communities. The company’s agreement with the state included a plan for the government to resettle 50,000 people living on the farmland where a new plant was to be built. But officials reneged on their promise, instead moving the farmers into barbed-wire tent cities and pocketing the resettlement money. Those who’d been displaced appealed to Posco, but because the company was unaware of the situation on the ground and wanted to do everything “by the book,” it referred them back to the corrupt officials. In 2010, with groundbreaking set to begin, Posco highlighted the investment as a “success story” of working with the local community.
Meanwhile, the farmers grew desperate. They joined forces with Maoist insurgents waging war against the Indian government and attacked Posco’s local offices, kidnapping visiting executives who came to christen the site. After 10 painful years and $1 billion lost, Posco abandoned and wrote off the project, claiming in 2015 that it failed as a result of unforeseeable circumstances and “because the Indian government has changed the law.” Officials kept the farmers in the tent cities and sold the stolen land to domestic bidders.
Posco wanted to act ethically and comply with local laws, so it followed the government’s lead. But it should have also engaged directly with the farmers and other members of the community to ensure better outcomes.
Dilmah Ceylon Tea used such a strategy to operate successfully during a civil war in Sri Lanka that split the country along ethnic, religious, regional, and political lines in the 1980s. While many companies closed as a result of supply disruptions, protests and labor strikes, Dilmah avoided those problems because CEO Merrill Fernando was prepared for the looming crisis. Fernando considered his firm’s health to be part and parcel of his community’s, and he was constantly asking for local reports from his employees. Many of Dilmah’s tea plantations lay in remote areas, so Fernando had to trust his managers to do much of their work unsupervised. When he did interact with them, he was open about the problems he saw, and his team members were equally candid about issues they noticed.
Fernando wasn’t a fortune-teller. He didn’t know when or how the crisis would erupt or how long it would last, but, thanks to his employees, he did know that it was coming. As a result, he implemented forward-looking strategies. He built cash reserves and supplies to maintain a sufficient cushion for potential disruptions. He had frank discussions about how the unfolding situation would impact the company and learned that even areas he assumed wouldn’t be affected probably would be. This led Dilmah to embrace an expanded communication role within the community and be perceived as an honest broker with a stake in everyone’s survival.
Make principled political choices.
Our third rule might be the most surprising: Companies must not be afraid to take principled political stands. Our research shows that firms tend to thrive when they make consistent choices and communicate them clearly, even if a segment of the population disagrees with them. Consider the case of the American yogurt company Chobani in the highly polarized United States.
When Hamdi Ulukaya, a Turkish immigrant, founded Chobani in 2005, he wanted to wear his politics on his sleeve by employing people who, like him, had fled their home countries for safer lands. His company funded school lunches for undernourished kids, because he’d gone hungry as a child. He built his factories in former industrial areas to help revitalize communities most in need. And he hired lobbyists to push for more-progressive policies nationwide. By 2016, employees owned 10% of the company; by 2019, 30% of its workforce was made up of former refugees.
After President Donald Trump was elected, however, online trolls attacked Chobani, claiming that Ulukaya wanted “to drown the United States in Muslims” and calling for a national boycott of the company. Ulukaya doubled down. He hired even more refugees and continued to advocate for his adopted homeland to become a more welcoming and open society. By the end of 2017 Chobani was America’s top-selling Greek yogurt brand. Today the company is in talks to do an initial public offering that would value it at over $10 billion, more than $7 billion higher than a 2015 valuation.
Businesses that think they can stay above the fray of contentious political issues are woefully misguided. Customers often view inaction as cowardice and think less of such firms, but standing on the sidelines can also have grave consequences. When Meta (formerly Facebook) entered Myanmar, for instance, it saw a unique chance to bring everyone in the country onto its platform as Myanmar tried to transition from authoritarianism to an open, democratic society.
But starting in 2014, the platform began to be used — often by government and military officials — to promote conflict and ethnic cleansing against Rohingya Muslims. It took the company until 2018 to finally remove inflammatory pages and the accounts of key instigators. Meanwhile, more than 25,000 people died and almost a million became refugees. Meta’s global reputation was also badly tarnished. By trying to ignore politics in order to maximize market share, the company sparked widespread condemnation, burst the belief that it’s a positive actor for democracy and openness, and came to be viewed in Myanmar as little more than a tool of the military.
Firms that take a stand early, clearly, and in line with their values (not just spouting what customers or shareholders might want to hear) are usually able to grow new markets while limiting losses from demographic groups that disagree with them. Coca-Cola has slammed Republican attempts to restrict voting in Georgia, but that hasn’t alienated all Republicans; even Donald Trump still drinks Diet Coke. Chick-fil-A has come under fire for its CEO’s donations to an organization that opposes extended civil rights protections for LGBTQ+ people, but when asked about the company during his presidential run, Pete Buttigieg, the only openly gay candidate, remarked: “I do not approve of their politics. I kind of approve of their chicken.” In conflict and crisis contexts as far-ranging as the Philippines and Sierra Leone, as well as in Myanmar, companies willing to publicly make political choices still earned significant business from customers who disagreed with their positions, which allowed them to outperform their apolitical peers.
A Social License to Operate
The three lessons that we’ve just discussed are interlocking; all help explain why companies succeed or fail during times of crisis and uncertainty. Zahi Khouri made NBC successful despite the Israeli-Palestinian conflict by building bridges across community divides. But that was possible only because he extended his outreach beyond official government entities and he took consistent political stances. Merrill Fernando kept Dilmah going strong in Sri Lanka despite the civil war (and in 2004, the tsunami) because he did not rely solely on official channels for information. But the company’s success also depended on the trust Fernando had built with leaders of all ethnic communities in the country.
The rules we’ve offered can help managers and businesses understand what they need to do to steer through crises. The how involves securing a social license to operate. By that we mean that in addition to legal licenses, a company needs the community’s approval of its operations. Communities grant this when they feel confident that a firm is providing jobs and development opportunities and following certain local customs. In exchange, the firm gets to make a profit without major community objections.
Companies obtain a social license to operate by doing two things. First, as we saw in Chobani’s case, they are clear about their purpose, goals, and beliefs. Of course, communities are diverse, and a firm that is up-front about what it stands for may put off some of the people it depends on: certain customers, shareholders, suppliers, and employees. But the real risk in uncertain settings, especially hyperpolarized ones such as the United States, isn’t alienating people because of honestly held values — it’s alienating them because of vague or blank-slate values. Those can be interpreted by anyone to mean anything, especially by those who don’t like the company for other reasons.
The second part of obtaining the social license to operate is communicating directly with community members. As we saw with Starbucks, Posco, and Meta, working with official partners alone (federal governments, municipalities, police, and so on) as if they are synonymous with community interests can be a major mistake. Instead, managers and employees must openly communicate about their values with the community, not forgetting that their local employees are part of their audience too.
Transitioning to this new crisis-readiness playbook is difficult work, but empirical evidence shows that it can lead to much more substantial long-term profits than does the old way of doing business. The good news is that the “hard path” benefits society too. We found that companies employing the lessons we’ve outlined made a host of positive contributions to their local communities. They have helped stop wars, built peace, and created value not just for themselves but for all of us. As the world moves out of the Covid-19 crisis and deeper into an era of unprecedented, accelerating instability, the best way for companies to get ready is to deliver on their unique influence as citizens in their own right.