An increasing number of places around the globe face the risk of turbulent and even violent conflict. Do managerial decisions impact inter-group relations and the risk of conflict? How do impacts flow from the boardroom into the broader society? Professor Brian Ganson, Stellenbosch Business School shares his research into the issues.   

For Better or for Worse – the impact of managerial decisions on conflict risk, from an interview by Prof. Adrian Zicari, ESSEC Business School-Council on Business & Society. Related research: Business and Peace: The impact of firm-stakeholder relational strategies on conflict risk, Brian Ganson, Stellenbosch Business School, Tony L. He, Rutgers University, and Witold J. Henisz, University of Pennsylvania. Academy of Management Review, 2022, Vol. 47, No. 2, 259-281.

AZ: When I read the research paper, the first thing that strikes me is the counterintuitive notion that business in conflict-affected areas does not necessarily help to promote peace. I would have said that business always helps peace.

Brian Ganson: Unfortunately, the evidence is to the contrary – that large companies and large investments in fragile places tend to reinforce conflict dynamics, rather than make them better. These are places where politics and the social order are still strongly contested. They may be post-conflict areas from the perspective that the shooting has stopped. But they are not post-conflict in the sense that there is a broad social consensus on what the economy needs to look like. The stronger evidence is that if we’re not very careful, we’re pouring fuel on the conflict fire. There’s a high risk of making things worse.

AZ: You explore many situations. Usually these companies are big firms – not always but frequently – and I imagine many are multinational firms. They are also sometimes extractive firms, let’s say mining, or manufacturing firms that had invested in a plant before the conflict?

Brian Ganson: The order of business is first, extractives: oil, gas, minerals, plantation agriculture, things that can be quickly produced and exported. Sometimes, if the country is lucky, there will be some industry that builds up around that: maybe Volvo or Scania come, and they assemble some of the trucks that are going to be used for the mine locally. And of course infrastructure, because there’s an interest in rebuilding or extending road networks, electric networks and the like as foundational pieces of the economy.

Post-conflict investment is skewed towards such large projects. Finance looks at the world through the perspective of financeable projects and bankable deals, and there’s no incentive for an international banker to pursue $500,000 projects. They are looking for the $500 million project. This is not necessarily what is optimal for peaceful and inclusive development, which is often better driven by creating opportunities for the vast majority living in the informal sector.

Conflict Risk: Looking beyond the horizon

AZ: I also imagine there’s an issue of investment horizon. I remember in a country in Latin America, a colleague of mine telling me that for some crops (e.g. coffee), you need to wait years, while people need to eat now. You need to find ways to bridge that long term horizon.

Brian Ganson: I was in Sierra Leone in 2010, and the big excitement in one region was having people enter the nut export economy by encouraging them to plant trees where their crops used to be. When I was back there seven years later, the market had shifted, and people who had cultivated trees for seven years were now cutting down nut trees for firewood. That did not make Sierra Leone a more peaceful place.

So, there’s not only the time horizon, but the risk horizon. We have to remember that people in some of these places are living very close to the edge. They are subject to all sorts of health and financial risks. We really have to stop and ask ourselves whether we have enough confidence that that a cash crop is going to have a global market for the next 40 years, such that we can ethically push people away from food crops into export markets. Because if Europe sneezes, they die of hunger.

In fact, there’s been important work done on exactly this, suggesting that because of the strong interconnection between European markets and export crops in Africa, the simple fact that Europe had a lockdown for COVID meant that many thousands of people in Africa died of deprivation as their livelihoods disappeared. There was nothing malicious intended; but we all the same need to take responsibility for the inter-relationship of markets and therefore the very real chance that economic shocks will hurt those who are already living on the margins of society.

The same is true when a town builds up around a major investment, and then the company shuts operations for purely economic reasons—not because they weren’t profitable, but because they weren’t profitable enough. This can have devastating consequences for human security.

Unfortunately, we know that as much as we like the efforts of the sustainability community, and celebrate fair trade initiatives and the like, the usual practice in the majority of markets is that profits remain the driver of the company. If oranges get too expensive in South Africa because we’re trying to pay a living wage, well, the buyers move to a country where that’s not the case. We’re still engaged in a race to the bottom in many industries. Maybe we need to address those price pressures first before we engage in large scale investments and potentially risky economic transformations.

Companies and their ecosystems

AZ: Something that I also find very interesting is your idea of horizontal inequalities, a concept I was not familiar with.

Brian Ganson: One of the contributions of our paper was to formalize the absorption of horizontal inequalities into the management literature. It is a concept that is already well developed in political economy – we didn’t invent it – but hopefully we helped to make it visible to a managerial audience by saying: “Wait a minute. Destructive conflict can be understood as inter-group contestation over social, political and economic resources”.  

If we can look at our decisions through that lens, we have a much higher predictive capacity as managers and policy makers with respect to conflict risk. For example, we can say: “All benefits seem to be flowing to one group. The risks and the costs seem to be flowing to another group. That should tell us a lot about whether or not this is going to be a stabilizing influence, or a destabilizing influence.”

AZ: Which leads to the remedies or ideas put forward in your paper asking for a closer involvement of the company in society.

Brian Ganson: Right, at two levels. There’s been a lot of work over the past decade on what we might characterize as company-community relations. How is it that one oil firm seems to have a higher quality of relationship with its neighbouring communities in the Niger Delta than three other oil majors who also claim to be attentive to those issues?

And so the first level is the study of the micro dimensions of business and peace, a company in its immediate environment. There’s really solid work telling us that collaborative analysis, joint planning, shared decision-making, and good conflict resolution make a difference.

What is a little different in this paper is that for many years we’ve asserted – particularly those of us who have done deep dives into particular places – that the impacts of a company and its approaches to stakeholder relations are broader than just on its surrounding communities. Mining in Peru, agriculture in the Philippines, even solar power in South Africa seem to reverberate broader than their immediate environment.  

The paper really started with curiosity. How can it be that a decision of a manager about how she manages her local stakeholder relations reverberates into the broader society? What is the mechanism of action by which my bad relations with my neighbour can have discernible impact on political and social relations at different systems levels? Even quite far away from where I am? And that’s what the paper digs into.

That’s where the power of horizontal inequalities was demonstrated. They help us recognise that our group memberships shape our understanding of the world, shape what we see as good or bad, shape our willingness to settle conflict by peaceful or less peaceful means. Then we see that each of us is not only an individual affected by managerial decisions, but a member of a group affected by them. Putting these together, we start to understand that a company’s choices matter not only locally, but also in the broader conflict system by shaping inter-group relations.

Take away the things that most hold us back from collaboration

AZ: Which is very promising, I would say. Business can contribute to peace. This matters to us, educators, and to our students, who are going to be managers in the future. Somebody may say: “Well, business is business. You just buy better quality from the cheaper price, and there is no more than that”. One would respond: “Well, yes, we are doing business, and at the same time you are enabling development and supporting a community.” We are not sure that we are now giving this background to our students.

Brian Ganson: Right. We have the two strands of stakeholder literature. On the one hand, the instrumental stakeholder approach, which asks, “how do you build your social license to operate?” Then we have a normative strand that says: “You should be thinking about your impact on society.”

Our work takes that a step further and says: There are strategies that companies commonly pursue, and unfortunately the weight of the evidence indicates that these strategies make it harder to stabilize already unstable places, and make it less likely that groups in society will come together around common challenges.

That reverberates, I think, well beyond the conflict context in which this paper is focused. If we want citizens to come together around issues of climate change, if we want them to come together around issues of democratic accountability, is that possible where business is driving wedges between people in other ways?

The paper suggests that the answer is no. The first step to addressing conflict in the system is to take away the biggest irritants, to take away the things that are most holding us back from creating space for the collaboration, for the joint action that we all know is both imperative and possible as human beings. We have come together at different junctures of our history to address grand challenges. But the resurgence of populism and anti-globalization, or of anti-immigrant sentiment in many places, reminds us that it’s so much easier to break things than to build them.

AZ: Last question. Well, your paper is a theoretical paper, of course, but is there an example that you feel is emblematic, or even, an example to follow?

Brian Ganson: You mean if we were doing it right?

AZ: Yes.

Brian Ganson: Yes. I am always a little bit amazed by the ISAGEN case. ISAGEN was at the time this story is told a parastatal power producer in Colombia. It really believed that it was their duty to bring electricity and development to everyone. That “everyone” even meant people living in guerrilla-controlled areas. There was an astounding civic commitment, that “if we say we’re the electric company for the country, then we have to be the electric company for the whole country, even though we’re at war”.

Then, they went in with an enormous amount of patience and humility. They didn’t put together a plan saying, “This is how things are going to happen,” or, “Look at our great idea.” They went in and said, “Who’s done good work here? Who has figured out things that we’re going to need to learn from, and to engage with issues we’ll need to engage with?”

They looked at issues like citizen-army relations that were well outside the ambit of a normal company – even a company thinking about sustainability. They said, “Look, if the biggest question on people’s minds is army-citizen relations, then we can’t ignore it. The fact that we’re not directly implicated in it doesn’t matter, because if we don’t all work together to fix it, other things are going to be harder to fix as well”.  

And so, with great patience and great humility over the course of years, they built consensus around the project. Then they built an accountability system around the project to make sure that, first of all, things were going according to plan, and of course, to confirm that it was a good plan delivering the desired outcomes — that circumstances hadn’t mandated a change in direction.

The result of this is an environmentally-sensitive power plant that is helping development move forward in an area where formal governance was to say the least, highly, highly contested. I think the commitment, the patience, and the humility were remarkable. ISAGEN had the willingness to understand that shared value requires shared power. It’s not enough to consult with you — I have to give you a voice and a vote at the table.

AZ: Yes.

Brian Ganson: You say, “yes,” but in reality, most processes don’t take this approach. Even if we look at the due diligence laws that are emerging across Europe, all of them say, “The company will make an assessment.” They don’t say, “The community will assess the company.” They don’t say, “The local government will assess the company and its impacts together with everyone else.” It still leaves the locus of power firmly with the shareholders, not the stakeholders in the social outcomes.

As much as there are wonderful lessons in the ISAGEN story, it also points out the challenges for peace-positive private sector development. It is hard to imagine this approach being adopted by a profit-seeking enterprise. This is because there needs to be a willingness to say, “Oops, we need another year to talk with each other. We need to stop construction, because there’s too much conflict around it. We’re going to work on something else in the meanwhile.”

As soon as the company makes this socially-responsible decision, we can imagine the fall in the project’s NPV (Net Present Value) because of a one-year delay in project completion where there’s been a $50 million front-end investment. Yet, that’s what we have to be ready to do, if we’re going to be peace- and development-positive.

The good news from our research that may be easier to digest is that there are theoretically well-grounded, empirically well-supported default strategies that managers can pursue when a company operates in a difficult place. As the paper lays out, managers in conflict-affected areas should presumptively tilt their stakeholder relational strategies towards the convening of members of different groups in conflict; the eroding of fault lines (the key drivers of conflict) within the firm’s stakeholder network; and the support of helpful brokers in the broader societal network.

These are a set of strategies that are at the same time going to lower the tension between the company and its stakeholders, but also tend not to exacerbate problems in the broader society.

You’ve heard the asymmetry in my reflection and so I want to just acknowledge and name that. You can improve your local context. It’s unclear whether you can improve the broader societal relations, but you can at least set the standard for yourself of doing no harm by not making them worse.

AZ: Professor Brian Ganson – thank you very much.

Useful links:

• Link up with Brian Ganson on LinkedIn
• Read a related article: How companies deal with human rights violations
• Discover Stellenbosch Business School, South Africa
• Apply for the Stellenbosch MBA.

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