Higher stakes for stakeholders

Companies like McDonald’s and Starbucks have reported drop in sales and in some rare cases, outlet closure, due to the boycott related to the Gaza conflict.

CORPORATE Malaysia has been facing many challenges other than the business environment in the past year or so due to unforeseen risks that have now become apparent elephants in the room.

There are no precedents or action plans for how a corporation, especially a listed one, should respond when faced with such publicity, which causes risk managers and consultants to struggle with solutions.

The absence of a response can have a significant impact on the business outlook, damage the brand name, result in legal disputes, result in customers leaving, or, in the worst case scenario, lead to business closure.

Employees of companies that are exposed to this risk have an added challenge – peer pressure as well as potential job loss.

The recent socks controversy is a clear case of how a sensitive incident can become explosive and damaging to a company. The authorities were quick to act but the repercussions can harm the reputation of not only the convenience store owners but also other businesses in the future if there is a similar incident.

An equally worrying factor for some businesses is the Gaza conflict which has degenerated to genocide by Israel. Corporations associated with Israel through licensing and franchise agreements have suffered the most despite protesters, governments, and even the United Nations calling for a ceasefire and the release of all hostages.

Companies like McDonald’s and Starbucks have reported drop in sales and in some rare cases, outlet closure. McDonald’s franchise in Malaysia and Singapore is owned by Reza Food Services, which is part of the Saudi conglomerate, Reza Investment Company, while Starbucks is owned by Berjaya Food, which in turn is 59.4% owned by Berjaya Corporation.

While these are franchises and there will be some form of association with their US-based parent companies in the form of royalty payments, the impact of boycotts on local business operations can be devastating.

Heightened risk

Corporate risk related to cultural and religious beliefs has increased over time, more so recently.

As of end of 2023, bumiputras made up 70.1% (57.9% Malays and 12.2% other bumiputras) of Malaysia’s 33.7 million population, a significant shift since Merdeka. It is 1% higher than the 69.1% of the 32.6 million population in 2018.

In terms of religious background, based on the Population and Housing Census of Malaysia 2020, close to 63.5% of the country’s population is Muslim, indicating that businesses need to take religious sensitivities into account when conducting business.

It would be wise for risk management in any corporation to take heed of this demographic shift in assessing overall risk.

Part of ESG

When dealing with religious or race-based sensitivities, the social element plays a central role in a corporation’s ESG rating.

How a corporation deals with its internal and external stakeholders, understanding and taking remedial measures are key. With the right focus, a corporation can protect a brand name and ensure that a business is not affected.

With regards to the recent incident involving a convenience store operator, an updated Standard Operating Procedure (SOP) can ensure such issues do not recur or are minimised.

It should communicate to the public the action taken to ensure it will not happen again. In apologising and seeking damages from those responsible, the company has demonstrated that it is protecting its brand value.

Hence, it is crucial to ensure a sensitive matter is not blown out of proportion. It would be great for corporations to have an SOP to ensure swift action to contain public repercussion. This includes engaging with the relevant authorities, religious bodies, the public, employees, suppliers and shareholders, and assuring them that the company is addressing the issue with urgency and will ensure it does not happen again.

Geopolitical risk

In Malaysia, franchise holders of global food and beverage companies like McDonald’s and Starbucks have been hard hit by boycotts with business volume plunging and losses mounting.

It is really up to the local franchise holders to put the record straight as to the actual ownership of the business in Malaysia. Some form of loss in business cannot be avoided but the damage can be minimised if these businesses show more compassion towards the Palestinian struggle.

Any corporation facing such public pressure should embark on a rallying campaign against Israel, carry out a donation drive, or even help the Palestinians in any way to improve its public image.

The impact of the call to boycott these franchises may be negligible at first, but as momentum builds, corporations cannot ignore it.

The rise of conservatism in Malaysia brings different risk perspectives and businesses ought to be prepared for this to ensure they remain relevant and sustainable.

Having said that, this also brings opportunities to businesses as they can explore more products and services that meet the demands of the rising conservative Muslim society.

This article first appeared in Star Biz7 weekly edition.

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