For example, when Dow acquired Union Carbide (UCC) for US$11 billion in 2001, it was the largest chemicals deal in the world. No doubt they benefit from the distance bias here.ĭistance bias or not, however, foreign ventures can still sometimes lead to trouble. Companies frequently subcontract activities to legally less stringent parts of the world, for instance, and there have been many cases in which they have been able to plead ignorance over abuses within their supply chain. It often crops up through outsourcing, strategic alliances and mergers and acquisitions.
Nike and Nestlé both made commitments to eradicate abuses in their supply chains after they came to light, but the cases are reminders that company wrongdoing is not only about day-to-day operations.
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For the same reasons, Hollywood will probably never make a movie about, say, the historic child labour abuse of Nike and Nestlé in the factories of their suppliers in developing countries or the Jebel al-Zayt oil spill off the coast of Egypt. This is perhaps why the DuPont incident was considered to be of sufficient interest to Americans to justify a major movie, even though it unfolded a long time ago. This is sometimes referred to as a “distance bias”. Such incidents are more likely to remain in their collective memory and surface when they are reminded of them. They tend to respond with more emotion and empathy towards individuals in their home country.
Company stakeholders such as customers, suppliers and investors care most strongly about what takes place in their own backyard. It depends on where the wrongdoing takes place. One reason why companies might continue to behave irresponsibly after they become aware of corporate harm is that they expect this sort of limited effect on the share price.ĭark Waters' pollution threat isn't Hollywood hysteria – it could be a ticking timebomb worldwideĪnother part of the explanation, as documented in this recent study, is that corporate reputation often doesn’t suffer from wrongdoing. While the stock prices of companies do sometimes drop when some kind of wrongdoing or failure comes to light, these losses are frequently recouped within a short timeframe.
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