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Wednesday, September 14, 2016

Strategic CSR - McDonald's

In my strategic management course this spring, a student reminded me of the McDonald's Peace Theory – the idea that no countries that have McDonald's stores within their borders have ever gone to war with each other. The theory came from Thomas Friedman of The New York Times and can be traced to the article in the url below, which he wrote in 1996:
 
"So I've had this thesis for a long time and came here to Hamburger University at McDonald's headquarters to finally test it out. The thesis is this: No two countries that both have a McDonald's have ever fought a war against each other. The McDonald's folks confirmed it for me. I feared the exception would be the Falklands war, but Argentina didn't get its first McDonald's until 1986, four years after that war with Britain. Civil wars don't count: McDonald's in Moscow delivered burgers to both sides in the fight between pro-and anti-Yeltsin forces in 1993. Since Israel now has a kosher McDonald's, since Saudi Arabia's McDonald's closes five times a day for Muslim prayer, since Egypt has 18 McDonald's and Jordan is getting its first, the chances of a war between them are minimal. But watch out for that Syrian front. There are no Big Macs served in Damascus. India-Pakistan? I'm still worried. India, where 40 percent of the population is vegetarian, just opened the first beefless McDonald's (vegetable nuggets!), but Pakistan is still a Mac-free zone."
 
The theory held for quite some time and is a testament, not to the unifying power of McDonald's 'food' (with 'food' placed firmly in inverted commas), but to the power of capitalism to promote societal progress. It was broken only recently after Russia invaded Ukraine:
 
"Obviously, I say all this tongue in cheek. But there was enough of a correlation for me to ask James Cantalupo, president of McDonald's International and its de facto Secretary of State, what might be behind this Golden Arches Theory of Conflict Prevention -- which stipulates that when a country reaches a certain level of economic development, when it has a middle class big enough to support a McDonald's, it becomes a McDonald's country, and people in McDonald's countries don't like to fight wars; they like to wait in line for burgers. Or as Mr. Cantalupo puts it: 'We focus our development on the more well-developed economies -- those that are growing and those that are large -- and the risks involved in being adventuresome [for those growing economies] are probably getting too great.'"
 
What is also interesting is that, following Russia's invasion, McDonald's closed its three stores in Crimea in 2014 and withdrew from the country (see here). As the company said at the time:
 
"Like many other multi-national companies, McDonald's is currently evaluating potential business and regulatory implications which may result from the evolving situation in Crimea. … We believe it is prudent and responsible to sort through these details thoroughly. Additionally, due to the suspension of necessary financial and banking services, we have no option but to close our three restaurants in Crimea. It is important to note that this is strictly a business decision which has nothing to do with politics. We are taking numerous steps to support our employees during this time. We hope to reopen our restaurants soon so we can welcome back our loyal customers. "
 
This discussion in my class arose in response to a quote from Micklethwait and Wooldridge's great book, The Company: A Short History of  Revolutionary Idea (2003, pxv), which I assign as a reading for my students:
 
"The most important organization in the world is the company: the basis of the prosperity of the West and the best hope for the future of the rest of the world."
 
The idea of that particular class is to discuss the history of the corporation, how it evolved to where it is today (a result of a series of deliberate political and judicial decisions), in order to better understand why concepts like the LLC, limited liability, corporate personhood, boards of directors, and investor relations with the firm all exist in the way that they do today. The point more relevant to this Newsletter, however, is the status of the corporation as the dominant institution of our time. This lies in contrast to the state, the political party, the Church, and the family as dominant institutions of previous times. While the 'value' of specific corporations to society will vary (and, in my opinion, McDonald's does not rank very highly), the broader point about the power of capitalism to advance societies and the danger of authoritarian governments to impede societies is reinforced powerfully by the McDonald's Peace Theory. As Friedman notes:
 
"In the 1950's and 60's developing countries thought that having an aluminum factory and a U.N. seat was what made them real countries, but today many countries think they will have arrived only if they have their own McDonald's and Windows 95 in their own language."
 
I am sure there are more elevated signals of 'progress.' Nevertheless, those metrics (assuming the latest version of Windows) are as good as any others in determining what counts as progress today in many countries that wish they had economies as developed as ours, along with the companies that generate that progress:
 
"Said Mr. Cantalupo: 'I feel these countries want McDonald's as a symbol of something -- an economic maturity and that they are open to foreign investments. I don't think there is a country out there we haven't gotten inquiries from. I have a parade of ambassadors and trade representatives in here regularly to tell us about their country and why McDonald's would be good for the country.'"
 
Take care
David
 
 
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Foreign Affairs Big Mac I
By Thomas L Friedman
December 8, 1996
The New York Times
Late Edition – Final