Business leaders working in the Middle East should not stand by the sidelines or hop on the next flight out. They should act to rebuild trust, wherever and whenever it is possible.
The unfolding protest movements in Egypt and across the Middle East have generated a dizzying mix
of joy, fear, and uncertainty throughout the world, leaving many in the business community involved in the region — including many of my students — confused and unsure over how to respond. How do they protect their employees as well as their bottom lines? And, in Egypt’s case in particular, how can they contribute to the reconstruction process?
While the region has suffered from significant economic distress, it has been relatively contained compared to the fallout of some corporate crises in emerging markets in the not so distant past; consider the Asian financial crisis of the late 1990s and the Argentine meltdown of a decade or so ago.
The Korean stock exchange reached its nadir on the last day of December 1997, and was followed by Thailand in late August 1998, and Malaysia and Indonesia in late September 1998. These low points represented a good 70-90% drop from the preceding years. Argentina’s low point was in mid 2002, and it represented a close to two-thirds drop.
So far, the Egyptian stock exchange has dropped about 15% since the turmoil began (the exchange’s closure makes it difficult to provide a clean measure). Most of this drop took place over a two-day period and Egypt has experienced similar drops a handful of times in the past five years. Of course, we don’t know where this will end.
Simon Cooper, CEO of Middle East operations at HSBC (HBC), says that there is a lot of waiting and watching going on, and, in a strange way, the unraveling of the Mubarak regime may hasten an end to the wait. After all, the end of Mubarak’s reign was long anticipated; it was just unclear what that would mean for Egypt’s future. Mubarak’s exit has delivered a power vacuum, which has been partly filled by the armed forces, and by its promise to run elections in a few months.
What happens in such vacuums? In the collapse of the state that accompanied the Asian crises of the late 1990s, some have suggested that local tycoons effectively took the money and ran. In other words, some businesspeople may have determined that the tumult — e.g. the passing of the strongman Indonesian president Suharto in Jakarta — might undermine the basis of their past economic success, and that they were better off quitting if they could.
Yet, my experiences with businesses have not always, or even usually, been as dismal as suggested by these analyses. A more representative example, to me, came during the Argentine financial crisis. That meltdown was caused by a lack of political discipline that led to unsustainable borrowing to combat a recession in the late 1990s. This resulted in the largest sovereign default in modern history, double digit unemployment, street protests, and, as a symbolic indicator of the frayed political and social fabric, five Argentine presidents ushered in and out of office in just 15 days.
In Argentina, Tetra Pak, the Lausanne-headquartered, privately held packaging company (maker of the aseptic packages that seal ubiquitous juice boxes, among other things), behaved with admirable fortitude. Aldo Ferrer, CEO of Tetra Pak Argentina during that time, recalled that moment, “We were hit by a perfect storm, and we [had to] figure out how to get out of it safely.”
Ultimately, Tetra Pak took the long view, trusting their local management and making the call that it was better to draw a line between the past and the future, invest in protecting the relationships they had built up over the past years, and, to some extent, help restructure what it was owed by its key customers, all in distress.
Tetra Pak’s situation was especially dire since many of its costs were in dollars, but its receivables were in local pesos, unlikely to have much value going forward. It is also worth remembering that several other multinationals fled the country at the time.
Taking the long view, the high road, helped. By my reckoning, Tetra Pak’s primary value in this situation was in restoring stability and trust, so that businesses could continue to operate with time horizons in excess of a few days. Tetra Pak contributed to the imagination of a different future than what was unfolding on the streets of Buenos Aires at the time. By the end of the decade, the company’s dominance in the Argentine market had solidified. It helped that the company had a cadre of managers used to managing through crises.
This brings us back to Egypt and the Middle East tumult. What should my students, and their managerial and investor compatriots, do? They should not stand by the sidelines. They should act to rebuild trust, wherever and whenever it is possible. It still feels as though things are at a tipping point. Business can help reassure rather than (inadvertently) aggravate the situation.
This is not easy. Businesses may legitimately fear for the safety of their employees and leave the region altogether. They may, understandably, prioritize the immediate interests of their shareholders and decide to react to the current circumstances, which are not conductive to investment, rather than to what things might be like in the future.
Those that decide to stay the course, however, should engage in substantive and symbolic partnerships, with other corporations, and with the labor movement, and the frayed state, in whatever shape these groups present themselves. The workers are striking, demonstrating their angst and discontent. The state is struggling to reestablish its short and medium-term credibility. Absent a solution to their distress, they will continue inexorably down a worsening path.
The good news is that there is much less violence than there could have been. Egypt is home to a proud civilization, and perhaps this is a proud new beginning. Corporate Egypt and its cousins from around the region and the world need to realize that they are responsible for constructing their desired future. This is no easy task, but it is a lot easier than dealing with the aftermath of a continued vacuum of trust.
Tarun Khanna is Jorge Paulo Lemann Professor at the Harvard Business School, Director of Harvard University’s South Asia Initiative, and co-author of Winning in Emerging Markets: A Roadmap for Strategy and Execution (Harvard Business Press, 2010).
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