In today’s world, business leaders are increasingly called on to respond to democratic trends: from the invasion of Ukraine, to popular demands for corporate and government action, to strains in major democracies such as India, Mexico, and the United States. Additionally,  democracy is important to business. A free and open society encourages private-sector development and economic prosperity. Democracies have more political shifts in the short term than their autocratic counterparts, but are more likely to respect the rule of law and are less prone to extreme change—creating a more stable environment for business.

Here are five democracy-related trends that business leaders should watch in 2023.

1. How leaders respond to public unrest is a bellwether for democracy

The world is facing unprecedented crises that are having a profound and daily impact on people across the globe. Climate change is bringing drought, floods and weather-related destruction, uprooting lives and devastating livelihoods. A global food crisis has exposed the fragility of the global food system, leaving 49 million people facing emergency levels of hunger [1]. Record energy prices have pushed families into poverty, forced factory closures, and left millions vulnerable this winter.

Many commentators are predicting increasing popular unrest if governments cannot manage these crises. When massive protests spread around the world in 2019, less restrained governments–from China to Ecuador–met them with violent crackdowns. Business leaders should monitor government responses to popular movements, as they can be a bellwether for the political environment that these governments will support. An example is China, which has brutally suppressed protests—especially in Hong Kong. Although China was once hailed as a technology innovator, the Communist Party has favoured repression over a business-friendly environment. In contrast, governments seeking collaborative solutions that include marginalised populations are more likely to foster stability in the long run. After initial use of force, Chile resolved popular unrest in 2019 through dialogue and a constitutional referendum.

2. Democracy fosters innovation

Cutting-edge ideas thrive in open environments where people speak their minds and collaboration takes place freely. Technological innovation is correlated with open government that propagates constructive regulation and skill development [2]. Autocratic regimes don’t only quash political dissent, they also cultivate academic and corporate cultures that silence debate: bad environments for innovation.

Business innovation could be crucial in tackling the world’s most critical challenges. From emerging technologies to new business practices, companies can help drive the next wave of crisis management. This requires bright and inquiring individuals freely collaborating to develop solutions. Business leaders should consider dynamic democracies with the potential to drive innovation, such as Estonia and Mongolia.

3. Expectations for companies to take a stand on democracy-related issues will grow

The interconnectedness of the global economy combined with pressure from shareholders, consumers and employees means business leaders can’t insulate themselves from democratic issues. This means leaders are increasingly expected to take a moral stand on issues such as human rights in the supply chain, discriminatory local laws and social justice movements.

As democracy and social issues rise in popular awareness and younger generations become more professionally engaged, employees and civil-society actors are quicker to call out ill-considered corporate social initiatives as mere PR efforts. As a result, business leaders can benefit from proactive frameworks for how to respond to contentious social and political events. And as strategies continue to develop, leaders will need continual consultation with stakeholders to understand the opportunities for positive change.

4. Businesses will need to navigate the increasing divide between the West and other democracies

The NATO alliance as well as other ties among democracies mainly in North America and Europe have strengthened since the start of the war in Ukraine. However, the neutral stances of other major democracies—including Brazil, India and South Africa—with respect to the war are giving shape to the new, multipolar world. Whereas the fall of the Berlin Wall ushered in a period where countries seeking international acceptance tended to fall into line behind the United States’s diplomatic positions, today there are a spectrum of economic and political positions  expressed on the global stage.

Businesses can no longer take for granted that political alignment between rich democracies will be sufficient to generate agreement among large swathes of smaller countries. To operate effectively, they will need to navigate new landscapes with shifting alliances.

5. There is a cost to doing business with autocrats

The war in Ukraine revealed the price that businesses may pay for engaging with autocrats. In 2022, companies had to grapple with a range of new uncertainties such as rapid withdrawals from Russian markets and diversifying energy sources.

Democracy supports stability and prosperity, while autocracy is unpredictable and often violent. In 2023, business leaders will need to make tough decisions about how to respond to autocracy, including when and whether to do business in fraught political environments.  These choices will only become tougher as popular pressure increases, and the multipolar world leaves more space for moral ambiguity. One strategy to address the challenges is clearly defined and publicised company values. These can help guide corporate responses and make sense of them for internal stakeholders and the outside world.

[1] https://www.wfp.org/fight-famine
[2] https://www.sciencedirect.com/science/article/abs/pii/S0166497221001140