Articles

 

 

 

MONTHLY FEATURE

January 2002

CSR in Recessionary Times

 

 
In a time of crisis or in the face of a perceived crisis quick, stuff decisive action is very often demanded of senior management to help the company ship weather the storm. Just as sea captains were forced to jettison valuable cargo to save their ship, view in the storms and arrows of corporate fortune these days, levitra the axe is hefted first in the direction of the human resources department closely followed by marketing and IT.

 

Whether the world is hurrying towards recession, is currently in a recession or is perceived to be in recession following the cataclysmic events of recent history, is a moot point. What is certain is that the profits of major companies will be much lower in 2002 than they were in the year before. So, when corporate leaders reach for the axe in their tool chest, what does this imply for the fledgling area of Corporate Social Responsibility (CSR)? Should CSR also be cut until the good times roll back in again?

 

There are a number of issues.

First, CSR can help. A major stakeholder of a firm is its employees. CSR does not imply that downsizing should be prevented, that would be absurd. What it does imply (and see George Starcherís report to the ILO for more details on this[1]) is that companies must make an effort to organise layoffs in a socially responsible manner. This could include early warning, counselling, re-training, temporary financial assistance etc. The tendency of US companies to give immediate notice is both distressing and can be counter-productive once re-hiring starts again. There is no doubt that there is an unequal power between companies and employees. A company can recover, it has its own institutions such as banks willing to keep it going through hard times. A redundant employee has none of these advantages and is in a very weak position once he or she leaves the confines of an institution.

 

Second, CSR urges transparency of operations through socially responsible reporting of activities such as informing shareholders and staff about off-balance sheet holding of debts. Enron, for instance, may well have been in much better shape today if it had behaved in a socially responsible manner. Even though Enron was a lavish donor, Simon Caulkin of The Observerí (Feb 3rd, 2002) regarded this philanthropic form of CSR as a 'figleaf' and 'of a piece with Enronís overall strategy'. In fact, CSR is an overall strategy for systematic management of all of a companyís stakeholders and is not confined to philanthropy.

 

Third, CSR has not been given as much prominence as it should simply because of the legal framework under which most corporations operate. Robert Hinkley argues[2], for the USA, that the law, in its current form, actually inhibits executives and corporations from being socially responsible because the law simply says that the purpose of the corporation is simply to make money for shareholders. Any deviation from that could leave the corporation open to a lawsuit. So Hinkley suggests simply adding a phrase on CSR to corporate law so as to enhance CSR. Law, he advocates, would then read something like - Directors and officers have a duty to make money for shareholders, but not at the expense of the environment, human rights, the public safety, the communities in which the corporation operates or the dignity of its employees. Such a change would help CSR to remain a priority even in recessionary times.

 

Fourth, CSR has a positive impact on the intangible assets of a company as we argued in a previous Monthly Feature on intellectual capital and CSR (intellectual_capital). There we argued that a company's clear ideas on its identity and long-term goal, can help it to identify two sets of variables: one a 'value creating path' and the other a set of key success factors (KSF) and indicators that are appropriate as performance measurements. Such a process is very similar to developing CSR in a company which, in turn, will have a powerful effect on developing intellectual capital, a significant part of a company's intangible assets.

 

Fifth, CSR has a long-term affect on improving a company's bottom line[3] although available research on this key topic is few and far between and is strongly limited by the paucity of existing data. Yet there is a strong belief[4], that there is a positive link between social and financial performance especially when looking at the increased relevance of intangible assets such as reputation and knowledge networks. These turn into a source of market value and competitive advantage.

 

Sixth, social responsibility is not confined to corporations. Institutions that have a major impact on the way we live are also expected to behave in a socially responsible manner. How, therefore, can we explain the continuing focus of the International Monetary Fund (IMF) on targeting inflation and not on creating incomes and employment? As Joseph Stiglitz, the 2001 Nobel Prize winner for economics noted[5], ë..rather than providing needed liquidity to developing countries to enable them to pursue full employment policies, typically the IMF provides liquidity to countries only on the condition that they pursue contractionary policiesí. Contraction in the developing countries or in countries in economic crisis, such as Argentina, leads to smaller markets for a corporation's goods and services.

 

In times of crises, business history can be a source of inspiration. Consider Sony founded[6], 'among the ruins of a defeated and devastated 1945 Japan' in 'an abandoned telephone operatorís room in the hollow remnants of a bombed and burned-out old department store..', by the entrepreneurial Masaru Ibuka. He certainly concentrated on his day to day business essentials, yet, he also took the time to formulate his core ideals for the company that led the company for the next forty years and are today still part of the Sony Pioneer Spirit. His ideals were very much CSR as they embodied a focus on the individual within the company together with a mission that impacted positively and was intended to continue to impact positively - on the wider society in which the company operated.

 

Crisis? Recession? The axe in the company tool chest is easy to use and brings a quick fix. CSR, on the other hand, which should also be handy in that chest may not bring a quick fix. But, if used and accessed prudently, will give a hard pressed captain the guidelines and support for long term strategies that will help him/her avoid the sudden storms of crisis or weather them, should the radar system be out of order.

 

[Contributed by Michael Hopkins and Ivor Hopkins, MHCi Ltd]


[2] 'How Corporate Law Inhibits Social Responsibility', Robert Hinkley, Business Ethics, Jan. 2002

[3] See Michael Hopkins: Corporate Social Responsibility (CSR): Is there a business case?, ACCA (Association of Certified Chartered Accountants), London, Spring, 2002 (forthcoming)

[4] See also UNEP and SustainAbility: Buried Treasure: Uncovering the business case for corporate sustainability, Paris, 2001 and available on www.sustainability.co.uk

[5] Joeseph Stiglitz, "Employment, Social Justice, and Societal Well-being", Keynote speech to ILO Global Employment Forum, 1-3 Nov 2001 see www.ilo.org

[6] Collins & Porras, Built to Last (Random House, 2000), 'More than Profits, p. 48


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