Corporate Social Responsibility in Financially-Troubled Times

Stephen DeAngelis

June 17, 2009

Jack and Suzy Welch write a weekly column for BusinessWeek answering reader questions. One reader recently asked: “What do you think about companies being ‘socially responsible’ during these difficult times? Is it a necessity or a luxury?” Interestingly enough, the reader was from Bulgaria [“Giving in an Unforgiving Time,” 1 June 2009 print issue]. The Welches’ response highlights the fact that idealism must be tempered by realism. They write:

“In this enlightened day and age, whether times are good or bad, companies must be socially responsible. That’s a given. But tough economic conditions underscore a blunt reality. A company’s foremost responsibility is to do well. That may sound politically incorrect, but the reason is inexorable. Winning companies create jobs, pay taxes, and strengthen the economy. Winning companies, in other words, enable social responsibility, not the other way around. And so, right now — as always — companies should be putting profitability first. It’s the necessity that makes every other necessity possible.”

The Welches fear that their answer may sound like “cruel capitalism,” but it’s difficult to argue the soundness of their logic. When I introduce Enterra Solutions’ Development-in-a-Box™ approach to leaders of developing countries, I often find that they are desperate to salvage state-owned enterprises that have been poorly run and are more of a drag to development than a help. I try to convince such leaders that helping them support sound businesses that can create lasting jobs is a better way forward. The arguments I put forward use the same basic logic used by the Welches. If you want a business to help society, that business must first be successful. The Welches continue:

“We’re only saying that corporate social responsibility — or CSR, as it has come to be known — needs to adapt to the circumstances. It hasn’t become a ‘luxury,’ … but leaders today do need to pin down, for themselves and their employees, CSR’s place among the company’s priorities.”

One company that has decided that volunteerism has a place in its business model (although it’s a bit afield from traditional CSR) is Verizon [“Customer Service? Ask a Volunteer,” by Steve Lohr, New York Times, 25 April 2009]. In Verizon’s case, volunteers “spend a few hours a day, up to 20 a week, at [their] computer, supplying answers online to customer questions about technical matters like how to set up an Internet home network or how to program a new high-definition television.” As of now, this kind of volunteerism provides obvious benefits for companies like Verizon as well as benefits for the customers they help. I consider this a form of CSR because it provides a free service to people in need — even if those people aren’t poor. Lohr claims that companies see customer service as a “costly nuisance” and that customers find it “a source of frustration.” I agree with the latter assessment, but not necessarily with the first. Good customer service can become a valuable company asset and differentiator. Verizon doesn’t pay the “super user” volunteers who provide answers to customer questions, but it does allow them “direct access to Verizon technical staff members and [gives them] early glimpses of new products.” This “first to know about the next big thing” opportunity strokes the egos of super users and provides them the motivation to keep serving others.

Returning to the Welches column, they note that CSR typically comes in three different forms: “Companies can contribute to society with cash or products, giving away grants, goods, or their services to schools, homeless shelters, hospitals, and the like. Second, companies can focus their CSR on community involvement, by supporting employees who mentor students or volunteer for a myriad of causes. And third, companies can put CSR into their product and service strategies, focusing on green initiatives, for instance, or factoring environmental concerns into their manufacturing processes.” They note that some companies pride themselves on their CSR and use their reputation to recruit and retain talent as well as raise company morale. But companies can only be socially responsible if they remain viable businesses.

“When you’re letting people go with one hand, doling out checks to ‘worthy causes’ with the other is hard to rationalize. The decision for managers, then, is how to distribute a smaller pot. You can sprinkle the money evenly, giving a little money to a lot of causes, or you can prune your list and give somewhat more to fewer organizations. Neither choice is bad, in our view, but we favor the latter only because it tends to have a greater impact.”

Even when companies have fewer resources to spend on “worthy causes,” they can still encourage their employees to stay involved in the community. The Welches note that some employees may feel that their volunteerism could give the impression to their bosses that they aren’t completely dedicated to the job. As a result, they might cut back on their activism. In hard times, bosses who disabuse their employees of the notion that if they volunteer their jobs are vulnerable provide a valuable community service.

The Welches also discuss CSR as a business strategy. By that they mean some companies believe that operating in an environmentally friendly way is good business. On the other hand, such a strategy may place the company at risk. In a previous post about LED lighting, I noted that the widespread use of LEDs could significantly reduce the amount of energy needed to light the world. Companies that produce lights, however, have been reluctant to make them because LEDs last so long that it basically puts the company out of the lucrative business of producing replacement light bulbs. The Welches conclude:

“Our point: The bar for strategic CSR is now higher than ever. Consumers are increasingly unable (or unwilling) to pay more for something simply because it makes them feel good inside. Today, it has to make them feel good in the wallet, too. That doesn’t mean the era of ‘socially responsible’ products is over. It just means increasingly intense cost pressures on the companies selling them, and any manager who ignores that fact is ignoring an oncoming locomotive of competition. Even in these uncertain times, CSR belongs in every company. But every company must face reality. You have to make money first to give it away.”

I would like to return to the original point made by the Welches: successful companies “create jobs, pay taxes, and strengthen the economy.” Those are, perhaps, the most socially responsible things that any company can do. That is the point I make when I encourage political leaders to foster a business-friendly climate and support entrepreneurial enterprises. With the jobless rate in the U.S. now at 9.4 percent, I would venture to guess that millions of unemployed individuals would also think that any company that can provide them with a good job is being socially responsible.