In these highly uncertain times for the economy, companies are facing, more than ever, their responsibilities towards society. Many business decision-makers are wondering how to take the most responsible decisions for their communities when short-term difficulties are putting their company at risk.
While much of the public attention has naturally drawn to public authorities and their ability to fight the COVID-19 pandemic, today’s health crisis has highlighted the need for CSR (corporate social responsibility).
In the case of multinational companies, they have an especially important role to play. Their outreach and global value chains give them a crucial responsibility towards their stakeholders, which include not only their employees but also their suppliers and subcontractors around the world.
We need business leaders capable of combining short-term responsiveness with a medium to long-term approach in their visions and strategies.
CSR (corporate social responsibility) is a well-known management buzzword today. It was born in the U.S. in the 1950s and came to Europe in the 1990s, before spreading across the globe in the last two decades.
One major difficulty with CSR is that it is a fuzzy concept. It may refer to a large spectrum of corporate practices: from the still prevailing traditional philanthropy to the growing trend, especially in Europe, of strategically embedded sustainability. That is to say the integration of some key social and/or environmental priorities into the firm’s core strategy and operations.
In a paper written last spring during the lockdown, I identified 2 main types of responses to COVID-19: on the one hand, a short-term “CSR-as-usual” response, and on the other, a vision “looking beyond”, characterized by a strong focus on various stakeholders’ needs as well as on the need to further embed sustainability-related issues.
Companies endorsing a sustainability-driven strategy are more likely to take measures aimed at finding the best balance possible between economic imperatives, people’s protection and environmental preservation.
In the CSR-as-usual scenario, impact is doomed to be limited in scope and time. While many large companies have provided emergency relief and aid responses, such as free services and dedicated solidarity funds during the crisis, research clearly shows that budget lines dedicated to CSR are bound to be cut when the crisis becomes structural.
Concretely speaking, this means top management are faced with the necessity to move from a shareholder-centric view to a multi-stakeholder approach. This is of course easier said than done. Some companies, however, tried to balance out the interests of various stakeholders during the crisis, for example, by shifting their production lines to provide governments with personal protection equipment (such as in the cosmetics, pharmaceutical or manufacturing industries). More critically, top management succeeded in some cases to have shareholders agree on cutting or even freezing their dividends while maintaining wages and benefit packages for employees and honoring payments to all of their suppliers. This was the case for some well-identified corporate sustainability leaders such as Danone, Unilever, Marks & Spencer or Ikea.
Making social responsibility a key priority in times of crisis
Some will argue that such measures are obviously easier to implement in less impacted economic sectors. Strategies should indeed be adapted case by case, though one imperative remains, the need for a new type of governance enabling a stakeholder inclusion approach. Strikingly, the stakeholder theory which is concomitant with the development of CSR has remained so far not much more than an empty shell.
Of course, we need to take into account the expectations from our key stakeholders . . . but then what can we do?
The founder of this much criticized theory, R. Edward Freeman, made a strong point in an article published in 2010 when he reminded us that “stakeholders have names and faces and children!” This ought to be a key guiding principle for decision-makers today, so that social responsibility becomes a key priority in times of crisis . . . which may sound counter-intuitive to many!
One main obstacle lying ahead is that of the well-known agency dilemma: the fact that shareholders appoint professionals they entrust with the management of their company, expecting them to make the right decisions for them. So how to convince these shareholders that finding a new balance between the financial, social and environmental imperatives is the right response also for them in the medium to long term?
At the end of the day, what the current crisis reveals is the need to rethink and redefine the role and purpose of business in today’s world.
This will require a profound overhaul of governance systems. One first step consists in providing stakeholders with a tangible place in the governing structure of the company. Some legal types of business enable it more than others of course.
Looking beyond, one promising trend today is the growth of mission-driven companies around the world, from private labels such as the B-Corp to national legislation that encourage a new type of businesses aiming at balancing profit and purpose. For example, the recent Loi Pacte in France and its introduction of the “raison d’être” of business represents a new opportunity for companies wishing to put social responsibility at the core. Only with such structural adjustments will business leaders be able to reach the right balance between short-term constraints and the need for a long-term vision. At that point, the CSR concept may not be useful any longer.
For sure, the current global pandemic may revive the old business-as-usual tendencies… Yet, more and more business leaders are realizing that such a crisis will on the contrary accelerate the need for change to make their businesses resilient, sustainable and responsible. We see it everyday in our business school. The young generation is looking for an overall coherence; they expect companies to bring meaning and a sense of purpose to their jobs! Companies need to be ready for that.
- See the author’s latest book The Corporate Social Responsibility Agenda – The Case for Sustainable and Responsible Business, World Scientific Press, January 2020.
Feature photo credit: Choat – stock.adobe.com.