By Andrew Mack and Felipe Custer
The economy is bad, very bad for many companies around the world. From New York to Paris to Lima in manufacturing, services and nearly every sector, firms are tightening their belts. Still, despite the tough economic conditions - and in part because of them - there may never be a better time for companies to think seriously about not cutting but actually increasing investments in corporate social responsibility programs. In the words of CSR Asia Chairman Richard Welford: “Companies that are able to engage with innovative and meaningful CSR initiatives are likely to better weather the economic downturn than those ignoring social responsibility.”
But is Welford right? And why would this be so?
Prior to the downturn there was momentum toward increased investment in CSR. From Ben and Jerry’s to the Prius to the most recent Apple computers, growing evidence from around the world showed that consumers were ready to reward socially-focused companies and practices - that there was a real “social preference consumer” in the marketplace. Firms were looking to “go green” in small ways and large, and socially-oriented companies were reporting advantages in recruiting, especially among more socially-conscious Generation X and Y employees. 2008 estimates from sources as bottom-line focused as IBM Global Services and the Economist were predicting a full 25 percent increase in CSR spending by 2011.
Still, that was before the worst economic crisis in 50 years.
Today companies everywhere are seeking to cut costs like never before. Most large corporate foundations are cutting budgets by up to 20 percent, according to Steve Gunderson, president of the Council on Foundations. Social investment managers are being asked to get more impact from the money they spend. Responsible companies, it is argued - whose first responsibility is to shareholders, after all - should pull back from their CSR plans in light of the crisis.
However, looking at the realities of today’s volatile and highly competitive market, we believe that just the opposite is true. The crisis has brought on fundamental changes in the relationships between firms and their employees, shareholders, suppliers and customers. These changes make CSR not just a good idea, but a good investment of company resources.
The signs of change are everywhere.
Consider the relationship with employees. While the world is in recession, competition for the best employees remains high. Recent studies have shown that there is still stiff competition for key employees, those making upwards of $100,000 per year. Moreover, there is every day more pressure on workers to perform - at a time when firms are reluctant (and sometimes unable) to reward workers with big bonuses, benefits packages or other perks as in the past. In this new environment a sense of connectedness, friendships around work, and common values are crucial to building the kind of two-way loyalty that is the hallmark of successful firms. Companies and workers need each other more than ever.
Similarly, the downturn has dramatically changed the relationship between companies and their shareholders. The scope of the market falloff has been so broad - touching nearly every part of the world economy - that shareholders have been forced to re-evaluate expectations around portfolio growth. Where investors were last year pushing corporations to “manage for the next quarter,” expecting annual portfolio growth of 10 percent or more (and severely penalizing even highly profitable companies that didn’t make earnings estimates), today’s investors know that they need to think long-term. Recovery will take time.
At the same time, in the aftermath of the Madoff scandal and the problems with Lehman and so many other financial institutions, there is also a growing sense that we have reached a true crossroads. Commentators around the world are questioning the culture of cowboy capitalism and excess, legitimately frightened by where it has taken us. In their search for security, many today are considering investment in Government bonds with little or no return. And they are looking to invest in companies with solid balance sheets - on both the financial and social sides of the ledger. Trust, it turns out, is an important asset for investors.
Finally, the relationship of companies to their customers is changing and is poised to change further. In an era of strained budgets, where marketing expenditures and volumes are both down, no firm wants to lead a race to the bottom with price as the only variable. With people everywhere tightening their belts, there is and will be more competition for the consumer dollar or euro. To distinguish themselves, smart firms need more than ever to find real connection with their customers, to provide value, but also to connect on the basis of values if they wish to reach and retain their audience.
So things are different, and the relationships have changed. But can CSR truly help the bottom line? The answer is yes, for one simple reason: What makes a community better can also make a better business.
There are many examples…
• CSR programs focused on the environment also help companies cut waste, from paper to energy to commuting costs - creating significant economic AND environmental benefits.
• CSR programs in health reduce absenteeism - a major cost to many firms - and address the number one determinant of happiness, according to Carol Graham, senior fellow at the Brookings Institution. Community health investments can also build profitability. Healthier people everywhere earn more and are more active consumers.
• CSR programs can help attract and retain good employees. Even in a labor market that favors employers, the costs of finding, interviewing, and training new workers remains high. Programs such as co-financed community investing can build stronger bonds between management and staff, reducing turnover.
• Finally, CSR initiatives can also help companies prepare for new environmental standards and preferences which are every day more present, whether they come in the form of carbon markets, gas taxes, sanctions for polluters or a simple preference for smaller cars.
So assuming now is the time, and the economic logic is there, what will need to be different about this New CSR?
To begin, the times call for a new CSR model that is both internally and externally focused, one calling for and rewarding participation from all employees. Gone are the days when firms were considered “good citizens” after writing a large check to the symphony, when a firm’s social investments and social profile could exist solely within its corporate foundation. Today many employees would like to have a CSR component as part of their work and a role in determining the direction of their company’s community investments. Smart companies, looking for success in the community and within the company should facilitate this.
Firms will also need new metrics to measure success, tools to better track the impact of invested time and money. Companies need a way to value “direct social assets” (like trust and positive image) and to reward the stewards of these assets. They also need to capture the benefit they create by investing in “indirect social assets” - community social goods like improved health or local social infrastructure - that directly affect their workers, customers and ultimately, profitability. And good work on these metrics is being done around the world, but much more is needed.
In the future we see a growing consensus… Companies will want and need to be greener. They will need to be healthier. They will need to be more resilient in the face of economic shocks. They will also need to be more efficient, while building closer connections with employees, consumers and investors.
Especially in light of the crisis, as we look again in a real way at what we value in every sense of the word, an expanded focus on CSR, the New CSR, makes good sense - to us as people, and to the bottom line.