Bottom Line: Many corporations reduced their investments in sustainable initiatives during the recent recession — but some relatively high performing firms actually increased their long-term commitment to CSR.
The 2008–09 global recession was devastating for many businesses. Consider, for example, the Intel Corporation. In 2008, the firm lost 42 percent of its stock price and 90 percent of its net income. Nevertheless, shortly before revealing its fourth-quarter losses in 2008, Intel announced it was pledging US$100 million to global education programs, and buying 1.3 billion kilowatt-hours of renewable-energy certificates to support less-developed nations.
In short, during the worst economic downturn in recent memory, a major company facing a significant financial hit committed itself to socially responsible causes far removed from the business’s core model. Such a move would have been unheard of 30 years ago, and it still clashes sharply with the expectations of most modern analysts — especially during a serious recession characterized by uncertainty about the extent of firms’ losses and the global market’s ability to recover.
Driven by public and government pressure, corporate social responsibility (CSR) programs — in which firms attempt to balance the needs and wants of shareholders, customers, employees, suppliers, and local communities as part of their overall business plan — have become ever more important over the past couple of decades. But amid all the feel-good headlines fueled by corporations prioritizing causes other than the bottom line, one question has remained: When the economy slumps, will firms still put their money where their mouth is and invest in CSR activities?
According to a new study of leading U.S. firms, the short answer is “yes.” But the longer answer is a more nuanced “it depends” — on both the company’s financial performance and the type of CSR activities it’s engaged in. Obviously, managers’ standard response to an adverse business environment is to fall back on the firm’s core business, limit the flow of information, and concentrate on internal processes in an attempt to gain control over an uncertain situation. Indeed, most pundits and analysts predicted that companies would downgrade their CSR efforts during the recession.
Here’s where the nuances become important. Most previous research has treated CSR as a monolithic construct and lumped all the socially responsible activities that firms take on under one umbrella, leading to ambiguity about their true dedication to CSR. But the authors of this new study aimed to parse short- and long-term commitments, carefully disentangling two distinct forms of CSR activity: tactical and strategic.
Tactical CSR moves — which usually take the form of one-time philanthropic donations to support healthcare, education, hunger relief, or disadvantaged communities — are relatively incremental and transient. Although they can provide short-term value to the firm, they can be quickly adjusted or eliminated without raising the ire of shareholders. Companies can even donate some money at the end of the year in an effort to garner media attention and have something to list on the annual CSR report.
Strategic CSR policies, on the other hand, require significant time and resources. They necessitate the development of long-term relationships with partners and communities, and often involve fundamental adjustments to the organizational structure — such as reworking the supply chain to account for environmental changes or rewriting the human resources handbook to facilitate workers’ rights.
Although the recession was tough on everyone, it provided the authors with an ideal platform to test the strength of large firms’ commitment to social causes. The researchers studied more than 1,650 of the largest publicly traded U.S. companies from 2003 through 2009, especially relying on a database that analyzes media reports, expert evaluations, and company surveys to rate firms on their strengths and weaknesses in several areas of CSR, including their commitment to community, environment, diversity, employee relations, human rights, product quality and safety, and corporate governance.
After controlling for several factors — including firms’ size and their debt obligations — the authors found that large firms, on average, cut back on their CSR pursuits during the recession. However, companies with a comparatively strong financial performance tended to sustain, and sometimes increased, their strategic, long-term CSR activities, despite the downturn.
As the authors note, these core CSR activities form a large part of a company’s identity; as such, they are more difficult to reverse than tactical moves and would require an overhaul of the firm’s structure, routines, and operational processes. Those CSR activities are also more likely to give firms a competitive advantage over their rivals — think of how many firms’ advertising campaigns are geared around their commitment to the environment and future generations.
In fact, although the recession made a definite dent in overall CSR activity, the authors found that some firms used the downturn as an opportunity to boost their strategic commitments to CSR, perhaps identifying an opportunity to distinguish themselves from less financially secure and socially conscious competitors. Their message of sustainability, some have argued, is most needed during times of crisis.
This article was taken from here.