Managing Corporate Social Responsibility in a Downturn

By the SMU Social Media Team

From investing in green technology and providing potable water to poor communities, to enforcing workforce diversity and volunteering to deliver food to the underprivileged, Corporate Social Responsibility (CSR) comes in many shapes and forms.

It’s a buzzword for most organisations that are looking to make a positive impact on society while projecting a responsible brand image. However, when a corporation’s own financial sustainability is on the rocks, should CSR be the first to go during budget cuts?

Associate Professor of Finance at SMU’s Lee Kong Chian School of Business, Liang Hao, doesn’t think so.

 

Augmenting a company’s social capital

Liang How, Associate Professor of Finance at the SMU Lee Kong Chian School of Business

Liang Hao, Associate Professor of Finance at the SMU Lee Kong Chian School of Business

Assoc Prof Liang, whose research interests include CSR, law and finance, explains that “doing well to do good”, or investing in CSR, can enhance a company’s value and hedge itself against economic downturns.

He explains that engaging in CSR activities can augment a company’s social capital, which earns the trust of key stakeholders—such as consumers, investors and employees—and gives them a reason to stay loyal and support the company through good times and bad.

People also tend to view losses by socially responsible firms as less harmful during bad times, he adds.

 

Executing CSR initiatives on a budget

Another reason to continue CSR initiatives during a downturn is that CSR investments are usually considered a luxury that only companies with high standards of product quality can afford—a perception that can help to drive business.

“In fact, good product quality itself is a CSR, especially for companies in manufacturing, and the food and beverage sectors,” says Assoc Prof Liang.

While it’s not uncommon for organisations to place CSR initiatives on the back-burners as their bottom lines dwindle, that doesn’t have to be the case as CSR programmes run the gamut, and, more importantly, not all require huge budgets.

Assoc Prof Liang explains: “CSR engagement should not add financial burden when the company is struggling to survive. Some—such as investment in green technology—require significant capital expenditures, whereas others—such as striking board and workforce diversity—do not. Given the financial consideration, companies can adopt “cheaper” and intangible CSR that do not require significant capital expenditure, during an economic downturn.”

 

Enhancing cost efficiency through technological and management innovation

Another approach of adopting CSR during a downturn would be to enhance cost efficiency through technological and management innovation.

“Researchers have found a strong correlation between CSR, innovation and cost efficiency. For example, companies that develop technology which reduces energy consumption will both cut costs for itself or the larger business community and be seen to be more environmentally friendly,” he says.

 

Ingraining CSR in business plans

For companies that are keen to develop a CSR strategy that is sustainable during a slowdown, Assoc Prof Liang opines that it’s crucial for CSR to be ingrained in the company’s business plans.

“A well-crafted CSR strategy involves maintaining good relationships with key stakeholders so that they will stay loyal to the company in both bullish times and bear times. This means that the CSR strategy should be integrated into the company’s strategy and daily operations from the early days,” he says.

He elaborates, “It is not only an investment but also a risk management tool. In fact, there has been a trend of integrated reporting—combining Environment, Social and Governance reports with annual financial reports—in corporate reporting practices across the world. Such a practice is an important way for decision makers to think about CSR in a more systematic way and connect it to the main business activity.”

 

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