The Welch Way

Corporate Social Responsibility in a Recession


What do you think about companies being "socially responsible" during these difficult competitive times? Is it a necessity or a luxury? —Trifon Manolov, Sandanski, Bulgaria

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.

Now, before you go dash off a missive about our cruel capitalistic ways, please understand that we're not suggesting that companies abandon philanthropy and other charitable initiatives until the sky is blue again. 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," to use your word, but leaders today do need to pin down, for themselves and their employees, CSR's place among the company's priorities.

Here's what we mean. CSR, essentially, 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.

When the tide is high, of course, many companies practice all three forms of CSR to some degree, or at least the first two. And—again—they should. Not only is it the right thing to do but CSR can play a powerful part in recruiting talent, retaining talent, and keeping up morale. But how should companies think about CSR now, with margins narrowing, layoffs rampant, and consumers embracing the "new frugality"?

Employees Volunteer Less

To start with, the contribution of cash and goods most likely has to decrease, if it hasn't already. In troubled times, cash flow is critical and delivering it often means survival. Moreover, 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.

As for community activities, companies should by all means continue to encourage employees to stay involved, helping out if possible with transportation and scheduling allowances. But managers should also understand when employees recoil from previous commitments to volunteer. It's only human to concentrate on your job when you feel your job might be vulnerable.

And then there's CSR as a strategy.

Look, when gas costs $4 a gallon, a hybrid Toyota (TM) Prius is an attractive value proposition. With gas under $2.50, not so much. When most consumers have good, secure jobs, expecting them to pay more for an enviro-friendly product makes sense. With bank accounts drained, it's a tough sell.

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.

Jack and Suzy Welch look forward to your questions. You can e-mail them and view their new website at www.welchway.com For their podcast, go to www.businessweek.com/search/podcasting.htm.

Jack_welch
Jack and Suzy Welch look forward to your questions. You can e-mail them and view their new website at www.welchway.com For their podcast, go to www.businessweek.com/search/podcasting.htm.

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