CSR in a Downturn

If there's one thing more irritating than being held up in Bangkok traffic by yet another demonstration (who is it this time?), it's listening to the repeated claims that with the economic downturn – wait for it! – corporate social responsibility will be out the window.

But clever Director readers know better, right? From last issue's column we know that CSR is not philanthropy. It is not community service. And it is not public relations. CSR – minimising your negative impact, and that of your company, on the planet – is primarily a mind-set; an approach to doing business.

You can put a price tag on philanthropy, on community service, and on public relations - but what is the going rate for a mind-set? If you cannot price it, then how can you budget it? And if it's not in the budget, how can you reduce it?
So whenever I am asked for my reaction to companies who are “slashing their CSR budgets”, I first try to clarify exactly what it is these companies are actually reducing.

Frequently, it is philanthropic contributions. Sometimes it is community work. Occasionally, it involves PR opportunities in the form of employee volunteer programs (annual junkets to repair upcountry schools, and the like).

Doing It Wrong

Before I became a recovering plunderer – which is what my personal hero and mentor, Interface CEO Ray Anderson, calls those of us who try to focus on social as well as profit motives – I managed to weather several business cycles during my three decades as company manager and owner.

Come the bad times, my staff and I routinely followed the teachings of Business 101 and cut back investment, utilities, overtime, new hires, and all unnecessary purchases. We also scrutinsed our budget and slashed marketing. And training. Forget about philanthropy - that went out the door without a second thought.

In short, my company and many others applied the business equivalent of a tourniquet... but mainly around our necks!

We should have heeded Tom Peters' advice:
Instant, mindless cutting of R&D or training or salesforce travel in the face of a downturn is often counterproductive - or, rather, downright stupid. Tough times are in fact golden opportunities to get the drop, and the longterm drop at that, on those who respond to bad news by panicky across-the-board slash and burn tactics and moves that de-motivate and alienate the workforce at exactly the wrong moment.

During those painful planning times, I thought often of the military maxim: “When you are up to your hips in alligators, it is difficult to remember that you came to drain the swamp.”

Tough Decisions

In troubled times, thoughts about survival distract us from long-term goals. As Stephen Covey is fond of saying, the 'urgent' gets in the way of the 'important’.

These are troubled times. No doubt, companies today are contemplating the same sequence I did, when faced with a similar situation, but with one additional category of ‘easy targets’: corporate social responsibility, corporate citizenship, risk management, and related activities.
 
With these thoughts in mind, I was prepared when a Prachachart Thurakij reporter asked whether I was concerned about the impact of companies cutting CSR allocations in difficult economic times. I told her: “If a company has in its chart of accounts a line item named 'CSR’, then by all means, that company should go ahead and delete it. I say this because if a CSR activity is separate from the company's mission, then it is not CSR in the first place!”
 
A company may think it is cutting CSR when it is actually cutting marketing or PR, or even employee benefits. Such a budget adjustment could indeed be painful, but it is unlikely that it will affect the company's strategic social impact planning.
 
Companies must differentiate “real” CSR from fake or “wannabe” CSR. A company that understands CSR has a collective mindset that attempts to manage the production of a company's goods and services so as to leave the best possible impact in its wake. That impact might be on neighbours, on suppliers, on customers, on civil society, on government, or on the natural environment – all of which I subsume under the term Environment, with a capital “E”, to distinguish it from the “green” environment, small “e”.
 

Heavy Impact

A petroleum company, or any company in the extractive industry, can have a difficult time remembering how integral CSR is to the business. Newmont, a massive U.S. gold mining company, discovered this to its dismay. From 1996 to 2006 it operated a mine in Sulawesi, a mine which at its peak produced 25% of Newmont's international gold ore output. But the gold was exhausted by 2001.

During the period the Newmont mine was a thriving concern employing many happy workers. However, once the company suddenly announced plans to cease operations in 2006, trouble began. Faced with the prospect of a major source of cash income pulling out, villagers suddenly remembered how harmful to the Environment (and the environment!) everything Newmont ever touched had been.

Specifically, fishermen charged that mining pollutants were responsible for decreasing catches, and for increasing health problems among villagers.

The story is a long and unhappy one, but saddest of all is that it could have been avoided if Newmont had been attentive to basic risk management principles. Had the company invested in the kinds of stakeholder communication activities designed to assess villager concerns feedback, it would have anticipated the backlash, and presumably it would have taken preventive corrective action. In the end, not having done so, the company wound up effectively being held to blackmail for permission to cease operations.

(There was a happy ending: the company was ultimately acquitted of the pollution charges and continues to mine elsewhere in Indonesia. Today, it is known as one of the most responsible companies in the country.)

Getting It Right

How does this anecdote relate to CSR in bad times? Because good and bad times affect all companies. And during both periods, companies need to devote an equal amount of time to strategic planning needs. Why? To  prevent comparable backlashes and other unanticipated costs in emergencies, such as shutting  down operations. In this case, Newmont was hard-pressed to justify ignoring community stakeholders to its shareholders when engaging them might have minimised add-on closing costs.

In fact, Newmont probably would not have even been able to single out the expenses of a stakeholder communication effort. This reinforces the inseparability of CSR from core business activities.
 
Every industry has comparable issues. They exist in the best and worst of times, but they cannot be identified (let alone understood) unless there is a relationship of trust between business and the community. To be durable, such relationships require an investment of considerable effort... during good times and bad.