CSR360

Posted: Thursday 12 March 09, 2.18pm GMT

The credit crisis and financial turmoil that we have seen recently is likely to be only the beginning of a global recession that may stay around for quite some time. Such a downturn in economic activity will inevitably hit hardest those people and those communities that are already vulnerable. Many commentators are predicting that overseas development aid will be cut as governments are forced to look very carefully at their own public finances. Unemployment is set to rise, consumption set to fall and suppliers of goods to multinational brands are going to be under significant pressure as orders fall. A spiraling down of economic activity could lead to great adversity. And at times of great adversity, so needs will increase.

An important aspect of the recent crisis involves the trust and credibility that the business sector has now lost. When executives pay themselves millions of dollars in bonuses when their company is months away from bankruptcy, then most of us have good reason to doubt the ethics and responsibility of those individuals. If Directors have failed in their duties to shareholders then they should be held to account, in court. But that will not, in itself, rebuild trust in the private sector. There is a common perception now that people at the top have been greedy as well as negligent. This is likely to spread beyond the financial sector.

Sustainable CSR

If companies slash CSR budgets now then that would almost certainly worsen the plight of the vulnerable and at the same time send a message that CSR is only an add-on to companies for the “good times”. Spending on CSR only when a company has spare money is hardly sustainable. Now, more than ever, is the time to increase CSR activities, targeted at those most in need and to try and rebuild some of the trust in business that has inevitably been lost.

However, this does not mean the continuation of CSR as we know it. In many ways the current economic turbulence means that CSR will have to become much more strategic in the future if it is to be effective in meeting the new and emerging needs that an economic downturn will bring. CSR activities will need to become smarter and cleverer with a new emphasis on maximizing the total wealth of all stakeholders rather than the individual wealth of a rich elite.

But as well as making sure that CSR programmes are better targeted around those most in need, we must continue to address the major challenges of climate change, water shortages and loss of biodiversity in parallel. We cannot afford for the economic downturn to take the spot light away from urgent and pressing environmental issues. Indeed, here is a new opportunity for innovative CSR projects that deal with environmental concerns with an emphasis on pro-poor development strategies.

Double Burden

The most vulnerable people in the world are now facing a double burden of an economic downturn and having to adapt to the growing negative impacts of climate change. There is also an inevitable reduction in overseas aid just at a time when it is needed most and sources of donor money have just got tighter with global stock market meltdowns.

The role of the private sector is potentially huge. The question is whether businesses will pick up the challenge and invest in the communities that they touch or whether they will walk away from their responsibilities claiming insufficient funds. I for one will be looking at which companies do what and that will determine how their brands and reputations are viewed in the eyes of all their stakeholders. Those that continue with their CSR commitments will reap the benefits, but we must all recognize that the shape of CSR is nevertheless going to change in a number of ways:

CSR will have to become more strategic:

More than ever Boardrooms are going to have to be convinced that CSR is an investment item and not expenditure. They will be looking for clear returns on CSR investments and projects that deliver the most value for money. CSR programmes are going to have to be more targeted at those most in need and there will have to be a better measurement of the outcomes and impacts of those projects. Boardrooms are more likely to continue funding CSR if the benefits to the company and communities are tangible. If you can demonstrate value for money, you are more likely to keep your budget.

Cut executive salaries before you cut CSR budgets:

In most companies the wage and bonus bill for the Boardroom is greater than the CSR budget. If the Boardroom is going to rebuild trust from shareholders, their own staff and other stakeholders they had better share the pain. The bonuses being received by many executives who nevertheless made bad business decisions is nothing short of criminal. If CSR budgets are cut but the salaries of senior executives are not then that does not look much like a responsible organisation to me. If executives want to keep their salaries then they had better maintain their CSR budgets too.

Less money, more resources:

Whist in some cases CSR budgets may face some cuts, nevertheless, clever CSR managers will leverage greater non-financial resources. In times of need, it may well be that staff are more willing to spend time helping those in most need. Engaging your own staff to make a difference has suddenly become all the more important. In addition, the downsizing of the operations of some companies may also free up physical resources that are not needed by the company but can make a difference when given to communities. Giving unwanted equipment to new small business start-ups could be hugely helpful, for example.

Economic downturns are a great time to start small businesses:

The credit-crunch inevitably means that entrepreneurs and small businesses are going to have tough time. Even the micro-credit environment could be negatively impacted. But in order to deal with rising levels of unemployment, an economic downturn is exactly the time we should be thinking about entrepreneurship and job creation. Providing start-up funds, but also other resources such as training, education and skills development for people starting small businesses could be highly effective. Small business and entrepreneurship programmes need also to be carefully targeted to maximize impacts. Experience in the micro-credit field suggests that one particular group to target might be women.

Help develop and support new social enterprises:

There is likely to be a renewed interest in the social enterprise sector. The development of organisations that can operate in a competitive market place, but nevertheless deliver valuable social services brings with it a powerful way to address those most vulnerable over the next few years. Social enterprises that are not dependent on hand-outs and donor money support are going to be important in the current economic environment. Operating a successful social enterprise in a competitive market place offers much more sustainable solutions than aid-dependent charities.

Forget philanthropy, build capacity:

Handing over money to support charities never was as effective as helping people build their own livelihoods through giving them the skills and education that they need. Real investment in communities and people will help them to become self-sufficient and communities more sustainable. Targeting the most vulnerable will bring the greatest returns and now, more than ever, we need to show that CSR can produce those returns.

Develop pro-poor environmental strategies

Over the last month there has been a lot less discussion about key environmental issues such as climate change as headlines have understandably focused on the financial problems facing us. There have even been some politicians calling for climate change obligations being dropped in the current economic climate. That would be a disaster and it is not important that businesses take a lead in making sure that the environment remains on the business agenda. Finding ways to make those climate change projects also benefit the poor is much needed now but can be done with careful thought and consideration.

Create exciting, productive, lean partnerships

Much of what I have outlined above will work better in partnerships with local government, NGOs and/or other businesses. Many would argue though that partnerships where businesses take the lead are often the most efficient and effective though. Partnerships can be exciting if they involve people in tackling important challenges but they now also need to demonstrate both value for money and positive impacts. This will mean that those partnerships will themselves have to be targeted, focused and lean.

Think about the staff, stupid

Not only have the employees of bankrupt businesses been under a lot stress but there is now a wider malaise relating to employees’ trust in their bosses. There is likely to be a new interest in just how much senior staff are being paid when the common view is that they have done a bad job. Building trust in the workforce is much needed if a downturn in commitment to the organisation and productivity is not to be damaged. Cutting the budgets of CSR projects which staff are interested in and committed to is not going to be good for business.

Governance and accountability is the new game in town:

Companies can expect increased scrutiny over everything they do in the future. Whether it is the size of Boardroom bonuses or the amount of money cut from CSR budgets, businesses should expect clever journalists to be asking tougher questions. But increased accountability is also going to be expected by shareholders who have often been badly burned recently and other stakeholders who are now pretty angry about poor decisions, poor risk management and the greed of some executives.

Build a brand around total wealth creation:

A respected company will face new challenges head on it will not turn its back on them. Now is the time to build a brand that is based on maximizing the wealth of all stakeholders through effective community investment and pro-poor development projects. Companies that cut projects, leave vulnerable people stranded and find financial excuses not to follow through on their CSR initiatives face a backlash that might be difficult to put right later. Respected brands are going to step up to the challenge in new and innovative ways.

Demonstrate leadership, move fast:

Some of the cleverest people in the world still run businesses, although some of the cleverest might not necessarily understand the products they were offering. Yet, I believe that leadership from those senior executives who continue to care about the global challenges that still face us is going to be vital. Now is not the time to turn away from CSR and cuts budgets. Now is the time to see the huge value developing strategic CSR. The rich are going to be judged by the way that they treat the poor over the coming turbulent decade. Business might itself not be as rich as it once was, but it still has to take a lead in addressing the needs of those most in need. And it has to do so fast. ■