A corporate social response to the crisis: R. Wilson

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At the time of writing (June 2009) the first signs of recovery and a return to confidence had begun to appear and market confidence was returning. This otherwise positive turn of events lead to a spate of press on what business must do to prepare for and exploit the recovery. Prominent among these was an article in the May 2009 McKinsey Quarterly - “What Next? Ten Questions for CFOs” (http://www.mckinseyquarterly.com/What_next_ten_questions_for_CFOs_2360 ). The notable aspect of this article is that instead of an expected expression of contrition and some conservative advice about management of risk, the bull was rampart with a series of suggestions that recommended gung-ho, free market exploitation of other company’s weaknesses and use of the tough market conditions to make organisational change that would at other times be unacceptable (read: sackings and structural change of working conditions).

We believe an alternative position can be taken; one that deplores the outrageous risk taking (usually with other people's money) of the derivative financial instrument market, the under-protection of investment funds, the free use of the truth in reporting to the market, the lack of regard of the impact these gambles were having on the lives of investors and the outright hubris of the individuals involved and fees they earned. Instead of looking to exploitation of the market, we believe companies, especially the larger ones with clout and resources, should be looking to how the fundamentals of market structures and the shape of the social contract between business and the community need to be modified in response and to ensure (if that is in fact possible) that a repetition of the crisis does not recur.

In response to McKinsey's ten questions we pose nine issues and questions of our own:

1. The loss of business confidence as a result of the GFC has caused pain and stress to people whose lives and welfare became subject to market events and business responses beyond their control, highlighting structural injustice, allowing instrumentalisation of the workforce and further disconnecting the marginalised from the normal flows of goods and services. The response of some companies, in extremis, was to shift resource suppliers, especially labour. The notion of labour arbitrage, especially the notion of securing labour at less than the normal cost in times of recession is repugnant to justice. Rather, companies should be focussing on protecting their skills base by maintaining staff and if there is  productive capacity, re-skilling and developing post recession capacity and capability. Specific budgetary provisions should be made to enable this.
   
   What steps should Boards take in order that people dependent, however remotely, on their company’s operations and the whole of business, in community, are protected financially from events that are beyond their control?
2. The vast commoditisation of the work force which becomes apparent when the chips are down challenges us to ask who is working for whom? Does business serve society or the other way around?                                       
   
   What has the experience of the GFC demonstrated about the social contract between business and community – especially in relation to the responsibility of business to serve community and the responsibility of business in particular to its staff as their primary source of economic security? How is the social contract holding up in relation to the ethical use of power?
3. The bargaining power of labour is dependent on the economic cycle if you take a short term view. The usual reaction to the need to cut costs is to shed labour, especially in the services sectors. Recent downturns (say over the last 20 years) have generated thinking that says business should preserve its skills base during the bad times to be ready for the uptick of the cycle. However, the inevitability of a financial rebound means companies should preserve their relationships (social capital) and the skills of their employees for the good times.
   
   Again, we think companies need to provision for the inevitable down turns and use these resources to retain trust by retaining and training employees in order to be ready to return to normal business operation. As long as this approach is applied broadly and impartially, it is more socially just.
4. Conventional business wisdom says free market competition leads to higher levels of market efficiency. However the free market does not account for the cost of competing. Competition is said to keep prices down – but at what social cost? Vigorous competition leads to cost cutting in so-called ‘non-essential’ areas of business. Such economies can lead to short-cuts on community goods such as pollution, staff safety, and consumer safety. In the cut-throat market, often the throat that is cut belongs to the under represented and poorly paid worker.
5. In an ideal operating environment, businesses of good will and good faith would ensure transparency over costs and profits. Therefore the need for competition to maintain price control is lessened and increases firm and employee security. This utopia is not achievable but nor is unfettered competition sustainable. We need to seek some form of compromise.
6. McKinsey recommends a vigorous approach to the acquisition of new businesses that might now be acquired at an advantageous price or the reconstruction of new business partnerships that better suit the changed economic conditions.
   
   Alliances build community and have the potential to build trust and can in this way be good. Business needs to ensure new alliances arising out of the changed economic circumstances of their competitors are not exploited with the purpose of gaining undue market control and thereby forcing a competitive action that works against the interests of the community. Acquisition to re-invest in community-required projects is to be welcomed.
7. The parable of the talents teaches we should be the best we can; but not at the expense of justice. Many companies are reconsidering their structures and selling off under-performing assets.                 
   
   What are the community and individual impacts of divestment? Will employees of divested entities be found employment elsewhere? Will the communities that are dependent on divested entities be cared for if their economic interests are threatened? Are these people and communities engaged in the decision making? Business needs mature relationships with whole communities in order to work through how business changes such as divestment can be achieved with the minimum negative and maximum positive impact on community welfare, especially of the marginalised. Business also needs to take a long term view.
8. At a time of re-thinking the norms on which the community and business relationship is conducted, some tightly held truths should be re-examined. For instance, what is the basis of the need for growth?
   
   In a conventional competitive environment growth protects against take-over but if the nature and intent of competition is re-framed (along the lines of Point 4 above) then the need for growth may take on a different perspective. Is the proposed growth linked in a systematic and agreed way to genuine community needs? Or, is growth just about shareholder wealth and therefore is it primarily a function of partially distributed economic benefit (greed)?
9. The business community commands vast resources and managerial talent, of which it is the steward, not the owner, on behalf of the community.
   
   How are the business community and other community representatives, including the Church, working together in collaboration to create a vision of the ‘post GFC’ recovery to: ensure it does not recur, and that the fruits of the recovery are distributed justly and equitably
10. Business controls the most resources and the brightest minds available in the community. Is it not reasonable to expect that these resources are turned, at least occasionally, to the welfare of the community, including business, as a whole. Shouldn’t business co-operate with each other and community groups to exploit the synergies of these mighty forces?
    
    How is business collaborating with other elements of society to work through management of social prosperity generally, rather than each business attending only to the welfare of a narrower range of stakeholders? In particular, we might ask if free market capitalism’s short term view of the world, especially the quarterly stock exchange reporting cycle, really serves the community as well as it might? Would a longer term view enable more ambitious projects, directed at community welfare? Would a less frenetic pace allow more thoughtful planning?

If business is motivated to become closer to the community in terms of its social response to events, there are a number of actions that might considered: 

• Challenge the company - owners, managers, staff - whether the business exists to serve the community or to be served by the community. If it is for the community, how much of the company's resources should be devoted to community building? Which other companies would be engaged to participate in this?
• Engage all the business' stakeholders, that is all those affected by your operations – for good or bad, no matter how remotely. Map the obligations owed to to them as fellow members of a community of charity.
• Monitor the status of your Social Licence to Operate by engaging your stakeholder community.
• Create a business plan that covers a full economic cycle (approximately seven years) and consider the financial adjustments required to accommodate volatility by making provisions during good time for staff retention, skills development and business re-alignment in the bad. 
• Approach competitor organisations to create non-monopolistic alliances designed to allow transparency to the consumer of costs and prices in order to reduce the costs of competition.

Richard Wilson holds a B.Sc, MBA, Grad Dip Theology and is preparing an MA thesis (Research topic: CSR of the ASX Top 50: A Theological Response). He is currently a Business Transformation Consultant with IBM in Melbourne, Australia. He is hoping to be ordained into the Anglican Church of Australia in February 2010.