How Corporate Social Responsibility Will Shift with the Bear Market

Sleeping-Bear%20%28300%20x%20240%29.jpgBy Ann Logue
In this miserable stock market, it may seem that nothing anyone does will make prices go anywhere but down. But some investors are out there, investing. They are the brave, the opportunistic, and the institutional. In a market like this, corporate social responsibility becomes important for investors. First, they are looking for transparent companies that are less likely to be the victim of bad news from outside of the market. Pension plans, charitable foundations, and institutional endowments have to invest, and many of them receive new cash inflows every year. They are battered, and they want to do better.
Second, investors may use the weak market to find badly run companies and apply pressure for change. In fact, that’s exactly what the Federal government is doing in its bailouts of Citigroup and AIG. Those companies made themselves targets for Federal takeovers by mismanaging risk


The Obama administration and the general public have raised questions about bonuses, perks, and salaries at firms receiving taxpayer funds, and that may finally lead to a reform that CSR investors have long wanted. “Say on pay” provisions would let shareholders have a non-binding vote on the appropriateness of executive compensation. When the government comes in as a shareholder, it has the right to ask these questions, just as any shareholder should. (And, by definition, the management team of a company that needs a bailout does not deserve a bonus.)
A key tenet of corporate social responsibility is transparency. Investors want information about what a company is doing to serve its shareholders and the broader world. For investors to have the information, companies have to have it first. It’s entirely possible that if financial institutions had prepared detailed risk assessments for their investors, they may have taken fewer risks.
Even in a recession and bear market, some companies are doing well. Those that can get a higher stock price might have an easier time making acquisitions or prying funds loose from banks. At a minimum, managers of companies that aren’t tanking in the market will be able to spend more time running the business and less time soothing investors.
Those companies that aren’t doing well may be affected by the overall economy, management decisions, or a combination of the two. The Big Three automakers have been investing in alternative fuels for years but have few of these cars on the market; shareholders may want to know what happened to the money that was spent on these initiatives and why the companies have so little to show for their efforts. Is that something an activist investor could get excited about? You bet. And if they do, that will signal to companies that they need to think about how their decisions affect shareholders and their market position.
In the Great Depression, there was a strong interest in socialism because people believed that the capitalist system was broken. In this recession, capitalism doesn’t seem to be broken so much as knocked around a lot. As long as the capitalists make the rules, companies will need to structure their businesses to appeal to them, and that means CSR.

Ann Logue is the author of Socially Responsible Investing for Dummies

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