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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3 responses

  1. Corporate social responsibility is a grand gesture that does and will have a significant bearing on the growth of our nation’s 21st century economy.
    To suggest however that only a few corporate entities must embrace this gesture is somewhat of a mute point as virtually every corporate entity must. To suggest that those that do will improve their corporate profitability sooner than those who do not is also a mute point as the technologies that cross the spectrum of all American industries are so dynamically interelated.
    Having said this, the likelyhood that any singular aspect of the healthcare industry will thrive independently of another aspect belies the larger question. Will the health care industry thrive if the auto industry does not? will our broad spectrum of alternative energy companies come on line without first sorting out the complex interelation each of these industries have with one another?
    In virtually every industrial sector, the potential of growth has a universal impedement. Until our nation develops a comprhensive socio- economic language, until the infrastructure is in place that allows this language to flourish unhindered from industry to industry, we will unfortunely be left to a stock market whose performance is not whimsical in 20th century terms but structural in 21st century terms.
    When nobody really knows from one one industry to the next, what another industry is doing, how can any investor possibly stand to profit? How can any corporate entity expect to grow?

  2. Great points, particularly with respect to transparency.
    We’ve been trying to help in this regard by marrying an active online forum that’s interested in how companies treat their customers, employees, communities, the environment and society in general to a processing engine that turns the ebb and flow of user stories, votes and comments into quantitative rankings and trends.
    If this sounds interesting, check out Vanno. We also offer a blogger tool called ReputationCheck that reports company rankings in real time.
    Thanks, Nick DiGiacomo
    Co-founder, Vanno

  3. Hi, everyone, and thanks for your comments. M. Patrick Dahlke raises an interesting point about health care: that’s an industry that is going to have dramatic changes, no matter what happens to the auto companies, no matter who responsible or irresponsible the companies are.
    On the other hand, whenever there are big structural changes, there are huge opportunities. How many great new companies could be created if people were willing to leave corporate jobs knowing that they could still get health insurance?

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