Coronavirus Is Putting Corporate Social Responsibility to the Test

Coronavirus Is Putting Corporate Social Responsibility to the Test

by Mark R. Kramer - April 01, 2020

For millions of Americans, the new relief law will be too little too late. It is expected to take three weeks for cash payments to reach laid-off employees and small businesses. Businesses may defer payments and cut costs, but employees who have lost their income without warning cannot wait three weeks to feed themselves and their families. For much of America, this is a crisis that requires immediate action that only companies can take.

The way large companies respond to this crisis is a defining moment that will be remembered for decades. Thirty-eight years ago, seven people in Chicago died from taking poisoned Tylenol pills. It was a rare and localized event, but Johnson & Johnson immediately pulled all Tylenol from all stores everywhere, taking a huge loss to avoid even a single additional death. People still talk about that decision. People who weren’t even born at the time are still studying that case in business schools.

A great many large companies talk about having a social purpose and set of values, or about how much they care for their employees and other stakeholders. Now is the time for them to make good on that commitment. Research suggests that people only truly believe that their company has a purpose and clear values when they see management making a decision that sacrifices short-term profitability for the sake of adhering to those values.

When the U.S. drugstore chain CVS chose to go more deeply into health care, it decided that it could no longer sell tobacco products, giving up $2 billion in revenue. When my social-impact-consulting firm, FSG, encountered the 2008 recession, we made a decision not to lay off people, but instead to reduce salaries on a sliding scale so that those who made the most took the deepest cuts and those who made the least took a very minor reduction. More than a decade later, people still talk about that decision - and we have decided to repeat it now.

I understand that corporate leaders face pressure from investors and bankers to conserve cash and reduce losses, but neither investors nor bankers will go hungry. Even retirees, who have seen their savings depleted, can expect to see stocks recover as long as they don’t sell in panic. Companies write off the costs of restructuring, product failures, or acquisitions that go wrong all the time. Everyone will understand writing off losses due to the coronavirus pandemic. Here are some things that companies can do to help their employees, small suppliers, health care providers, and communities.

Employees. What companies do to help their laid-off employees - above and beyond what is required or expected - will be remembered and repaid in increased loyalty, higher productivity, and a lasting reputational benefit for many years to come.

Continuing to pay wages, even at less than full pay, is one option. Walmart, Microsoft, Apple, and Lyft have all made commitments to continue payments to hourly workers for at least the first two weeks of lockdown. This is essential not only as a matter of corporate responsibility; it will also substantially reduce the costs of rehiring employees when the economy returns to normal.

Lending money to employees is another option. Left on their own, many employees will turn to the exorbitant charges of credit card debt and payday lenders who will levy a 20%-plus interest rate at a time when corporations can borrow at 2% or 3%. That difference in interest rates can be the difference between bankruptcy and economic survival. Corporations should use their corporate credit and collateral to arrange low- or no-interest loans to their employees. They should calculate employees’ take-home pay after payroll deductions, and ask their banks to make loans available equal to a month of net wages at 3% interest, guaranteed by the corporation. Employees can pay the loans back over the next year out of their salaries when they return to work.

In all likelihood, very few of a company’s employees will actually require medical care, but if they have no insurance, that too can bankrupt them. Companies should offer to cover the medical expenses of all non-insured employees - probably somewhere between 2% and 5% will actually incur significant bills, and companies can negotiate with their insurer an additional premium to cover them. Sadly, employees may also need help to cover funeral costs for the few who succumb.

Small suppliers. Companies should offer advance payments to their small suppliers, giving them cash today for goods that they will need when they return to production. It’s the corporate equivalent of buying gift cards to keep your local store in business.

Health care providers. Some parts of the world face severe shortages in basic medical supplies, but as a global company you have access to resources everywhere. The need for masks in China and South Korea has waned while it is still growing in the United States and Europe. Companies should purchase and ship supplies from where they are available to where they are needed. They should tap their inventory of whatever they have that might help, send it where it will do the most good, and take the loss.

Communities. Major corporations should use their foundations to aid food pantries, free clinics, and other nonprofits in addressing immediate needs of the communities where they have operations.

No one expects or requires major companies to take extraordinary measures to help their many stakeholders, but the bold and creative steps they take today to deliver immediate assistance will define their legacy tomorrow.

Mark R. Kramer is a senior lecturer at Harvard Business School and a cofounder and a managing director of FSG, a global social-impact consulting firm.