Corporate Responsibility Through the Recession Interviewer: Steve Macaulay Interviewee: Professor David Grayson December 2008 SM Under the credit crunch, will corporate consciences crack? We are looking today at this issue with Professor David Grayson who is Director of the Doughty Centre. Now David, is that right‐will corporate responsibility survive under the credit crunch? DG I think it will not only survive, but actually the credit crunch could be a very powerful stimulus for a great deal more innovation and development of corporate responsibility and corporate sustainability. SM That is an interesting take, because I have heard lots of people saying this will really test corporates out because budgets are being cut, if they are faced with some choices do I keep staff on, do I keep my sales people employed, or do I cut the social responsibility budget? Many people are saying, no, this won’t survive. DG Well first of all, it will certainly test companies, just like the recession is going to test companies in terms of how they approach marketing, how they approach research and development, how they approach all of their work in terms of developing their people and so on. And if you simply think of corporate responsibility as some projects with a budget attached to those projects, then certainly you will see a number of companies that will be making changes and cuts to those. Those companies who have only really seen this as a bolt on to business operations, nothing to do with the core business – some of them, I think, will cut very severely or may even abandon altogether. Those companies that recognise this is not something separate, there on the side, this is about the way we do business: are we being a responsible organisation? Do we treat our people well? Are we looking to see what is happening in our supply chain? Are we marketing responsibly? And so on. Those businesses, I think, will stick with this. They may well reprofile some of their particular activities that require some costs and they may well say we need to reprofile the amount of time we will take to do this, we won’t do this yet, and so on, but I don’t think that will affect their core commitment. And indeed, I think what we will see is as more companies look for creative ways for reducing costs, for differentiating themselves in the marketplace without having to have big advertising spends and so on, that those businesses will be saying how does our genuine commitment to responsible business and sustainability help us to reduce costs? Help us to position ourselves effectively in the marketplace? And so on. And that kind of join is where I think there are opportunities to be really creative right now. SM DG I wonder if that is a bit ‘Polyanna‐ish’: if I am faced in the accountant’s office, in the boardroom and so on, there must be lots of worried people frowning over their budgets. But you are constantly going back to the idea that this is about having budgets for specific corporate responsibility projects. What I am trying to emphasise is that this is about a commitment to how we run this business in a responsible way. I think you are really seriously suggesting to me that a company, particularly one which has already made a substantial public declaration about wishing to become more sustainable, about trying to run their business within integrity and as a responsible organisation, is suddenly going to cut and run on that. Because if they do that, then how much harder as the economy picks up and as people say ‘oh, right, now we want to re‐emphasise that again’ – how much harder, if not impossible, would it be to convince the staff in the company, the customers of the business, the key business partners – maybe regulators, the media and so on – that well this time of course we are genuine, we weren’t genuine two or three years ago when times were tough. I would strongly argue that it is in the tough times that leadership is tested and the mettle of people in organisations is really put to the test. SM So, you seem to be saying this is really a trust issue? DG Well we have Sir Stuart Rose give the Cranfield Lecture a little bit earlier in the year and you can download the lecture that Stuart gave on that occasion from the Doughty Centre Website. And one of the things that Stuart Rose said very clearly as the Chairman of Marks and Spencer, which has made of course very commitments around sustainability and being a responsible business with their Plan A series of commitments, that how difficult it would be if they were – having made all of this commitment, stressed this is integral to the way that they do business, then to cut and run. They wouldn’t be able to recover that kind of trust again in the future. SM You are looking in quite an optimistic way and saying people will want to keep faith with a whole range of their stakeholders; people will want to be able to respond, maybe in innovative different ways, but that things will continue because if they don’t there is five years of trust blown out of the window. DG Well it is potentially more than that. You see I think that one of the consequences of the current crisis is a greater questioning about the legitimacy of business and that I think is very dangerous for free societies. And so it is very important that business uses every tool at its disposal to explain to the wider society what is the importance and the legitimate role of business. And I think that being committed to running your business responsibly and increasingly in a sustainable way, is one of the most powerful tools that you have at your disposal. Let’s be clear, being a responsible business does not in any way mean that you are not going to take the tough decisions. And in some cases a business may have to lay people off – make people redundant. The responsible business doesn’t try and shirk that because ultimately the most irresponsible business is the one that goes bust and everyone loses their jobs and you get all kind of knock on effects in the economy and society and so on. But let’s take a business which has to lay off a number of people. There is a world of difference between at the one extreme simply sending text messages to people on their phone saying you’re fired – which in the extreme has happened. There is a world of difference between that and taking a number of steps where you, for example, consult with the workforce on options as to whether people would prefer there to be a number of redundancies or for people to take salary cuts, or for people to go to shorter hours with salary cuts, or to find some other mechanism. For example, to offer people unpaid or part paid secondments for a period to ease the company through recession. All of those kind of options for consulting people, for sharing the pain, for looking creatively at different ways to minimise the negative social impacts of the recession. That is what a responsible business does. So, the point I am trying to make is that we shouldn’t imagine for one moment that in the recession a responsible business is not going to take tough decisions, it may very well have to. But I believe that it is how those decisions are taken and the creative range of alternatives that differentiate such a business from one that just really goes for the short term, goes for the irresponsible way of handling such crises. SM Have you given any thought to the wider involvement of government and how it might impact on this? A number of the banks now are effectively owned by the government. DG There is huge debate, I don’t think we know really where it is going to play out in terms of whether as a result of the current crisis we are going to see a more activist government again. Some people have been debating with the election of President Elect Obama in the States with the remarks by the President of the European Council, President Sarkozy from France, about the need for more regulation again, that we will see a re‐establishment of a more interventionist, a more activist government. Now, I think that there would be dangers in the pendulum swinging too far again in favour of over‐regulation of business and enterprise. I think it is inevitable that there will be, and certainly there should be, in areas like, for example, the financial services sector. There is a lot of argument which says that the regulatory framework was too lax, was not sufficiently rigorous for an increasingly complex global financial services sector. On the other hand, I think it would be dangerous if we go to an automatic regulate, regulate, regulate kind of mentality. And therefore again, part of the case for intelligent embedding of corporate responsibility is that operating responsibly is either an alternative to, or a precursor to, or a compliment for, smarter regulation. And we see that in debates in the academic world around concepts of partnered governance or collaborative governance, where groups of businesses voluntarily adopt higher standards, which then get blessed by governments and international institutions – potentially as part of an intelligent mix with more regulation, or indeed as an alternative to it. You see those debates going on, for example with things like the extractive industries’ transparency initiative, around international mining and oil companies making information available about fees and the licence fees that they pay to individual governments. You also see it now around some of the debates around responsible drinking and the way in which the World Health Organisation is reviewing the whole question of alcohol policy around the world with the alcohol sector. So I think, again, that in the current debates about how much more to regulate there is an important role for corporate responsibility to play its part. SM David, would you like to give a final message for people who are naturally worried about the credit crisis, but are trying to do the right thing? DG Well, I think that one of the ways in which you can identify cost savings in the business is by looking at the potential for energy savings, for reducing waste, for reducing your water consumption and so on. All of those things happen to be ways of saving money, which also will help to save the planet. So, I will be looking all the time for ways of doing good, and doing good business. SM David, thank you.