Tough times test firms' lofty standards

For many US firms, doing good had begun to come easy. Prosperity greased the corporate skids for so long that many companies piled onto the social-responsibility bandwagon.

They cut pollution, increased the living standard of third-world workers, donated to their communities - and still turned a decent profit. The movement burgeoned with new recruits, especially during the last half of the 1990s.

But the recession is challenging all that. Can corporate do-goodism, born during a boom, survive the squeeze? Surprisingly, the answer looks positive.

"You get - in any downturn - the postponement of new business ideas," says Bob Massie, executive director of the Coalition for Environmentally Responsible Economies (CERES). But "this is a massive global trend."

"We haven't seen retrenchment," adds Aron Cramer, vice president of Business for Social Responsibility, a business-membership group headquartered in San Francisco.

To be sure, recession has challenged companies, even those with the strongest social commitments. Some have postponed environmental improvements. Many have resorted to layoffs.

For example, of the 25 largest companies included in the Domini 400 Social Index - the best-known listing of socially responsible corporations - at least 19 have made or announced layoffs in the past year.

These include such household names as telecommunications giant AT&T (5,000 job cuts last year and 5,000 more this year), stock broker Merrill Lynch & Co. (possibly 10 percent or more of its workforce), and insurer American International Group (3 percent of its workers).

Of course, almost everybody endured a tough year in 2001. As a whole, corporate America announced close to 2 million job cuts - nearly three times more than the total the year before and the largest number since job placement-firm Challenger, Gray & Christmas began tracking the figures in 1993.

The key, observers say, is how companies make those cuts. Do they use layoffs as a first or a last resort? And does management share the burden?

Instead of massive layoffs to eliminate some 5,000 positions last year, chipmaker Intel Corp. gave valued workers two to four months, with full salary and benefits, to look for other jobs inside or outside the company.

Other firms froze pay or even reduced it to keep everyone on the rolls. When consulting firm Watson Wyatt Worldwide surveyed 110 companies recently, a quarter had delayed or reduced salary increases and a third trimmed merit-pay increases to try to avoid firing people.

On the other hand, Hewlett-Packard Co. - long a fixture on the Domini index - has run into hot water because of its layoff plans. Chief executive Carly Fiorina plans to acquire rival Compaq Computer Corp., and then cut some 15,000 workers to prevent duplication.

Two sons of the company's founders are leading the fight against the move, saying it violates the HP Way, the company's long-standing set of principles. An ugly proxy fight looms.

"Has she changed the HP Way? I don't know," says Peter Kinder, president of KLD Research & Analytics, the Boston consulting firm that created the Domini index. "I sure wouldn't rush to judgment. As someone who has laid off employees, I know there are times when you absolutely have to do it."

Employees often accept even massive layoffs, as long as everyone bears a share of the burden, he adds. Employees at Enron - another fixture on the Domini index - were enraged when, two days before filing for bankruptcy, the firm handed out $55 million in bonuses to encourage 500 key employees to stay on.

The day after the bankruptcy announcement, Enron discharged more than half its 7,500 headquarters staff. Promised severance pay: $4,500 apiece.

Enron isn't alone in treating employees unequally. The usual scenario involves soaring pay for executives while workers get pink slips, according to the Institute for Policy Studies and United for a Fair Economy. Last year, the two progressive groups published a report showing that chief executives who laid off 1,000 or more workers earned an average of 80 percent more than executives at other large firms.

Effect on charity, environment

Another barometer of corporate social responsibility - charitable giving - also looks stressed. True, corporate giving went up last year, but probably at a slower rate than in the past. In July, the Chronicle of Philanthropy released a survey suggesting a 4.1 percent rise, one-third the increase of a year earlier.

The terrorist attacks of Sept. 11 may complicate the picture, experts suggest, causing businesses to shift their giving toward disaster relief and away from traditional recipients.

Tougher to gauge is corporate commitment to the environment. Environmentalists have long contended that many companies' "green" initiatives amounted to nothing more than window dressing. Even optimistic observers have wondered whether more red on the bottom line would mean less green in corporate environmental budgets. In the early going, however, the economic effect looks muted.

"Maybe we don't know yet," says Allen White, vice president of the Tellus Institute in Boston and director of a United Nations-backed initiative to standardize corporate social and environmental reports around the world. "I think for these companies, this is the moment of truth."

Environmental initiatives most vulnerable to cutbacks are those requiring large amounts of manpower, he says. On the other hand, companies that have integrated the environment into their overall strategy look unlikely to change tack.

"It's not a commitment that they want to be seen stepping away from," says Doug Cogan, deputy director of social service for the Investor Responsibility Research Center in Washington.

Even Bethlehem Steel, which filed for protection from shareholders last October, has asked CERES to go through with its scheduled five-year review of the company's environmental efforts as a benchmark for the steelmaker when it emerges from bankruptcy.

Answering to shareholders

Of course, major corporations are such sprawling organizations that they often present more than one face to the world.

Two years ago, Ford Motor Co. announced it would boost fuel mileage 25 percent in all its trucks by 2005. It plans to sell a new all-electric car this fall, a gasoline-electric hybrid sport-utility vehicle (SUV) in 2003, and a zero-pollution, fuel-cell Focus car in 2004.

On the other hand, the company has also killed plans to use hybrid power on its popular Explorer SUV, and now suggests it may need some wiggle room on its mileage pledge for 2005.

"The investments are still being made in these alternatively fueled vehicles, and I don't see any scaling back on that," says Mr. Cogan. But "it's dollars on the margin.... The reality is we're still putting out cars and SUVs that really aren't getting any better mileage than the fleet we had in 1985."

Ultimately, companies react to pressure from their customers and shareholders. And there, the social-responsibility movement looks as strong as ever.

Companies face some 100 social-issue shareholder resolutions this year with a heavy emphasis on global climate change and genetic engineering, says Ariane van Buren, director of energy and environmental programs at the Interfaith Center on Corporate Responsibility in New York. Although these resolutions don't succeed at shareholder meetings, they keep public pressure on companies to deal with the issue, she says.

That pressure - from consumers, shareholders, advocacy groups - shows no signs of abating, recession or no recession.

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