Crises and Their Consequences

Often it takes a crisis to precipitate attention to CSR. One of the most active stands against environmental mismanagement is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples include the lead poisoning paint used by toy giant Mattel, which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes. In another example, Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup. Odwalla also experienced a crisis with sales dropping 90%, and the company’s stock price dropping 34% due to several cases of E. coli spread through Odwalla apple juice. The company ordered a recall of all apple or carrot juice products and introduced a new process called “flash pasteurization” as well as maintaining lines of communication constantly open with customers.

Many companies assume that CSR means engaging in philanthropic activity in their business environments, often motivated by a desire to give something back to society. However, projects that are limited to sponsorships or donations and have no direct connection to a company’s core business have little to do with true CSR, and in a crisis they are usually the first activities to fall victim to budget cuts. This type of social engagement is, more than anything else, a cost item whose benefit to the company is difficult, if not impossible, to measure. Its value to society is also limited, since the resources companies available for philanthropic purpose are not sufficient to achieve a comprehensive solution to social problems.

It is often said that successful companies need an intact society, just as an intact society needs successful companies, and this recognition forms the basis for responsible corporate action. The societal role of a company, or of business in general, is dynamic and changes along with social, technological and ecological developments. In case of any crisis a company requires strategic management of opportunities and risks. Companies need to recognize relevant trends at an early stage and find ways to respond to them. Ignoring risks in a company’s value chain, or engaging only in passive risk avoidance or risk minimization, is irresponsible as well as bad for business. Successful companies are able to transform social and ecological risks into opportunities, integrating them into their corporate strategies. This allows them to gain a strategic advantage over their competitors, and at the same time they contribute to society and help to avert future crises.

CSR helps to transform social challenges into strategic opportunities. It is a process of experimentation and negotiation in which companies work with their political and societal stakeholders to test innovative solutions and redistribute social responsibilities. This takes place in three contexts:

• Outside the market – philanthropic measures, the involvement of companies as corporate citizens
• Within the market – sustainable organization of a company’s core business
• Improving market conditions – measures aimed at changing overall conditions

CSR is a good way of making companies part of this tri-sector partnership. CSR allows companies to join with governments and civil society in a process of negotiation aimed at solving society’s problems, with all involved offering the benefit of their core expertise. The ability of all three sectors to work together is the key to solving the complex problems we face. The ability to cooperate is a core competence if companies are not only to survive the crisis, but to emerge from it with renewed strength. Together with their partners, they can shape a sustainable future for themselves and society. Exchanging views and networking are a constructive part of the management process which is characterized by equal participation. This also means the freedom and the ability to consider unconventional solutions, an openness to new insights, transparency, an ability to assess the feasibility of new ideas and the courage to think ahead to the future. By choosing this path, companies will become trailblazers in the effort to achieve a sustainable society.