What does it mean to be a responsible business in a time of crisis?
We’ve seen some incredible responses to Covid-19. Unilever is donating €100 million (Dh400 million) of soap, sanitiser, bleach and food; providing €500 million of liquidity by paying suppliers early or giving credit to customers; and safeguarding the jobs of its 155,000 workers.
And not just direct employees, but also contractors such as cleaners and catering staff. Some business leaders are taking a personal hit, such as chairman of Emaar, Mohammed Alabbar, taking a 100 per cent salary cut.
But what does responsibility mean for other companies? It’s clear how food manufacturers can play their part — but what if you’re in an industry that’s not directly related to the crisis? What if you’re a small enterprise that doesn’t have millions lying around to make donations or liquidity injections?
Or what if you’re a big business whose revenues have plummeted, such as an airline? You know that keeping all workers on full pay would be the “right thing to do” — but doing it might see you go under and your employees permanently losing their jobs.
The pie analogy
To answer the question — what does it mean to be a responsible business at a time of crisis? — a good starting point is to answer “What does it mean to be a responsible business?” Often we think that a responsible business is one that splits the pie fairly.
The pie is the value that a company creates for society. Under this view, a responsible business is one that ensures the pie is split fairly — that enough goes to employees, customers, and the environment, rather than just executives and shareholders.
The division of the pie is clearly important. Everyone who contributes to a company’s success should benefit, not just the CEO. I’ve frequently stressed how employees be rewarded through being given shares.
Profits must not be earned through price-gouging customers or polluting the environment.
But splitting the pie fairly is not enough. A responsible business must go further by growing the pie — actively creating value for both stakeholders and shareholders through excellence and innovation. In 2007, Vodafone launched what seemed a crazy idea — M-Pesa, a mobile money service in Kenya that allowed citizens to transfer cash without a bank account.
By 2014, M-Pesa had lifted 200,000 households out of poverty, most of which were headed by women. Had Vodafone not launched this innovation, there would have been none of the media backlash typically reserved for unfair splits of the pie, such as high CEO pay.
But 200,000 households would have been worse off.
At the other extreme, Kodak is rarely seen as irresponsible, since executives and investors didn’t line their pockets at the expense of others. But the fact that they also lost out is of no consolation to the 145,000 workers who were made redundant due to management’s complacency and inaction.
Sharing the burden
The importance of pie-growing is highly pertinent in a time of crisis. Clearly, responsibility involves executives and investors bearing their share of a shrinking pie, to reduce the burden on others.
The tremendous actions mentioned at the start — chairmen working for free, firms paying their workers during shutdowns, and companies donating their products — actions are highly laudable and should never be underplayed.
But the value of thinking about responsibility as pie-growing is that it unlocks the potential for all companies to play their part — including those in unrelated industries and without funds to donate. A responsible business, driven by the desire to create value for society, thinks “What’s in my hand?”
In other words, what resources does my company have that can be used to serve society?
Deploy what you have
Such a mindset can inspire some great ideas — just like Vodafone contributing to financial inclusion in Kenya even though it seemed nothing to do with its core business of telecoms. Chelsea Football Club might not obviously have anything relevant. Football tickets and replica merchandise are of little value in a crisis.
But what’s in its hand is its hotel, where it’s allowing NHS staff to stay for free, saving them a long commute after a day of fighting on the front line. LVMH’s luxury perfumes are indeed a luxury right now, but what’s in their hand are production facilities that it’s using to make hand sanitiser.
Sometimes, what’s in a company’s hand is its relationships with other firms. Qantas Airways can’t afford to keep paying its staff, since its business has been badly hit. But it has a relationship with Woolworths grocery store, whereby customers can earn Qantas miles for shopping.
It’s leveraging this relationship to redeploy its staff to Woolworths — not only safeguarding their incomes, but also serving wider society given the spike in demand for groceries.
And thinking of responsibility as growing the pie is particularly relevant for small businesses, who don’t have the resources to donate slices of the pie. In financial markets, two assets of equal value trade — an investor pays Dh100 for Dh100 of shares.
But society is not a financial market. The key to creating social value is to give gifts of unequal value, that are worth far more than the recipient than it costs you.
Sticking with it
Take Barry’s Boot camp, the boutique fitness studio. What’s in its hand is fitness expertise, which it’s using to offer free live-streamed workouts — particularly valuable when citizens are staying at home. It also has many staff trained in mental first aid, available to call on those who are finding self-isolation particularly tough.
And they’re also reading stories to kids over Zoom, to take the load off working parents.
Hopefully the crisis will be over soon, and the sun will rise again. But the idea of thinking about what’s in our hand — what gifts of unequal value we can give — applies in good times as well as bad.
Responsibility certainly involves paying fair wages to employees. But it also entails mentoring them, viewing them as partners in the organisation, and giving them opportunities to step up.
Responsibility may not mean giving bells-and-whistles to customers, but stepping into their shoes, taking feedback seriously, and forming personal relationships.
If there is any silver lining to this crisis, it’s that it will permanently inspire business leaders to think innovatively about how they can use what’s in their hand to serve society.
— Alex Edmans is Professor of Finance at London Business School and Academic Director of the Centre for Corporate Governance.