Since Coronavirus pandemic’s start, because of medical supplies shortages around the world, governments has been using their full power to order private companies to fill the void and manage the crisis. We’ve seen this in several G7 countries like Japan, United Kingdom and France, where leaders has placed pressure on companies to make more medical supplies. In the United States has invoked Defense Production Act to compel GM to build ventilators.
Yet judging from how many nonmedical firms have willingly risen up to change their production, it seems pointless to force companies like General Motors to build ventilators.
Fashion companies including LVMH, Chanel and L’Oreal are converting their plants to produce face masks in huge quantities. Anheuser-Busch, Diageo, Molson Coors and Bacardi are some of those liquor and beer producers which are moving more of their production and sale to produce hand sanitizer. Yet companies like Toyota, Volkswagen and Fiat Chrysler are taking advantage of their 3D printing technologies to build face masks and are working with other businesses to make ventilators.
And those are just three sectors. Across all industries, according to the United States Chamber of Commerce Foundation’s corporate aid tracker, hundreds of businesses across the world have contributed resources, supplies and know-how to assist with the COVID-19 response.
How are those businesses so generous?
As corporate social responsibility researchers, we agree that altruism definitely plays a role with all of them, and it is not the primary determiner. Studying about business conduct leads to two others: credibility building and regulatory evasion.
Burnishing the brand
Often, businesses undertake socially responsible projects in normal periods to improve their company and create a solid relationship with clients, investors and staff to drive revenues.
What is a socially responsible initiative? There are many other interpretations, but the way academics like us talk of it involves taking voluntary activity that is not required by law or it is not necessary to comply with a rule.
Reputation Institute, a business consultant, has shown that the ability of individuals to purchase, support, function with or participate in a business is greatly affected by their views of their policies in corporate social responsibility. Therefore doing something that helps people in their neighborhood will contribute to better profits, improve the value of the business and retain successful jobs around longer.
But all of these are in normal times and we are in a crisis now. It is a global epidemic that needs an emergency response on from everybody including corporate America. In other words, just as people are expecting businesses to do their part throughout natural disasters, not showing up to do so might ruin the image of a company. A 2013 poll of residents of ten-country like the U.S., France , Brazil, and China showed that nine out of ten people claimed they were willing to boycott a business they felt acted irresponsibly.
And that is particularly true in sectors which are more closely related to the disaster. Of starters, in the current crisis there has been a lack of hand sanitizer that can be easily manufactured by fashion companies who manufacture perfume. And, as we have shown, suppliers are willing to reconfigure their production lines for the creation of ventilators.
In this ecosystem, failure to do its part can lead to a long-term hit to the public image of a firm.
Eluding burdensome regulations
Some other motivating factor is to avert government intervention that becomes a bigger risk both during and after a crisis.
We’ve seen more financial regulation, for example, after the behavior of Wall Street triggered the Great Recession, and district legislators suffering from hurricanes generally support bills supporting more environmental legislation.
So businesses often will continue pursuing voluntary self-regulation and take other preventive steps throughout a crisis in hopes of averting a more burdensome reaction from government. A study conducted by Stanford found that even a moderate effort can work towards effectively preempting regulation.
In addition, this allows businesses to dictate the conditions and regulate the strategy, enabling them select acts that are in society’s interest, financially viable, and avoid the costs and discomforts of having to comply with new rules.
Currently, businesses may step up to escape a more stringent government response, such as when Trump invoked the Defense Production Act toward General Motors, which helps him to monitor and channel company capital into vital equipment development. This also gives priority to contract work by the federal government, restricting the ability of a firm to find the most effective or financially viable contracts.
So please appreciate the effort every time you hear of a business doing something for the common good. But you could also consider its other strategic motives as well.