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November 4, 2008June 21, 2012

CSR and the Financial Crisis

CSR and the Financial Crisis:

Taking Stock

Blog by Wayne Visser

The Scale of the Crisis

There is nothing small or trivial about this financial crisis. According to the Bank of England’s recent Financial Stability Report, governments worldwide have already pledged more than $7 trillion in loans, guarantees, capital injections, and other assistance in their coordinated effort to prop up the global financial system. And the ILO estimates the crisis will cost 20 million jobs by next year.

This is not the first financial crisis the world has seen over the past century. The worst, of course, resulted in the Great Depression in the 1930s. But there have been numerous others, all of which carried painful economic and human costs. For example, the crises inArgentina (1981-1990), South Korea (1997-1999) and Thailand (1997-2000) all cost more than 30% of those countries’ GDPs.

But even by historical standards, the 2008 crisis is BIG. In what’s been dubbed “Wall Street’s Red October”, the S&P 500 plunged 16.9%, or 198 points, for the month. That’s the worst-ever monthly point decline for the S&P 500. The Dow similarly dropped 14.1%, or 1,526 points. And the ILO estimates that the crisis will bring the total unemployed to more than 210 million for the first time in history.

The key difference is that, unlike the Asian and Latin American crises in the 1980s, this crisis is truly global. Some countries, like Iceland andPakistan, are threatened by bankruptcy. Others, like Japan, have been hit by huge volatility in the markets. And even the cash-rich, high-flyers like China are seeing their growth suffering as a result. But what does any of this have to do with corporate social responsibility (CSR)?

The Links to CSR

Irresponsible banking

I’d like to suggest a multi-level approach to this. At the first and most obvious level, we can say the financial crisis is a direct result of irresponsible banking. According to the Mortgage Bankers Association, the number of sub-prime loans offered to risky borrowers increased more than 15 times since 1998. Essentially, the banks got greedy and compromised good banking practices of credit risk assessment.

Irresponsible financial markets

At another level, the crisis is the predictable consequence of irresponsible financial markets. Since the deregulation of the 1980s, the derivatives market has grown to around $600 trillion dollars, almost 10 times the value of global GDP. This speculative trading (which some call the “casino economy”) is meant to hedge risk, but it also increases the volatility and systemic risk of financial markets.

We would do well to recall economist John Maynard Keynes’ warning: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Irresponsible corporations

Others argue that the crisis is the inevitable consequence of irresponsible corporations. This is linked to the short-termism of shareholder value driven public companies …

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Related websites

[button size=”small” color=”blue” style=”tick” new_window=”false” link=”http://www.csrinternational.org”]Link[/button] CSR International (website)

[button size=”small” color=”blue” style=”tick” new_window=”false” link=”http://www.waynevisser.com/books/the-age-of-responsibility”]Link[/button] The Age of Responsibility (book)

Cite this blog

Visser, W. (2008) CSR and the Financial Crisis, Wayne Visser Blog Briefing, 4 November 2008.

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October 9, 2008June 23, 2012

Canada 2008 Notes

09 October 2008

I had a very pleasant dinner at the wonderful “Fresh” vegetarian restaurant in Toronto on Tuesday evening. My friend and colleague, Prof Andrew Crane, and I met with Nai-wen Wong, a visitor from Taiwan, who is part of the CSR International network I run.

One of the stories from Nai-wen that I liked was how people in Taiwan are now being encouraged to bring their own chopsticks to restaurants, to save all the forests being cut down for disposable chopsticks. That sounds like a great environmental idea, with a cultural twist.

On Sunday, I was walking around Toronto Island Park when, to my unexpected surprise and delight, this guy on a Penny Farthing bicycle rode past me. The Penny Farthing – so called because of the relative size of the British penny next to the smaller farthing coin – was invented in the 1870s.

It got me thinking about our progress, or more accurately, lack of progress. For me, the Penny Farthing, which has hardly changed at all to become the modern bicycle more than 130 years later, is a perfect metaphor for our seeming lack of change in other areas.

I am thinking mostly about that other wheeled invention, the car. More specifically, the internal combustion engine car. The basic design has hardly changed over the past 100 years, even though we have tinkered to make it more efficient, safe and clean.

At one level, we might say that, like the bicycle, it’s because the basic design still works. So why change a winning formula? But does it really still work? Is spending hours in gridlocked traffic, or thousands dying in auto accidents, or pumping out pollution that causes asthma and climate change what “works”? Is that our definition of a winning formula?

But now we have hybrids and electric cars, I hear you say. True, and I am their biggest fan. They begin to solve some of the environmental and health problems, but they still keep us locked into the same basic design – a metal box, with an engine, on four wheels. Is that the best our fantasmagorical imagination can come up with?

A penny (farthing) for your thoughts, my dear …

11 October 2008

I’ve enjoyed a wonderful week in Toronto, with blue skies, lake views and Autumn leaves. It has me thinking about change. Would we appreciate autumn leaves as much if they were always always on display? Most likely not. It is the changes which help us to value life.

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October 3, 2008June 17, 2012

The Long Tail of CSR

The Long Tail of CSR:

Achieving Scalability in Corporate Sustainability and Responsibility

Article by Wayne Visser

I recently read The Long Tail, by Chris Anderson and it started me thinking: What is the Long Tail of CSR? The Long Tail – named after the extended tail of a statistical distribution curve – is the idea that selling less to more people is big business. It’s the business model that has spawned the most successful companies of the Web 2.0 age. The Long Tail questions the conventional wisdom that says success is about generating ‘blockbusters’ and ‘superstars’ – those rare few products and services that become runaway bestsellers.

Anderson sums up his message by saying that:

the tail of available variety is longer than we think;
it’s now within reach economically; and
all those niches, when aggregated, can make up a significant market.

He also notes that this Long Tail revolution has been made possible by the digital age, which has dramatically reduced the costs of customised production and niche distribution.

There are three enablers of successful long tail businesses, according to Anderson:

democratising the tools of production (e.g. digi-cams, content editing software, blogging tools);
democratising the tools of distribution (e.g. Amazon, eBay, iTunes, Netflix); and
connecting supply and demand (e.g. Google, blogs, Rotten Tomatoes).

So how might this apply to CSR? To me, the Long Tail of CSR is all about extending the reach of CSR, and improving its ability to satisfy specific social and environmental needs. Let’s use Anderson’s enablers as a framework for thinking about this …