The Impact of the Current Economic Crisis on Corporate Social Responsibility in UK Retail
The 2008 recession in the wake of stock market crash in the United States placed the entire world in a state of financial crisis. The effect of globalisation is being felt in the United Kingdom as it lost about £155 billion from its wealthiest individuals (Telegraph.Co UK 2009). The recession almost halved the number of the billionaires in the country.
Many countries including United Kingdom witnessed huge job cuts with no clue on when things would return to normal. The effects were so rapid that the retail business in UK had to live with price reduction and job cuts, and had to plan their year ahead to make seasonal plans. All this happened in succession because the companies were unable to predict the buying power of consumers to streamline the supply-demand chain.
From the 3rd quarter of 2008, one could see some positive trend in the sales of many retail companies in the UK. The corporate social responsibility (CSR) practiced by many retail companies did not allow the economic crisis take the full advantage of pushing the economy from worse to a state of chaos.
The monetary excess in UK that lead to the housing boom and bust, and the global stock market crash in the USA are not something easy to overcome. However, as a developed country that pioneered in the field of corporate social responsible (CSR) activities, the UK had clearly kept its hopes of becoming a prospective economy in the years to come.
Thanks are due unto the British government for encouraging corporate social responsibility (CSR) among the industries and implementing it effectively. Moreover, CSR is in the blood of the UK business conglomerates as we trace back Sheffield Steel industry in 1900 that behaved responsibly.
These practices are carried forward and grown proportionately that stood the test of a global recession today. The CSR practices may not have totally reversed the situation in UK, but it stands as a shield to protect the values and ethics of business and brings a mutual understanding between stakeholders and the companies for a transparent dealing.
Statement of the Problem
The impact of economic crisis on the retail companies in UK is felt severely to the extent of shaking the corporate social responsible activities. But UK is a pioneer in implementing CSR in corporate companies effectively and proved that the companies that are seriously involved in CSR activities progress in the long run.
To meet the goals and purpose of this study, four research questions were explored:
What is corporate social responsibility in the UK?
What is the mechanism of retail industry?
Does corporate social responsible (CSR) activities help retail industries grow in the UK?
What is the impact of the current economic crisis on corporate social responsibility in UK retail industries?
What does the relationship between CSR and retail industries in UK imply to the other countries that are in the process of developing corporate social activities as part of their business development.
Significance of the Study
This research paper gives basics information about how corporate social responsible activities are viewed in developed countries like United Kingdom and its stance during the time of acute recession like the one witnessed presently. The impact on CSR is severe on the one side but the CSR has its own values in retaining its position in UK.
Definition of Terms
1. Recession – A period of economic decline; a decline in GDP for two or more consecutive quarters.
2. Retail – Retail is the sale of goods to end users or consumers for consumption.
3. Stakeholder – A person who has direct or indirect stake in an organization because it can affect or be affected by the organisation’s actions, objectives, and policies.
Chapter 2: Review of the Literature
The economic recession of 2008 is the worst of its kind in the history of UK after 1930. Taylor (2009) was calling for a similar probe such as 9/11 type on the financial crisis in USA. According to him, the United States government’s actions are also responsible for the present crisis throughout the world including UK. The US government-sponsored enterprises Fannie Mae and Freddie Mac were encouraged to expand and buy mortgage-backed securities, including those formed with the risky sub-prime mortgages. (Taylor 2009).
The growing global recession in April 2008 sent a shock wave by hitting the country very hard by wiping off £51 billion from UK’s top companies (Telegraph.Co UK 2009). This is one of the worst fall since Black Wednesday in 1992. All retail industries including the top 100 companies fell by nearly 20 per cent since June 2007.
According to the latest figures, about 9.5 million adults were finding their debt unmanageable in UK. About 1.4 million people will have to pay an extra 150 to 250 pounds a month for their housing loans. When the UK retail market is likely to touch 312 billion pounds (15%) in the next five years, the challenging time is ahead for the UK retail market with the slowing down of an annual growth. Companies that fail to compete with shrinking margins suffer (Prospects 2009).
The UK has not suffered so much earlier like now. However, since 1960, it has experienced rising outputs followed by very low or no growth and severe unemployment. Generally, these periods are called recession (Newman & Cullen 2002).
The present unemployment levels can be predicted from the works of Newman & Cullen
(2002:81). According to them, the unemployment level reached over 3 million people (over 11% of the workforce) at the worst points of the cycle in 1986 and in 1993. This high level of unemployment reflected the low point of another very long term, 50 to 60 year cycle. Supposing that UK is now on the upswing of this very long term cycle, unemployment during the low points of short-term business cycles should be much lower in the first decades of 2000 (Newman & Cullen 2002: 81). This is more or less true if we consider that the global recession had not occurred.
Retailing consists of the sale of goods on merchandise from a fixed location such as a department store, or kiosk, or by post, in small. Retailing contributes to 9% of the UK’s employment and output. Retailing in UK goes beyond businesses that the government officially classifies as retailers. Retail industry is viewed as an important social institution because about 30% of what people spend to retailers in the form of products and services they buy from retailers (Newman & Cullen 2002: 6).
“Retailing is the set of activities that markets products or services to final consumers for their own personal or household use. It does this by organising their availability on a relatively large scale and supplying them to consumers on a relatively small scale.” (Newman & Cullen 2002: 12). But when the consumer spending slows down because of debts, rising interest rates, inflation, house prices and job security, the retail industry loses its customers. Because of thousands of job cuts in all sectors of UK economy since October 2007, the consumers have lost the buying power.
If people are optimistic about their situation, they will spend more. As a result, the demand becomes greater than supply and businesses take off well expanding their operations. Conversely, when demand is less than supply, retailers experience a fall in sales (Newman & Cullen 2002: 84).
The recession in the UK is a big challenge for the retail industry and an acid test for activities relating to corporate social responsibilities. Successful companies need a healthy society and a healthy society creates demand for business, as human needs are met and aspirations grow (Porter & Kramer 2006).
Corporate social responsibility (CSR) is not new to UK as it has been in practice for well over 200 years. The UK government is playing a key role in globalising CSR. Many companies in UK have agreed that doing good to the society is doing good for business as well (Newman & Cullen 2002: 11). This sums up what CSR is in a nut shell.
However, between 1780 and 1833, the altruistic corporate social responsibility (CSR) was in practice in the UK. Employees are ‘human assets’ so they should be treated responsibly to receive the best performance from them. The CSR has been practiced proactively by many companies in UK. For example, the Sheffield Steel Makers practiced CSR honestly since 1900s. The UK National Insurance act of 1911 was the first of its kind in the world to press for contributions for unemployment and sickness benefits of all the staff working in companies.
Corporate social responsible (CSR) activities in the UK has a special meaning: it deals with environment and preserves social values besides making profit. Elkington argues that the social responsibility of the business entity is threefold: to create economic value by being profitable, to create ecological value, which is to engage in activities that are beneficial to the natural environment; and to create a social value, which is to engage in activities that are beneficial to life and the community (cited in Idowu & Filho 2008:13).
The shades of meaning for CSR differ in different countries depending upon their growth and economy but Britain sees CSR as an inevitable part of the country’s growth. According to Carroll and Buchholtz (2003) CSR is fourfold: economic responsibilities, legal responsibilities, ethical responsibilities and philanthropic responsibilities.
Some British companies proved to be socially responsible even at times when CSR meant nothing to anyone (Idowu & Filho 2008:33). The UK contributed fairly to CSR and so it is acknowledged as a leader in the field.
The impact of the economic crisis in many countries was a slowdown in consumer activities because of unemployment, lower salary rate, etc. After the 1960s recession, this is considered to be the worst recession in the history of UK calling for strengthening of corporate social responsible activities (CSR).
The demand for CSR activities from the government and public on corporate in developed countries are on the high. For example, the stakeholders increasing request for information from companies on their CSR activities appear to be the main driving force behind the issuing of CSR reports by UK companies (Idowu & Filho 2008:2).
The strength of CSR is known only during the time of economic crisis like this. Ultimately, the corporate social responsibilities exist and continue despite the economic crisis. The retail companies are trying their best to stick to CSR activities to reap long-term benefits. Where there is no possibility of carrying out any corporate social activity due to severe losses in small companies, they are allowed to deviate temporarily from CSR activities to come back strongly later after recovery.
The high unemployment and the social unrest of the 1980s urged for the present explicit model of CSR (Habisch et al. 2005: 54) The governance crisis led to the trigger of new businesses in the community (Newman & Cullen 2002).
Michael Heseltine in his address in the Institute of Directors Secretary of State for the environment mentioned “We (government) do not have the money. We do not have the expertise. We need the private sector again to play a role which, in Britain, it played more conspicuously a century ago than it does now (coated in Richardson 1983).
According to Moon (2002), this had an appeal on the corporate companies and increased the government regulations and the stakeholder demands resulting in strengthening of CSR from community involvement to concern for socially responsible products and processes. As the global business in CSR has grown, the British CSR now acquired wider global application.
With the growing current economic crisis, many corporations would be thinking of whether to be involved so much in corporate social responsibility (CSR). Because, they would be worried about unnecessary expenditures, that might eat into the profit margin to a great extent. This is likely to prevail for some years. Many corporations immediately look at the expenses incurred on CSR when it comes to economic recession. It is not a wise idea if they want to sustain in the market for a long time. In case of smaller companies with dwindled revenue, the companies can temporarily cease from CSR activities and resume CSR activities once they are back in track.
Corporate responsibility is not simply giving money to charities or spending time with employees for developing their skills. It goes a step further to consider corporate as citizens of society. It is a citizen responsible and accountable to all of its stakeholders, neighbors and all others in society at the same time.
TESCO, the largest retailer in UK is a fine example of retail companies that has a good record in maintaining corporate social responsible activities consistently.
Its profit rose to 2.8 billion pounds with a 11.8% rise in annual profits for 2007. (BBC 2009). Its partnership relation with trade union represents its serious involvement in CSR activities. TESCO’s CSR responsibility was reviewed in 2001-2002. As a result, its emphasis was on external CSR activities – environmental and social performance (EMCC case studies 2003).
As a major food retailer, TESCO, created health and safety measures, employment initiatives for unemployed, and a workplace forum for the discussion of store issues of concern to staff. TESCO has a unique place in the list of retailers that play a key role in CSR activities.
Truly speaking, the cause of the current global financial crisis could have been avoided if socially responsible practices had been in practice perfectly. Companies have to be watchful in their next moves if they planned to cut down on CSR because they might have short term gains by throwing away CSR practices. Many enterprises nowadays accept that philanthropy is often expected by local communities and shareholders alike, and sometimes endorsed by consumers in the form of greater approval for, and loyally to, forms that go in for it. In the UK retail sector, market research confirms the commercial benefits of a caring a public image (Craig 1998: 152).
The social responsibility of another retail industry Corus is mainly concerned with the environmental issues, such as decommissioning of Corus sites affected by restructuring. It also covers educational projects, such as producing curriculum support materials in schools. It also deals with employee issues, with the focus on health and safety of its workforce (EMCC Case Studies 2003).
However, the economic downturn pushed Corus in Dec 2006 to discuss with UK Trade Unions on a pay cut for employees to manage the crisis (Corus discussions with UK Unions on economic downturn 2008). After its restructuring, Corus doubled its profit. Now the pre-tax profits at the firm surged to ?435m for the first six months of the year, compared to ?156 at the same time last year (BBC News, 2009).
Where it becomes impossible to maintain the corporate social responsible activities at the cost of closing down units, the company restructures its policies and minimises its CSR activities until it recovers.