Skip to main content

Columbia Business Monthly

Corporate Social Responsibility During Hard Economic Times

Feb 21, 2023 09:06AM ● By Steve Nail

Change is coming from an economic perspective. Specifically, there is little doubt that the U.S., and probably the world, will be in a recession by the end of the first quarter of 2023.  

Everyone is aware of the tech industries’ recent announcements of significant job reductions, including Amazon’s announced reduction of approximately 10,000 jobs, Meta downsizing by more than 11,000 employees, and Twitter’s reduction of nearly half of its employees. However, other recent layoffs have occurred at Coinbase, Netflix, Shopify, Stripe, and Spotify. 

Online payments giant Stripe cut 14 percent of its workers, and Bob Chapek, the ex-CEO of the Walt Disney Company, announced that Disney is on the verge of cutting costs and staff. “We are going to have to make tough and uncomfortable decisions,” he said in a memo.

I have noted several durable goods manufacturers over the past several months conducting “quiet layoffs.” This has yet to be truly appreciated in the job markets because there have been many job openings that haven’t yet been filled, and the overall workforce participation rate has been down since the Covid pandemic. 

Companies and their leadership are quick to shed excess employees to maintain or even grow stock price, and meet shareholder expectations. Is this the right approach? Should companies be so quick to conduct layoffs to protect profits and shareholder interests? 

Think about it – shareholders are only one of an organization’s stakeholders. Employees and their families, customers, local communities, and shareholders/owners are all stakeholders. Today, many organizations tout their commitment to Corporate Social Responsibility (CSR), the idea that organizations should play a positive role in the community and consider the environmental and social impact of business decisions. Does this commitment fit with the notion that layoffs should be the go-to solution during recessionary times?

One of the reasons for the “Great Resignation” of the past 18 months has been the lack of loyalty and commitment employees feel toward the organization they work for. This is not the fault or shortcoming of the employee; it is the fault of corporate America. Employees of today have watched organizations lay off their parents and grandparents for the past 40 years without any hesitation, treating them more like a piece of machinery that can be turned on and off at a moment’s notice.  

Often, the same organizations that tell society that their “employees are their greatest asset” are the same employers who lay off employees en masse, depreciating and eliminating employees as they do with other “assets.” Should employees have fidelity toward their employer with this being the history employers have created? Conversely, will employers who exhibit true Corporate Social Responsibility during the impending recession reap rewards in years to come with improved levels of loyalty, higher employee trust and employee, community, and customer goodwill? Will stakeholders, other than employees, reward these firms? 

Perhaps a mass layoff, with no regard to individual performance, should not be the first response to an economic downturn. As Herb Kelleher has stated, “Nothing will kill company culture like layoffs.”

While it may benefit the organization financially at first, there are other actions organizations can take before pulling the layoff switch. A switch when pulled that will reduce loyalty, further drag the economy into recession, and may alter many lives, perhaps permanently. Before pulling that switch, consider other actions that might benefit all stakeholders, both short and long term. Here are a few ways organizations can reduce costs, maintain positive CSR, and create goodwill, during an economic downturn without having mass layoffs:

These are in priority of least to greatest hardship to employees. 

Terminate Poor Performers. This should be done regularly anyway, but with the shortage of employees over the past two years, organizations have been more reluctant to remove them from the workplace.  In most organizations, employees recognize those of their peers who aren’t performing well and appreciate when they are removed from the organization.

Eliminate the temp workforce. While it may be impossible to do this completely, full-time employees would understand this as at least one reason organizations utilize temp workers in the first place.

No relocations. Again, this may seem obvious, but many organizations continue this process even during periods of layoffs, sending the wrong message to employees.

Don’t fill open and budgeted positions. Again, this may seem obvious, but many large organizations with much bureaucracy are hiring, even while laying employees off.  

Eliminate 75 percent current overtime. This may seem obvious, but many organizations utilize a lot of overtime even in slower business cycles.

Do not replace attrition.  Even during recessionary periods, most organizations have about a 5 percent attrition rate. If possible, not replacing this attrition will significantly reduce costs.

Early Out/Voluntary Severance. This would be a win-win for employers and employees. Employers are giving a benefit for those who want to leave while those who wish to stay have a bit more job security. Also, many times, those nearing retirement have higher salaries and the positions will be back-filled with lower-paid employees.

Part-time work volunteers. Some employees may enjoy working part time for a period and it is a great way to address work reductions without having to lay off employees. It may also reduce other rollup costs, like 401(K), employment taxes, and possibly healthcare costs.

Unpaid voluntary sabbaticals. Some employees may enjoy or need an unpaid sabbatical for some period, for any multitude of reasons.  

Insourcing of work. For example, marketing, training, and relocation could possibly be done internally, since much of this type of work is typically reduced during an economic downturn.        

Redeploy personnel. Move employees to other areas that they typically are not assigned, but where resources are needed. Obviously, these employees may not be as competent in these areas as those who have experience, but it is a good way to put fresh eyes on a function and perhaps benefit from their feedback. It also shows a commitment from the employer to retain valued employees. Employees will remember this for years to come and tell future generations of employees about this effort to maintain employment.

Cut bonus potential. This would affect higher-level employees generally, and many organizations would be reluctant to do so, because those making the decisions to cut usually directly benefit from the bonus program. However, such a move would send a very positive message to the non-bonus-eligible employees and be a real differentiator from most organizations. Also, it is the bonus-eligible employees who set the organizational strategy, make the decisions, and for the most part, own the outcomes of those decisions. Therefore, what sense does it make for that group to make their bonus while those that had no part in the decision-making process find themselves out of work? 

Stop contributing to the 401(K) plan. This would save most organizations around 3 percent of payroll each year and again affect all levels of employees equally.  

Forgo salary increases for all employees, including executives. While this be a bit scary for employers, it might be a positive, since it would show that everyone, regardless of position, is sharing the hardship together.

Five days unpaid vacation (all employees). This is an effective 2 percent reduction in payroll costs for the year, and while obviously a hardship for all employees, would evidence the fact that all personnel are equally sharing the pain.

A layoff will generally involve some severance costs and perhaps outplacement, not to mention the potential legal fees incurred to ensure the process is carried out in accordance with federal and state laws. So, taking actions like those recommended in this article have a multitude of advantages, including employee and community goodwill.  

Back in the early ‘80s, during the worst recession in my lifetime, many companies laid off thousands of their employees. 

The company that I later worked for decided to not lay anyone off.  After I began working there, I heard stories of employees being assigned to paint parking lot lines and pick up rocks on the facility grounds. The warehouses were full of inventory, and the company was not making a profit. As the country came out of the recession, other companies in the industry were rushing to hire and train new personnel and begin building inventory. 

My company had employees and inventory. The company was able to secure major new pieces of the markets they served while the rest of the industry struggled to become competitive. Perhaps more importantly, this organization built credibility and loyalty with its employees, and for at least 25 years thereafter, employees would remember with fond gratitude the efforts the company had made to keep them employed during very difficult economic times. Additionally, in part because they felt this sense of loyalty and gratitude, the employee turnover rate was always below 10 percent during my over 15 years with the organization. And to this day community members, individuals, leaders, and other businesses tout this company as a pillar of the community in every way. 

It is easy for any organization to say they are socially responsible. However, it is a different situation when it is time to “walk the talk” and perhaps not take the easy and more common road to problem solving. I urge all organizations and their leadership teams to take a long view, weigh the benefits and consequences of any actions, and determine what the socially responsible solution is for all stakeholders, not just what’s best for the shareholders, or your own personal financial interests. Remember, “Character and values are revealed when pressure is applied – Anonymous.” 

As the coming recession deepens and we start experiencing reduced revenue and higher unemployment, how will socially responsible, values-based organizations respond?

Steve Nail is the Dean of the College of Business at Anderson University, where he teaches Strategic HR and Business Law courses. He is an attorney, certified HR professional, certified executive coach, HR consultant, and published author. He has devoted his career to HR thought leadership, creating innovative HR solutions, and educating and mentoring the next generation of HR leaders.