Metropolitan Digital

  • Written by Elham Mafi-Kreft, Clinical Associate Professor of Business Economics, Indiana University
Why Ford, Chanel and other companies pitch in during a crisis – without the government ordering them to

Severe shortages of critical medical supplies[1] have prompted governments to compel private companies to fill the gap. In the U.S., President Donald Trump invoked rarely used powers to force General Motors[2] to make ventilators, while the leaders of France[3], the U.K.[4] and Japan[5] have put pressure on companies to make more medical supplies.

But, judging by how many non-medical companies have voluntarily stepped up to shift their manufacturing might to produce health care supplies – including GM rival Ford[6] – it seems hardly necessary.

Fashion brands such as LVMH[7], Chanel[8] and L’Oreal[9] are transforming their factories[10] to mass produce face masks. Spirit and beer makers Anheuser-Busch[11], Diageo[12], Molson Coors[13] and Bacardi[14] are shifting some of their production and distribution towards hand sanitizer. And automakers Toyota[15], Volkswagen[16] and Fiat Chrysler[17] are leveraging their 3D printing capabilities to produce face shields and are partnering[18] with other companies to make ventilators.

And that’s just three industries. In all, hundreds of companies across the globe have committed money, supplies and know-how to help with the COVID-19 response, according to the U.S. Chamber of Commerce Foundation’s corporate aid tracker[19].

Why are these companies being so generous?

As scholars[20] of corporate social responsibility[21], we believe altruism certainly plays a role for many of them, but it’s not the only motivator. Research on company behavior points to two others: bolstering reputation[22] and avoiding regulation[23].

Burnishing the brand

In normal times, companies often undertake socially responsible initiatives to enhance their brand[24] and build a stronger relationship with consumers, investors and employees in order to drive profits.

What’s a socially responsible initiative? There are many definitions[25], but the way scholars like us think of it is it means taking voluntary action that is not prescribed by law or not necessary to comply with a regulation.

Reputation Institute, a management consultancy, found that people’s willingness to buy, recommend, work for or invest in a company is significantly influenced[26] by their perceptions of its corporate social responsibility practices. So doing something that benefits people in their community can lead to higher sales[27], increase the company’s valuation[28] and keep good employees around longer[29].

But these are anything but normal times. Rather, it is a global crisis that has created a need for an all hands on deck[30] response from everyone, including corporate America. In other words, just like during natural disasters[31], people expect companies to do their part – and not appearing to do so could damage a brand’s reputation. A 2013 survey of citizens of 10 countries[32] that included the U.S., France, Brazil and China found that 9 in 10 people said they would boycott a company they believed behaved irresponsibly.

And this is especially true of industries that are more directly connected to the crisis. In the current situation, for example, there’s been a shortage of hand sanitizer, which fashion companies that make perfume can easily produce[33]. And manufacturers are, as we’ve seen, capable of repurposing[34] their assembly lines to build ventilators.

Not doing its part, in this environment, could result in a long-term hit to a company’s reputation.

Eluding onerous regulations

The other motivator is preempting government regulation, which becomes a greater risk during and after a crisis.

For instance, we saw more financial regulation[35] after Wall Street’s behavior sparked the Great Recession, and lawmakers from districts that suffer from hurricanes tend to support bills[36] promoting more environmental regulation.

So companies will often pursue voluntary self-regulation and take other proactive measures during a crisis in hopes of forestalling a more onerous government reaction. A recent Stanford study[37] found that even a modest effort can work to effectively preempt regulation.

Furthermore, this allows companies to set the terms and control the agenda, allowing them to choose actions[38] that are in the interest of society, profitable, and avoid the costs and pains of complying with new regulations.

At the moment, companies may be stepping up to avoid a more draconian response from the government, such as when Trump invoked the Defense Production Act[39] against GM, which allows him to control and direct corporate resources towards production of critical equipment. This also gives the federal government priority in contracting, limiting a company’s ability to find the most efficient or profitable contracts.

So next time you read about a company doing something for the greater good, applaud the effort. But you could consider its other strategic motivations as well.

[Insight, in your inbox each day. You can get it with The Conversation’s email newsletter[40].]

References

  1. ^ Severe shortages of critical medical supplies (www.who.int)
  2. ^ General Motors (www.nytimes.com)
  3. ^ France (www.ft.com)
  4. ^ U.K. (www.autocar.co.uk)
  5. ^ Japan (www.japantimes.co.jp)
  6. ^ Ford (www.businessinsider.com)
  7. ^ LVMH (www.ft.com)
  8. ^ Chanel (www.reuters.com)
  9. ^ L’Oreal (wwd.com)
  10. ^ are transforming their factories (www.businessinsider.com)
  11. ^ Anheuser-Busch (www.nasdaq.com)
  12. ^ Diageo (www.adweek.com)
  13. ^ Molson Coors (www.businessinsider.com)
  14. ^ Bacardi (www.bevindustry.com)
  15. ^ Toyota (www.bloomberg.com)
  16. ^ Volkswagen (www.reuters.com)
  17. ^ Fiat Chrysler (www.reuters.com)
  18. ^ partnering (www.msn.com)
  19. ^ corporate aid tracker (www.uschamberfoundation.org)
  20. ^ scholars (kelley.iu.edu)
  21. ^ corporate social responsibility (scholar.google.com)
  22. ^ bolstering reputation (www.ingentaconnect.com)
  23. ^ avoiding regulation (www.doi.org)
  24. ^ enhance their brand (www.inc.com)
  25. ^ There are many definitions (www.doi.org)
  26. ^ is significantly influenced (www.forbes.com)
  27. ^ higher sales (dx.doi.org)
  28. ^ increase the company’s valuation (philpapers.org)
  29. ^ keep good employees around longer (doi.org)
  30. ^ all hands on deck (unfoundation.org)
  31. ^ just like during natural disasters (www.forbes.com)
  32. ^ 2013 survey of citizens of 10 countries (www.conecomm.com)
  33. ^ can easily produce (tanksgoodnews.com)
  34. ^ capable of repurposing (www.wsj.com)
  35. ^ more financial regulation (corpgov.law.harvard.edu)
  36. ^ tend to support bills (www.nber.org)
  37. ^ Stanford study (web.stanford.edu)
  38. ^ allowing them to choose actions (store.hbr.org)
  39. ^ Defense Production Act (www.washingtonpost.com)
  40. ^ You can get it with The Conversation’s email newsletter (theconversation.com)

Authors: Elham Mafi-Kreft, Clinical Associate Professor of Business Economics, Indiana University

Read more https://theconversation.com/why-ford-chanel-and-other-companies-pitch-in-during-a-crisis-without-the-government-ordering-them-to-135170

Metropolitan republishes selected articles from The Conversation USA with permission

Visit The Conversation to see more

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