Why Ford, Chanel and other companies pitch in during a crisis – without the government ordering them to
- Written by Elham Mafi-Kreft, Clinical Associate Professor of Business Economics, Indiana University
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
- ^ Severe shortages of critical medical supplies (www.who.int)
- ^ General Motors (www.nytimes.com)
- ^ France (www.ft.com)
- ^ U.K. (www.autocar.co.uk)
- ^ Japan (www.japantimes.co.jp)
- ^ Ford (www.businessinsider.com)
- ^ LVMH (www.ft.com)
- ^ Chanel (www.reuters.com)
- ^ L’Oreal (wwd.com)
- ^ are transforming their factories (www.businessinsider.com)
- ^ Anheuser-Busch (www.nasdaq.com)
- ^ Diageo (www.adweek.com)
- ^ Molson Coors (www.businessinsider.com)
- ^ Bacardi (www.bevindustry.com)
- ^ Toyota (www.bloomberg.com)
- ^ Volkswagen (www.reuters.com)
- ^ Fiat Chrysler (www.reuters.com)
- ^ partnering (www.msn.com)
- ^ corporate aid tracker (www.uschamberfoundation.org)
- ^ scholars (kelley.iu.edu)
- ^ corporate social responsibility (scholar.google.com)
- ^ bolstering reputation (www.ingentaconnect.com)
- ^ avoiding regulation (www.doi.org)
- ^ enhance their brand (www.inc.com)
- ^ There are many definitions (www.doi.org)
- ^ is significantly influenced (www.forbes.com)
- ^ higher sales (dx.doi.org)
- ^ increase the company’s valuation (philpapers.org)
- ^ keep good employees around longer (doi.org)
- ^ all hands on deck (unfoundation.org)
- ^ just like during natural disasters (www.forbes.com)
- ^ 2013 survey of citizens of 10 countries (www.conecomm.com)
- ^ can easily produce (tanksgoodnews.com)
- ^ capable of repurposing (www.wsj.com)
- ^ more financial regulation (corpgov.law.harvard.edu)
- ^ tend to support bills (www.nber.org)
- ^ Stanford study (web.stanford.edu)
- ^ allowing them to choose actions (store.hbr.org)
- ^ Defense Production Act (www.washingtonpost.com)
- ^ You can get it with The Conversation’s email newsletter (theconversation.com)
Authors: Elham Mafi-Kreft, Clinical Associate Professor of Business Economics, Indiana University
