Corporate social responsibility and COVID-19: Research implications

Introduction

The world has been mightily struggling since the onset of COVID-19. The pandemic has clearly brought a historic public health crisis to the world, and its negative impacts directly extend to the global economy. No particular industry is immune to this pandemic, but the tourism and hospitality industries are among the hardest hit. For example, in the past decades, international travel had been consistently increasing, even with the 2008 financial crisis and other public health crises such as Severe Acute Respiratory Syndrome in 2002 and Middle East Respiratory Syndrome in 2012 (Borko et al., 2020). However, over the course of COVID-19, international tourism arrivals are expected to decrease between 58% and 78% according to the UN World Tourism Organization, ¹ and international mobility has also significantly declined by 65% as of May 2020 based on the world openness score. ² Furthermore, for the US accommodation industry, as of July 2020, there has been about a 35% decline in jobs, compared with July 2019 (Borko et al., 2020) and for the US restaurant and foodservice industry, the lost revenues from March 2020 through September 2020 have surpassed USD200 billion, according to the National Restaurant Association. ³

The COVID-19 has been battering the global economy including the private sector and further putting companies to the test for how their embracement of corporate social responsibility (CSR) matters during the crisis (He and Harris, 2020; Kramer, 2020). While people often perceive CSR as one fixed concept, the CSR literature has clearly recognized the evolutionary nature of CSR over time (Carroll, 1999) and further, different perspectives about CSR (Garriga and Melé, 2004). In specific, some view CSR from a normative perspective where they believe that companies should be socially responsible because it is the right thing to do (Donaldson and Preston, 1995), while others, especially from the recent decades, suggest that companies be socially responsible because it will become instrumental to improving firm performance and value (Jensen, 2002). I call this latter viewpoint (often known as “instrumental perspective”) “Strategic CSR” which has gained much attention in both scholarly literature and practical world in recent years. For instance, Porter and Kramer (2011) proposed “Creating Shared Value” which I believe essentially comes under the same umbrella of Strategic CSR, arguing that “traditional CSR” is no longer relevant and thus we have to move on to the next stage where a firm’s engagement in CSR must be directly aligned with its core business value to create shared value between business and society. Accordingly, the current pandemic may exacerbate unsustainability of “traditional CSR” still implemented by many companies, often focusing on philanthropic initiatives, and promote the strategic aspect of CSR. The definition (concept, expectations, or general practices) of CSR has been evolving (Carroll, 1999), and throughout this pandemic, it will likely continue evolving again. Considering the importance of CSR in the contemporary corporate world and the significance of the COVID-19 for its impact on the business, this article is to discuss what kind of research implications the COVID-19 will bring to the tourism and hospitality literature, especially from the financial economics and strategic management perspective.

Research implications from COVID-19 in tourism and hospitality

COVID-19 as a severe global crisis has revealed many issues in our society such as income inequality, racial discrimination, and climate change (Noya et al., 2020). Considering the contemporary trend of increasing CSR awareness in the corporate world in recent decades, many such social and environmental issues will be discussed and likely become incorporated into business operations which will eventually become more expected norms as part of the business model. It will be interesting and important to recognize such evolution so that business entities can adapt to these changes in a timely manner. Thus, tourism and hospitality researchers should pay attention to such emerging social and environmental initiatives. Many of these issues may have already existed in society, but the magnitude of these social and environmental problems can have substantially increased. Consequently, it is worth exploring what kinds of new CSR initiatives emerge during this pandemic, compared to traditional CSR practices. Furthermore, tourism and hospitality researchers should be encouraged to investigate financial and value implications of these emerging CSR initiatives from a strategic or instrumental perspective (Kim and Lee, 2020; Lee et al., 2018). For example, for tourism and hospitality companies such as hotels, casinos, airlines, travel agencies, and restaurants, it would be generally difficult to make a convincing justification for a company’s investment in public health issues as part of its CSR strategy from a strategic perspective (e.g. Chandler, 2017; Kim and Lee, 2020; Lee et al., 2018) because of the decreased relevance of tourism and hospitality companies’ core business competencies to public health. However, due to the pandemic, which severely damages the tourism and hospitality sectors, the relevance of public health matters may be viewed differently now from the perspectives of operators and investors. From a risk management perspective, although it may not be so frequent, a public health crisis is likely becoming or has already become something that is so significant and relevant to the tourism and hospitality industry. Accordingly, its implementations and financial implications as one of the outcomes may be a viable topic for tourism and hospitality researchers.

Next, it would add value to the literature not only to study potentially emerging CSR initiatives but also to compare the significance of various types of existing CSR initiatives between the pre- and post-pandemic from tourism and hospitality firms’ financial perspective. For example, Inoue and Lee (2011) revealed different individual effects of five CSR dimensions (employee relations, product quality, community relations, environmental issues, and diversity issues) on firm performance for tourism-related companies (i.e. hotels, casinos, airlines, and restaurants). Such differentiating effect of various individual CSR dimensions may evolve over the course of the pandemic and change again. For instance, the employee relation did not appear to make a significant impact on firm performance for hotels, restaurants, and casinos according to their results, but after COVID-19, tourism and hospitality firms’ investment in employees may become more critical for their business success due to possible instability of job security as perceived by potential employees. A similar logic can extend to the nuanced effect of differing natures of CSR dimensions, such as positive versus negative CSR (Kang et al., 2010), and operation-related versus nonoperation-related CSR (Lee et al., 2013), which may change because of COVID-19.

Another interesting perspective that may be meaningful for an investigation is how tourism and hospitality firms’ engagement in various CSR initiatives can alleviate or exacerbate the negative effect of COVID-19 on firm performance during the pandemic, thus examining, instead of the main effect, rather the moderating effect of CSR on the relationship between COVID-19 and firm performance. This can also extend to a setting with multiple dimensions of CSR. A possible rationale for this approach may be based on the role of CSR as an insurance-like protection (Fombrun et al., 2000) which may provide some flexibility to a firm during the current pandemic. Perhaps because of a firm’s CSR involvement in the past, loyal customers may more willingly purchase the firm’s products during the crisis, or customers in general may trust the firm more due to its socially responsible image, and thus may become more likely to purchase its products during the pandemic. Closely related to this, some researchers may consider how a firm’s CSR strategy can accelerate its recovery during and after the pandemic, and further, how a mismanaged or poorly developed CSR strategy can hurt the company during the same periods. On the other hand, based on shareholder theory (Friedman, 1970), some may argue that a firm’s investment in CSR worsens the negative impact of COVID-19 on its performance, because the theory generally suggests that CSR investment is not an optimal way to maximize firm value, or may even be perceived as a waste of resources. Although CSR literature has more strongly supported the instrumental perspective of a firm’s investment in CSR in recent decades that supports a positive impact of CSR on a firm’s financial performance, these are empirical questions, and thus require empirical examination.

Next, researchers may be encouraged selectively to investigate particular measures of firm performance in relation to a firm’s CSR engagement during or after COVID-19. Firm performance can be measured in different ways. For example, there are accounting measures (e.g. return on sales, return on assets, and return on equity), stock-related measures (e.g. simple stock returns, total shareholders’ returns, risk-adjusted returns, and Tobin’s q), and risk measures (e.g. business risk, financial risk, and portfolio risk). While accounting and stock-related performance measures are undoubtedly relevant and critical in relation to the pandemic, risk measures may provide some additional insights regarding sustainability and survivability of a business during the crisis. Especially, considering an argument for CSR as a strategy to accumulate trust and reputation among multiple stakeholders in normal times that will render a business room to breathe when a crisis hits, trust and reputation of a company built through genuine and well-implemented CSR initiatives are likely to play a significant role in risk management (Story and Price, 2006). Accordingly, an examination of CSR’s role in mitigating risk during the pandemic, specifically focusing on a firm’s risk measures as the outcome, may offer meaningful implications.

Up to this point, I have emphasized specific roles of CSR during or after the pandemic in relation to various implications of a firm’s financial performance. Considering all those specific roles of CSR mentioned above, let me now discuss two specific boundary conditions: culture and industry. Firstly, CSR literature has found that culture (often distinguished by country as an analysis unit) can influence firms’ behaviors and approaches in developing their CSR strategy, as well as its financial consequences (e.g. Kang et al., 2016; Kim et al., 2018). Such a boundary condition may exist due to idiosyncratic characteristics of different regions and/or countries of the world. For example, according to Hofstede, culture is defined as “the collective programming of the mind distinguishing the members of one group or category of people from others,” and it is not something that easily changes (Hofstede, 1991: 5). His cultural dimensions theory suggests that there are six dimensions, including power distance, uncertainty avoidance, individualism (vs. collectivism), masculinity (vs. femininity), long-term (vs. short-term) orientation, and indulgence (vs. restraint), and people in different countries (especially those more distanced from each other, belonging to different regions of the world) tend to present significantly different values for these dimensions (Hofstede et al., 2010) which can have varying degrees of impacts on society’s expectations and perceptions of firms’ CSR initiatives. Evidenced in the hospitality context, Kang et al. (2016) revealed that US hospitality firms’ operations in different countries with different cultural values influenced the firms’ engagement in socially responsible (positive CSR) and irresponsible (negative CSR) initiatives, while Kim et al. (2018) explored an intertwined relationship of a cultural value focusing on uncertainty avoidance with CEOs’ narcissism and CSR engagement in the US restaurant context. These previous findings clearly suggest an important role of culture in the CSR context, and such cultural influences on CSR are likely to exist in specific relation to the current pandemic, thus warranting investigation. Somewhat related to the cultural influence is the differing level of CSR development across different countries, which again is likely to have different impacts on implications of a firm’s CSR engagement during and after the pandemic. Thus, researchers may be encouraged to unravel the boundary condition of the level of CSR development at the country level.

Secondly, I suggest that the industry would provide a meaningful boundary that is likely to influence firms’ engagement in CSR initiatives and their consequential outcomes, especially during and after the current pandemic. Even within the context of the tourism and hospitality sector, distinctions seem to exist across different sectors (e.g. hotels, casinos, airlines, restaurants, travel agencies, etc.), and due to these distinctions, impacts of COVID-19 also seem to vary across these different industries. For example, although all of the tourism and hospitality industries do greatly suffer from the current pandemic, the airline sector seems to have been more severely impacted (Subramanian, 2020), and consequently, emerging CSR initiatives and the mitigating role of various CSR initiatives (as well as additional CSR issues discussed above) are likely to be diverse across different tourism and hospitality sectors. Therefore, tourism and hospitality scholars should explore such a boundary condition for the industry. This issue can have direct implications on the concept of materiality that signifies industry-specific characteristics for CSR initiatives (Kim and Lee, 2020; Lee et al., 2018). According to the Sustainability Accounting Standards Board (SASB), materiality is defined as “the issues that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors,” ⁴ and SASB has developed the materiality map, specifically designed for each of 79 different industries. For example, the “environmental footprint of fuel use, labor relations, competitive behavior and accidents and safety management” are included in the materiality map for the airline industry by SASB, while “energy and waste management, food and packaging waste management, food safety, nutritional content, fair labor practices, and supply chain management and food sourcing” are identified to be material issues for the restaurant industry. These industry-specific material issues may evolve over the course of the pandemic and possibly change, and furthermore, financial implications of these material issues for tourism and hospitality industries are likely to evolve as well, throughout the pandemic. Accordingly, the boundary condition of the industry should be scrutinized in relation to the context of COVID-19.

Conclusion

Acknowledging the global impact of COVID-19 as both a health and an economic crisis, the current article explores research implications for tourism and hospitality firms’ CSR engagement in relation to the pandemic, from a financial economics perspective. Various potential research topics have been discussed, including emerging CSR initiatives throughout the pandemic, a comparison between pre- and post-pandemic financial implications of CSR, a moderating role of CSR activities during and after the pandemic, diverse performance measures including risk measures, and two boundary conditions for all such potential issues, including culture and industry. Certainly, many more topics should be explored regarding CSR in the context of COVID-19; the current discussion is simply intended to start a conversation on this for the tourism and hospitality industries, specifically from a viewpoint of financial economics and strategic management.