THR Blog   /   April 13, 2020

Covidien and the Failure of Corporate Social Responsibility

We can’t take CEOs’ high-flown gestures at face value.

Kyle Williams

( Covidien facility in California; Kristoffer Tripplaar/SIPA via AP Images.)

Last August, to much fanfare, the Business Roundtable—the leading trade group of corporate CEOs—issued a statement signed by nearly 200 chief executives that redefined the purpose of a corporation. In what seemed to be a triumph for “corporate social responsibility”—the idea that businesses should pursue not just profits but also social goals like environmentalism or racial justice—big business declared it was no longer going to exclusively prioritize the bottom line. Rather, profits would take their place alongside the needs of customers, suppliers, employees, and the larger community. 

Today, the public health crisis of the coronavirus has made last summer’s claims look like little more than corporate preening. The economic chaos brought about by the virus has laid bare flaws in the unwritten contract between business and society.

Corporate social responsibility has been around since large companies transformed American capitalism a century ago. Back then, business leaders, social reformers, and union representatives formed a group called the National Civic Federation that advocated economic regulation and peace between capital and labor—all under the banner of civic cooperation and social responsibility.

It took time for the ideal of corporate social responsibly to become widely accepted. But in the early 1970s, in the wake of social movements that demanded reforms in civil rights, environmental pollution, consumer safety, and gender equality, business saw the wisdom of getting with the program—or at least in signaling to the public that they were doing so. By 1975, most large corporations had a high-level executive who directed corporate responsibility programs. Some trained underemployed segments of the population. Others donated to the local hospital, for example, or a regional university. 

Today, corporations compete in their virtue-signaling, from Nike’s celebration of young women’s empowerment in the developing world to Whole Foods’s Aquarian rhetoric about a “virtuous circle entwining the food chain, human beings and Mother Earth.” These firms want to reassure us that their outlook isn’t governed by the myopic pursuit of profit but includes an enlightened consideration of the public good.

But as Congress raced to put together a relief package of unprecedented loans and grants to business, the veneer of public-mindedness crumbled faster than the spread of the virus at a spring break beach party. Despite the efforts of some legislators, calls for greater oversight and regulation of corporate America failed to make it into the relief bill. And the recent behavior of numerous CEOs—including those who signed last summer’s Business Roundtable manifesto—calls into question the sincerity of their claims to make lasting commitments to social change alongside their capitalistic pursuits. 

In the midst of a global pandemic-cum- economic crisis, the Business Roundtable statement provides numerous examples of the poverty of the social responsibility movement in corporate America.

Consider Covidien. A global medical device behemoth, the unfortunately named company has bought up smaller manufacturing firms for years. As the New York Times reported last weekend, Covidien in 2012 took over a manufacturing firm called Newport that was developing what would have been the world’s cheapest ventilator. But because Covidien was already selling a pricier ventilator in competition with Newport, it shut down the fledgling project that might have been our best shot at helping critically ill patients suffering from COVID-19 today. José E. Almeida, who was chairman, CEO, and president of Covidien back in 2012, signed the August 2019 Business Roundtable statement. 

Another CEO who signed the statement was Jeff Bezos, majordomo of Amazon and Whole Foods. Those companies are currently battling workers who are asking for the modest accommodation of paid sick time off and safer working conditions. Instead of taking the lead on providing for workers during the crisis, Amazon has solicited donations from the public to pay sick leave to contractors and seasonal workers.

Other CEOs who signed the Business Roundtable statement have followed suit. Oscar Munoz, CEO of United Airlines, has warned that despite the $2 trillion stimulus, his employees should soon expect massive layoffs. The investment management corporation Blackrock is currently thriving off the Federal Reserve’s bond purchases. Its CEO Laurence Fink signed the statement, too. More could be said about the businesses of other signees like Keycorp, which was at the center of the latest buyback craze, or Mallinckrodt and Anthem, which are being sued by the federal government for Medicare fraud, or Salesforce, which is currently dishing out millions in bonuses to its top executives.

There are two approaches to corporate social responsibility. One is voluntary. It’s top-down and directed by managers, top executives, and directors. But as we’re seeing, there’s very little accountability for this sort of social responsibility program. Firms use a marginal amount of retained earnings or capital for campaigns that are easily publicized. Most often these programs change little about how business is done. Instead tax-deductible donations and write-offs serve as a grant of public goodwill.

Another, more meaningful approach calls for real accountability for corporate behavior. Senators Elizabeth Warren and Bernie Sanders, among others, have promoted legible and enforceable changes to corporate conduct on behalf of workers. These included provisions for a $15 minimum wage, keeping employees on the payroll during crises like the pandemic, putting worker representatives on boards of directors, giving equity to the government, and preventing price gouging. But the Business Roundtable has shown little enthusiasm for these sorts of state-mandated reforms.

Whether it is Nike’s embrace of Colin Kaepernick’s activism or PayPal’s recent boycott of North Carolina for its anti-transgender bathroom law, we live in a moment when corporate leaders like to showcase the social stands they take. But our current crisis shows us, unfortunately, that we can’t take CEOs’ high-flown gestures at face value. Real corporate social responsibility must change the way decisions are made in our most powerful business institutions when the chips are down.