Harvard's corporate social responsibility initiative defines corporate social responsibility as encompassing "not only what companies do with their profits, but also how they make them. It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm."
Fulfilling corporate social responsibility helps keep capitalism in check. Harvard's initiative places economic success in part on the organizations that benefit from that success. Currently, American organizations are stockpiling cash, while the American economy is experiencing joblessness and a decline in disposable income. I don't know what they're doing with all that cash. It sits on the balance sheet as a current liquid asset, yielding insignificant returns. Are these stockpiles a shirking of American corporate social responsibility? The echo from the depths of the economy might say yes.
Seeing all that unproductive cash, I wondered how organizations were obtaining so much money in a shrinking economy. The average American household's disposable income has decreased, making consumer spending an unlikely significant factor. Digging deeper, I realized that many of these American corporations are offshoring jobs and increasing automation in their processes. According to the U.S. Department of Labor, "Cost-cutting by U.S. industries in almost every sector of the economy will continue to change the workforce. To reduce labor costs, some jobs are being sent offshore while others are being replaced by technology or are being filled with lower-cost workers."
This has real implications for the U.S. economy. As an accountant, I wanted to see the impacts, so I decided to do a little analysis on an American organization I was familiar with. Using the annual 10-K reports filed from 2007 through 2011 for this U.S. organization, I found that the organization increased its net earnings by 36.5% over the five years. During this same period, the organization experienced only a 10% increase in cost of goods, and a 25% increase in G&A This same organization, during these five years, has offshored a significant portion of its back office finance and product production equating to a shift in payroll dollars of approximately $803 million.
Could this organization be remiss in managing its economic, social, and environmental impacts, as well as its relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm?
The impact of the payroll shift for this one organization on the U.S. economy equates to a 32% loss of federal revenue (individual states of residence also lose taxes). For example, the shift of $803 million in wages and salaries to offshore locations results in a loss of $200 million in individual federal payroll tax, $50 million in Social Security tax, and $12 million in Medicare tax to the federal government.
While the economy is composed of many factors, consider changing just this one factor in the U.S. If American corporations could loosen their grip on cash and exercise their corporate social responsibility, these organizations could infuse the U.S. economy with the jobs that currently exist offshore. Additionally, as a side note, the organization analyzed in the above example experienced a 17.9% decline in basic earnings per share over the five years.
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