Qianshan Liu_Thesis_Final Version.pdf

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TREE IN A STORM: REVIEW OF

CORPORATE SOCIAL

RESPONSIBILITY PRACTICE

DURING COVID-19 PANDEMIC IN

THE CONTEXT OF EUROPE

Name: Liu, Qianshan

E-mail: qianshan.eu@gmail.com

Student ID: 12983845

Track: Master of European Private Law

Supervisor: Dr. K.H. (Klaas) Eller

Date of Submission: 10 January 2021

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Page 1 of 33

ABSTRACT

A series unique challenges for the corporate social responsibility (CSR) practice has arisen during the COVID-19 pandemic. This paper discusses three typical scenarios (non-compliance, state aid, and profiteering) in Europe with the aim to conduct a critical evaluation of CSR strategies, the mutual relationship between each scenario and the CSR practice from the respective perspective of larger and smaller companies, and finally, the (in)effectiveness of CSR strategies to address the risks arising from the COVID-19 crisis. It is argued that state aid could mitigate the non-compliance risks of small and medium enterprises (SMEs) during the COVID-19 pandemic to a certain degree, while the large companies’ non-compliance with failure to meet the corporate disclosure requirements may likely remain in the absence of further clarified European legal regime. However, it is unclear whether state aid in the EU should be granted to all types of companies, and whether state aid should prioritize companies with more or better CSR practice. Furthermore, due to the ‘greedy’ nature of corporations in general, there are risks of profiteering arising from in the European market, which would pose another challenge to CSR practice. Although the CSR practice could arguably contribute to mitigating the business risks from the pandemic, the deficiencies and ineffectiveness of CSR practice should not be overlooked.

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The new coronavirus disease (COVID-19) epidemic was detected in late December 2019. And almost three months later, the World Health Organization (WHO) declared it as a global pandemic on 11 March 2020. As of 6 January 2021, the WHO reported more than 85 million COVID-19 cases, and more than 1.8 million people have lost their lives1_{. At the} same time, there were more than 17 million cases and 1.7 million deaths in Europe2_{. Europe} have been experiencing several peaks and many European countries have been back to lockdown3_{. Due to the impact of COVID-19 in Europe, a vast number of companies are} being exposed to both losses (due to the increase in fixed costs and decline in revenues) and insolvency (because of their inability to maintain the necessary cash flows to satisfy their financial obligations)4_{. It has also abruptly and severely constricted global economic activity} in which companies are under extreme stress. The COVID-19 storm has exposed companies’ vulnerability to extraordinary external forces that the economic circumstances have been more volatile and turbulent and expect to be the greatest depression since 1930s5_.

The COVID-19 pandemic has also sparked a series of academic research, conferences, and working papers. In particular, the Oxford Business Law Blog, one of the leading academic forums, has published posts since early February 2020 about how business laws could help contain the negative effects of the COVID-19 on our lives and reduce its economic fallout in the society, and whether business laws need (or need not) to adapt to achieve such aim6_. With the vast attention placed on finance, financial regulation and insolvency laws, there is one topic remained almost untouched or even overlooked in the Oxford forum, i.e. the

1_{World Health Organization: WHO. (2021). WHO Coronavirus Disease (COVID-19) Dashboard.}_{https://covid19.who.int/}

2_European _Centre _for _Disease _Prevention _and _Control. _(2021). _COVID-19 _situation _update _worldwide

https://www.ecdc.europa.eu/en/covid-19-pandemic

3_{The Economist. (2020). The second wave of covid-19 has sent much of Europe back into lockdown.}

https://www.economist.com/briefing/2020/11/07/the-second-wave-of-covid-19-has-sent-much-of-europe-back-into-lockdown

4_{Gurrea-Martínez, A. (2020). Directors’ Duties of Financially Distressed Companies in the Time of COVID-19. The COVID-19} Pandemic and Business Law: A Series of Posts from the Oxford Business Law Blog, P16.

5_{He, H., & Harris, L. (2020). The Impact of Covid-19 Pandemic on Corporate Social Responsibility and Marketing Philosophy. Journal} of Business Research. http://dspace.urbe.university:8080/xmlui/bitstream/handle/123456789/62/Impact%20of%20Covid-19_Journal%20of%20Business%20Research.pdf?sequence=3&isAllowed=y

6_{Reis, R., Boon, G. J., Brunnermeier, M., Eidenmüller, H., Gurrea-Martínez, A., Enriques, L., ... & van Zwieten, K. (2020). The}

Covid-19 pandemic and business law: a series of posts from the Oxford business law blog. (April 11, 2020). Oxford Legal Studies Research

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Page 4 of 33 corporate social responsibility (CSR). Only one author, Kamalnath, has put forward ideas on CSR in the times of COVID-19 with the example of India corporate law7_{. CSR remains} little discussed at an academic level or seldom evaluated in European practice on that forum. However, CSR is an important topic in business law. There is an underlying idea that any business entity is not an isolated island but is part of a wider system of societal relations8_, and the traditional view of CSR is that enterprises constituted both legal entities and the networks of enterprises in coordinated economic activities. This is equally true in COVID-19 crisis. Following Kamalnath’s observation, it is worthwhile to evaluate CSR practice (if any) during the crisis in the European context, and its tension with various stakeholders which are suffering in the pandemic. In this new circumstance, the CSR practice during COVID-19 should be evaluated with fresh eyes.

This paper starts with introducing the background of COVID-19 and three typical scenarios involving CSR. Given there is no universally agreed definition or scope of CSR, for the purpose of analyzing CSR practice in COVID-19 in a comprehensive manner, a broad definition will be adopted throughout the paper – any corporate action that is socially responsible in its daily operations could be classified as a CSR strategy. This is in line with Carroll’s idea that CSR concept has expanded from certain close stakeholders to be more inclusive, far reaching, and global in scope9_{. According to numerous studies, different types} of companies prioritize different aspects of CSR10 _{. Therefore, in each scenario,} performances of different companies may be explained – large companies (for example, multinational companies) as well as small and medium-sized enterprises (for example, coffee shops). The core research question is about the evaluation of CSR practice in Europe in the middle of the COVID-19 pandemic and its mutual relationship with the unique scenarios. What are CSR strategies about? How does each scenario affect CSR practice in

7_{Kamalnath, A. (2020). Corporate Social Responsibility in the Times of Covid. Oxford Business Law Blog.}

https://www.law.ox.ac.uk/business-law-blog/blog/2020/05/corporate-social-responsibility-times-covid

8_{Bernardová, D., Ivanová, K., Vitoslavská, M., & Rudolfová, M. (2020). Integral Andragogy as the Selected Driving Force of the CSR}

Development in the twenty-first century. Social Responsibility and Corporate Governance, (pp. 209–248). https://doi.org/10.1007/978-3-030-44172-2_7

9_Carroll, _A. _B. _(2009). _A _History _of _Corporate _Social _{Responsibility.} _Oxford _Handbooks _Online.

https://doi.org/10.1093/oxfordhb/9780199211593.003.0002

10_{Vveinhardt, J., & Zygmantaitė, R. (2015). Influence of CSR policies in preventing dysfunctional behaviour in organizations. Procedia:} social and behavioral sciences. Oxford: Elsevier Ltd, 2015, vol. 205.

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Page 5 of 33 the negative or positive sense? How do larger and smaller companies perform in terms of CSR practice (if any) during the COVID-19 crisis? How can CSR strategies address the risks arising from the COVID-19 pandemic and how effective are they?

On jurisdictions, this paper discusses CSR practices in the context of Europe including both the European Union (EU) and the United Kingdom (UK). Despite Brexit, this would still be the case in the transitional period and in the near future. The UK’s economic relationship with the European Continent is and will continue to be close and the English corporate practice is noteworthy. For multinational companies (MNCs), CSR practices may involve a global strategy throughout the organization worldwide11_{and thus corporate practice from} several non-European countries, for example, the United States (the US), will be compared to offer some insights and suggestions. For companies in general, and in particular, small and medium sized enterprises (SMEs), the focus is still on the European and English jurisdictions so that local standards will not be neglected.

2 CSR and COVID-19 2.1 Definition

There have been various interpretations of the legal discourses regarding CSR globally, and expansive rather than accumulative knowledge12_{reflecting different expectations, values,} and accountability mechanisms. As a classical definition, CSR is referred to as “any ‘responsible’ activity that allows a firm to achieve a sustainable competitive advantage, regardless of motive”13_{. The World Business Council for Sustainable Development defines} CSR as business’ continuing commitment to behave ethically and to contribute to economic development. Such reference also requires the quality of life of the workforce and their families, the local community and society at large be improved as well14_{. There are}

11_{Muller, A. (2006). Global Versus Local CSR Strategies. European Management Journal, 24(2–3), 189–198.}

https://doi.org/10.1016/j.emj.2006.03.008

12_{Crane, A., McWilliams, A., Matten, D., Moon, J., & Siegel, D. S. (2009). The Oxford Handbook of Corporate Social Responsibility} (Oxford Handbooks) (Illustrated ed.). Oxford University Press. https://doi.org/10.1093/oxfordhb/9780199211593.001.0001

13_{McWilliams, A., & Siegel, D. S. (2011). Creating and capturing value: Strategic corporate social responsibility, resource-based theory,}

and sustainable competitive advantage. Journal of management, 37(5), 1480-1495.

14_{Micheal, B. (2003): “Corporate Social Responsibility in International Development: An Overview and Critique”. Corporate Social} Responsibility Environmental Management, Vol 10(3), 115-128.

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prescriptive (normative) and descriptive (in the sense of seeking to explain) definitions and

little consensus has been reached. Fordham & Robinson (2018) concluded that CSR is a multidimensional construct15_{. In the context of COVID-19 crisis in Europe, the concepts} around CSR should also differ and develop from previous discourses.

However, some common denominators of CSR could be drawn so that a working definition could be used to start the discussion of CSR practice in this paper. As mentioned earlier, this paper adopts a relatively broad definition of CSR to cover any socially responsible corporate action. For example, Rahman summarized 10 major dimensions of CSR16_in history and Carlo distinguishes three groups of CSR theories17_{in the history of legal} discourse, which together could be used as a good basis for further analysis. The common denominators, such as compliance, stakeholders, environment, and society, will be discussed in the following scenarios as different aspects of CSR practice. The different CSR aspects carry with different weight and some of them may even be sacrificed during COVID-19 pandemic when companies are particularly vulnerable regarding their survival and resilience. Just like a tree in a storm in which some parts may fall off while some remain attached to the tree, a company’s CSR practice may prioritize liquidity and operation as well as internal stakeholders over the surrounding society.

Thus, the metaphor of a tree could be used to describe and define the CSR strategy in a more organized and vivid way. Imagine a CSR practice adopted by a company is a tree that is composed of various parts (different CSR aspects such as stakeholders, environment,

15_{Fordham, A. E., & Robinson, G. M. (2018). Mapping meanings of corporate social responsibility an Australian case study.} International Journal of Corporate Social Responsibility, 3(14).

16_{They are (1) obligation to the society; (2) stakeholders’ involvement; (3) improving the quality of life; (4) economic development; (5)}

ethical business practice; (6) law abiding; (7) voluntariness; (8) human rights; (9) protection of environment; (10) transparency and accountability.

See Rahman, S. (2011). Evaluation of definitions: ten dimensions of corporate social responsibility. World Review of Business

Research, 1(1), 166-176.

17_{They are (1) equilibrium theory; (2) stakeholder theory; and (3) theory of common good. Equilibrium theory refers to economic,}

financial and monetary equilibriums, which are oriented towards the continuity and growth of a company including its long-term profitability, assets and liability, as well as liquidity. Under the stakeholder theory, the corporate satisfies the interests of stakeholders from an ethical perspective. The theory of common good provides that in the long run, safeguarding the survival and growth of the firm is the right thing to do in the interest of all stakeholders and the community.

See Di Carlo, E. (2019). The Real Entity Theory and the Primary Interest of the Firm: Equilibrium Theory, Stakeholder Theory and Common Good Theory. Accountability, Ethics and Sustainability of Organizations (pp. 3–21). Springer International Publishing. https://doi.org/10.1007/978-3-030-31193-3_1

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Page 7 of 33 society, ethical business practice, and compliance). Some parts (for example, roots) often lie below the surface of the soil (‘embedded’) to reach for minerals and water for the tree's growth. Likewise, ‘embedded’ CSR depends on a company’s core competencies and integrates CSR within a firm’s strategy, routines and operations18_{. Some parts (for example,} branches) provide the support to distribute the leaves efficiently for the tree and the environment, and thus could refer to ‘peripheral’ CSR, which is not integrated into the daily strategy, operations and routines of the company but can fulfill common good purposes and create shared values for both the company and society19_{. Just like a tree that consists of} various parts with different functions and weight, a CSR practice can be reflected in different embedded and/or peripheral strategies.

The storm of COVID-19 has led to serious social problems for many families and significant liquidity and survival problems for companies. On the one hand, certain unique circumstance arising from the storm (for example, state aid) could arguably strengthen the tree while the others would affect it in the other way (for example, non-compliance and profiteering). On the other hand, a stronger tree with particular features could survive the storm. As Matshona Dhliwayo said, “it is only during a storm that a tree knows how strong it is.” Furthermore, resilience of big and small trees differs during a storm and this is equally true for large and small companies. Although CSR practice is traditionally developed and maintained by larger companies, there is a growing trend that SMEs are playing significant roles in their social and environmental impact. And this has been reflected in a growing number of initiatives on engaging SMEs in the CSR agenda20_{. This paper is based on the} assumption that smaller companies are “little big companies” that CSR strategies in large companies could scaled down to fit them21_{. The risks from COVID-19 posed for CSR} practice have endangered large and small companies in different aspects and extent. The

18_{Aguinis, H., & Glavas, A. (2013). Embedded versus peripheral corporate social responsibility: psychological foundations. Industrial} and Organizational Psychology, Vol. 6 No. 4, pp. 314-332. doi: 10.1111/iops.12059.

19_{Aguinis, H., & Glavas, A. (2013). Embedded versus peripheral corporate social responsibility: psychological foundations. Industrial} and Organizational Psychology, Vol. 6 No. 4, pp. 314-332. doi: 10.1111/iops.12059.

20_{Jenkins, H. (2006). Small Business Champions for Corporate Social Responsibility. Journal of Business Ethics, 67(3), 241–256.}

https://doi.org/10.1007/s10551-006-9182-6

21_{Tilley, F. (2000). Small firm environmental ethics: how deep do they go? Business Ethics: A European Review, 9(1), 31–41.}

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Page 8 of 33 following parts will discuss three typical scenarios, namely, non-compliance, state aid, and profiteering. Challenges and performances in CSR practice will be evaluated respectively for larger and smaller companies during the storm of COVID-19 crisis.

2.2 Scenarios

2.2.1 Non-compliance

Obviously, COVID-19 pandemic has triggered a health risk to everyone. Shareholders, directors, employees and customers are all human beings, and are vulnerable to the virus that causes COVID-19 despite their ages22_{. All stakeholders of a company may face the risk} of loss of human life and sickness. To address the emergent health issue, national governments in Europe have promulgated their respective COVID-19 legislations, regulations and measures to ensure their nationals’ health and wellbeing. In particular, lockdown policies, travel restrictions and quarantine measures are commonly placed in the Continent and the UK in order to prevent the transmission of the virus. However, this could be a disaster for certain groups of companies during the pandemic. Because face-to-face economic activities are restricted, some companies which rely heavily on physical operation, such as hotel and catering industry, may be unable to continue operating as a going concern due to the current COVID-19 pandemic.

In normal times, CSR strategies adopted by large companies can be enforced in accordance with their internal corporate code or industry code and standards. And this may be regarded as a form of private governance, which is mainly conducted through reporting, inspection and auditing by other private authorities23_{. Despite criticisms on the effectiveness of} privatization of governance, it at least offers a regime of enforcement and non-compliance may lead to internal discipline and goodwill impairments. Due to the scale difference in economies, MNCs generally possess more resources to face up to the COVID-19 challenges compared to SMEs. In addition to abiding law as the bottom line of strategies, ethical aspects of CSR codes within large companies can arguably survive the COVID-19 storm, as reflected in many examples where MNCs have been actively donating medical sources and

22_{W.H.O. (2020, March 11). Coronavirus disease 2019 (COVID-19) Situation Report – 51.}

https://www.who.int/docs/default-

source/coronaviruse/situation-reports/20200311-sitrep-51-covid-19.pdf?sfvrsn=1ba62e57_10#:~:text=The%20virus%20that%20causes%20COVID,provisions%20and%20social%20care.

23_{Levy, D., & Kaplan, R. (2008). CSR and theories of global governance: strategic contestation in global issue arenas. The Oxford} handbook of CSR, 432-451.

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Page 9 of 33 equipment around the world. However, smaller companies may lack such ethical CSR strategies and the corresponding enforcement regime except for some bottom-line CSR aspects, i.e. law-abiding. During COVID-19 pandemic when the survival of a SME is significantly challenged, their CSR strategies (if any) may be less effective than those in normal times. Sometimes, even the law-abiding aspects may be challenged in SMEs that may lead to non-compliance problems.

There is a typical scenario regarding non-compliance with of SMEs with government lockdown measures. In the Netherlands, the Dutch government has placed a partial lockdown policy since October 2020, imposing and maintaining bans on events, and requiring that restaurants, bars and cafés remain closed. As of early January 2021, it was expected that the government will extend such lockdown policy because the infection rate was still high. A collection of entrepreneurs in the hospitality industry in December 2020 claimed that their bars, restaurants and cafes will open to the public on 17 January 2021, regardless of whether the current partial lockdown will be lifted by then. Although their companies may run the risk of non-compliance with the government measure, some entrepreneurs argue that their businesses are on the verge of death, claiming their choice is either “opening or going bankrupt”24_{. This may be because for small restaurants, bars and} cafés, their profits and cash chain rely heavily on customers. Although take-aways were allowed to stay open, they have experienced a sharp drop of customers during lockdown period while the rent has to be paid as usual. Taking into account of other operational costs, SMEs’ such as small cafes and restaurants run high risks of bankruptcy. The non-compliance scenario is not unique to the Netherlands, as Spain, Italy and other countries across the EU also have experienced protest from bar and restaurant stakeholders25_{. This} needs to be paid great attention from both an academic and practical perspectives. As

24 _{NL Times. (2020, December 2). Some restaurants, bars to defy Dutch ban and will re-open January 17.}

https://nltimes.nl/2020/12/02/restaurants-bars-defy-dutch-ban-will-re-open-january-17

DutchNews.Nl. (2021, January 6) Lockdown may be extended, and British variant takes hold at a primary school. https://www.dutchnews.nl/news/2021/01/lockdown-may-be-extended-as-british-variant-takes-hold-at-a-primary-school/

25_{Demony, C. M. P. (2020, November 14). “Can’t take any more”: Lisbon’s bar, restaurant workers protest amid COVID-19 rules.}

Reuters. https://www.reuters.com/article/us-health-coronavirus-portugal-restauran-idUSKBN27U0KA

Euronews. (2020, October 28). Shop and restaurant owners in Italy protest coronavirus restrictions. https://www.euronews.com/2020/10/28/shop-and-restaurant-owners-in-italy-protest-coronavirus-restrictions

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Page 10 of 33 Deloitte analyzed, there is little hope for a quick V-shaped recovery for European business and the recent implied equity risk premium is around 200 bps above the pre-crisis level26_. According to Bloomberg, COVID-19 pandemic has hit European companies hard, with 70% reporting lower revenues and over half of European small and medium-sized enterprises may have to file for bankruptcy next year if their revenues don’t improve27_.

Even though large companies usually have more resources to mitigate COVID-19 risks for compliance, there is one scenario about large companies’ non-compliance with transparency, or failure to meet the corporate disclosure requirements. In the EU, certain companies are required to meet their ongoing disclosure obligations under the Market Abuse Regulation (MAR) in the ordinary course reporting to the market as well as in the prospectus. Despite the ongoing COVID-19 pandemic, in the UK, the Financial Conduct Authority (FCA) expects issuer companies to continue to comply with the disclosure obligations under the MAR, and the FCA’s Disclosure and Transparency Rules, although slight delays to reporting disclosures in the short term can be acceptable. The European Securities and Markets Authority (ESMA) also requires European issuers to continue meeting the ongoing disclosure obligations28_{. However, large companies have also been experiencing difficulties} in satisfying such disclosure obligations in a timely fashion or in a satisfied standard, as their auditors may be unable to complete the preparation of financial statements and audit work within the prescribed period due to the containment measures in response to the COVID-19 emergency.

Furthermore, large companies’ CSR practice has been traditionally criticized for the threat of greenwashing29_{. And it is still highly doubted that whether compliance with their CSR} strategies is effective during COVID-19, which is further mingled with proposals that state

26_{Tešanović, M. (2020, May 20). Little hope for a quick V-shaped recovery. Deloitte.}

https://www2.deloitte.com/hr/en/pages/about-deloitte/articles/utjecaj-covid-19-na-procjene-vrijednostii-poduzeca-EU.html

27_{Meakin, L. (2020, October 22). Half of Europe’s Smaller Businesses Risk Bankruptcy Within Year. Bloomberg Economics.}

https://www.bloomberg.com/news/articles/2020-10-22/half-of-europe-s-smaller-businesses-risk-bankruptcy-within-year

28_{European Securities and Markets Authority. (2020, March 27). ESMA issues guidance on financial reporting deadlines in light of.}

https://www.esma.europa.eu/press-news/esma-news/esma-issues-guidance-financial-reporting-deadlines-in-light-covid-19

29_{Cherry, M. A., & Sneirson, J. F. (2010). Beyond Profit: Rethinking Corporate Social Responsibility and Greenwashing After the BP}

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Page 11 of 33 aid could be traded for better CSR strategies. This is further discussed in the next section on state aid.

2.2.2 State aid

The aforementioned non-compliance issue of SMEs during COVID-19 pandemic can be mitigated by state aid measures to some extent. For example, their risks of bankruptcy could be effectively lowered by a one-off payment around 2,500 euros, the national wage support scheme and compensation for fixed costs30_{. On the other hand, SMEs may also actively} adopt some CSR strategies to tackle the unique challenge brought by COVID-19, which will be discussed in Section 3.1 (Non-Compliance). However, there are CSR-related issues with state aid itself that need to be evaluated in more details.

As the COVID-19 pandemic is bringing unique challenges to business and economy, the European Commission and national governments of Europe have adopted measures to mitigate the commercial risks and to help business entities survive the storm. Almost all Member States of the EU are drawing on the state budget to implement aid packages and emergent measures mainly aimed at their citizens and companies which are most affected by this situation. This has been justified by the European Commission’s Temporary Framework to state aid schemes which ensure companies’ access to liquidity and finance, and at preserving employment. For example, the Dutch government has decided to provide a further €3.7bn aid packages to run until March 2021 in addition to the €34bn which has already been allocated to assisting companies last year31_{. Some of the state aid packages} will be provided to the most stricken sectors by the pandemic, such as the travel, hospitality and tourism industries. State aid could help ease the imminent pressure to those most vulnerable businesses.

However, there has been a heated discussion on the relationship between state aid and CSR - whether all types of companies can get subsidies, and in particular, whether MNCs should

30 _{NL Times. (2020, December 2). Some restaurants, bars to defy Dutch ban and will re-open January 17.}

https://nltimes.nl/2020/12/02/restaurants-bars-defy-dutch-ban-will-re-open-january-17

DutchNews.Nl. (2021, January 6) Lockdown may be extended, and British variant takes hold at a primary school. https://www.dutchnews.nl/news/2021/01/lockdown-may-be-extended-as-british-variant-takes-hold-at-a-primary-school/

31_{Dutch News. (2020b, December 9). Government allocates an extra €3.7bn to help industry, extends support package. DutchNews.Nl.}

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Page 12 of 33 ask for state aid due to COVID-19 pandemic. Furthermore, when it comes to allocation of state aid package, it remains unclear whether state aid should prioritize companies with more or better CSR practice.

For example, under the first rescue plan of the Netherlands, a company could seek subsidies from the Dutch government as much as 90% of its staff wages for three months if the revenue has fallen by more than 20% due to the COVID-19 crisis32_{. The hotel giant,} Booking.com, incurred a loss of around €700m in the first quarter of 2020, and thus it sought state aid to pay its staff wages in the first round of state payment. However, Booking.com has been heavily criticized given that the company had made a profit of $4.9bn in 2019 and that granting subsidies to Booking.com is “privatizing the profits and socializing the losses”. On the other hand, the company argued that it is doing everything to weather the COVID-19 crisis, including state aid, layoffs, and freezing recruitment. Some also claim that Booking’s employees should not be penalized during COVID-19 storm for its shareholders’ actions in the past33_.

But according to the third amendment to the Temporary Framework of 19 March 2020, it was the SMEs that were eligible for government support if they have been in financial difficulties. The aiding scope has not been extended to larger companies in the fourth amendment to the Temporary Framework, under which access to the aid measures remains in the hands of micro and small enterprises. The answer remains unknown whether restriction of state aid to SMEs could actually boost CSR practice in the European context. The non-compliance problem with CSR strategies has become more complicated when state aid comes into play. There are calls that state aid could trade for CSR strategy of sustainability. In the middle of COVID-19 pandemic, there are observations from legal professionals that the current state aid framework is actually designed towards sustainability

32_{Ministerie van Economische Zaken en Klimaat. (2020, April 14). Coronavirus: Dutch government adopts package of new measures} designed to save jobs and the economy. News Item | Government.Nl. https://www.government.nl/latest/news/2020/03/19/coronavirus-dutch-government-adopts-package-of-new-measures-designed-to-save-jobs-and-the-economy

33_{Dutch News. (2020, May 22). Booking.com won’t ask for more wage subsidies, looks to long term answers. DutchNews.Nl.}

https://www.dutchnews.nl/news/2020/05/booking-com-wont-ask-for-more-wage-subsidies-looks-to-long-term-answers/

Munsterman, R. (2020, April 24). Booking.com’s Call for Help Draws Dutch Outcry, Policy Rethink. Bloomberg News. https://news.bloombergtax.com/daily-tax-report/booking-coms-call-for-help-draws-dutch-outcry-policy-rethink

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Page 13 of 33 and the regime has made significant contributions to facilitate green investments34_{. The} European Commission has announced that 37% of the COVID-19 recovery fund will be exclusively spent for the green transition35_{. However, the greenwashing problem could not} be easily resolved. Companies may brand themselves as green images in order to get state aid without genuine contributions to environmental protection and sustainability. Absent from effective supervision and disciplinary regimes, corporate credibility and CSR practice could be undermined by greenwashing.

2.2.3 Profiteering

Even though companies could in fact comply with the lockdown measures and get appropriate access to the state aid, there are risks of profiteering arising from the COVID-19 pandemic in the European market, which would pose a challenge to CSR practice. This is more commonly seen in corporate activities by SMEs that they can be quite adaptive to the changing market opportunities in COVID-19 crisis. Although the swift adjustment of their business capacities could help mitigate risks of non-compliance by maintaining cash flow and profits, there is another risk of profiteering by SMEs in the volatile market since the COVID-19 crisis.

Profiteering can be taken in two forms, unethical and illegal. Due to the disruption of supply chain and thus supply shortages in the higher-demand market during COVID-19, in the way of profiteering, some companies have raised prices of healthcare and sanitary products, as well as some essential goods. In this respect, legitimate pricing practices should be distinguished from illegitimate ones. Illegitimate profiteering is more likely to be dealt with by competition enforcers with evidence of collusive or exclusionary practices, and this may fall within the sphere of competition law. Legitimate pricing could be acceptable from a legal perspective as well as for the purpose of corporate survival and resilience to the pandemic. In this paper, the focus is on legitimate profiteering that refers to unfair raising of prices, or pricing gouging. For the ease of reference, this paper will adopt the terminology

34_{Linklaters LLP. (2021, November 23). A State aid rulebook tailored to the Green Deal – An offer the European Commission can’t} refuse. Linklaters Blog. https://www.linklaters.com/en/insights/blogs/linkingcompetition/2020/november/a-state-aid-rulebook-tailored-to-the-green-deal-an-offer-the-european-commission-cant-refuse

35_{Taylor, K. (2020, December 18). EU agrees to set aside 37% of recovery fund for green transition. Www.Euractiv.Com.}

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Page 14 of 33 of ‘profiteering’. The label in such scenario is not simply described as price increases, rather, it implies a strong ‘negative moral valence’36_{The typical scenario of profiteering can be} presented as follows. During the COVID-19 storm, prices for sanitary and healthcare products such as surgical masks and N95 respirators, are likely to increase due to the surge in demand. It was reported that Amazon and other online retailers were publicly criticized for permitting price gouging in their online marketplaces at the beginning of the COVID-19 pandemic. Such situation even persisted six months later that the prices for hand sanitizers, disinfectant wipes and digital thermometers listed on Amazon were two to fourteen times higher than those at other retailors, although Amazon stressed its commitments to its fair pricing policy in April 202037_.

Under the equilibrium theory, a company must serve its shareholders, creditors and other relevant stakeholders who are connected to its economic, financial and monetary equilibriums. The profiteering practice could be justified in certain circumstances. Profiteering can be effective to promote companies’ resilience to the COVID-19 storm, because in the short term, the equilibriums could be achieved simultaneously for the survival of the company during COVID-19 crisis and the possibility of growth could be maintained. This is especially the case for companies in the supply chain of face masks and respirators and they have performed even better in operation and business. According to a report published by Fortune Business Insights, the market for surgical masks and respirators was worth US$2.15 billion in 2019 and expect a CAGR of 8.5% during 2020 to 202738_{. While} the COVID-19 emergency creates a temporary increase in the pricing power of suppliers of face masks and respirators, the resulting shift can be explained by the market rules, i.e. demand and supply curve, without any unfair manipulation of the market. From the perspective of the dynamic functioning of the free market, the price increases should be allowed and the market itself can maintain and make adjustments. And it is fair for such

36_{Snyder, J. (2009). What's the matter with price gouging? Business Ethics Quarterly, 19(2), 275-293.}

37_{Brombach, G. (2020, September 9). Six months into the COVID-19 pandemic, price gouging persists on Amazon. U.S. PIRG.}

https://uspirg.org/news/usf/six-months-covid-19-pandemic-price-gouging-persists-amazon

38_{Fortune Business Insights. (2020, April). Medical Mask Market Size, Share & Industry Analysis, By Type (Surgical Mask, Respirators,} and Others), By Distribution Channel (Hospital Pharmacies, Retail Pharmacies, and Online Pharmacies), and Regional Forecast, 2020-2027. https://www.fortunebusinessinsights.com/medical-mask-market-102703

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Page 15 of 33 suppliers to get some extra profit following the pandemic as reward for their efforts and risks undertaken in the volatile market affected by COVID-1939_.

Although lawful, profiteering sometimes goes against ethical business practice because it only takes into account of short-term profits rather than long-term relationship with external stakeholders, the environment, or the society. The question arises whether companies could profit while holding themselves to be socially responsible persons during the COVID-19 pandemic. Given the voluntary feature of many CSR strategies, it is necessary to discuss to what extent that CSR practice has been sacrificed for the economic interests and how effective that CSR could tackle the issue of legitimate profiteering.

3 Review of the CSR Tree

The strength of a tree can be tested during a storm. The following parts will evaluate the performance and effectiveness of CSR practice in the storm of COVID-19 crisis in Europe. As said, the relationship is mutual between the CSR practice and the unique scenarios arising from COVID-19 crisis. The scenarios may affect CSR practice in the negative or positive sense, and CSR practice could contribute to mitigating the business risks from the pandemic while its deficiencies and ineffectiveness could remain. As larger and smaller companies perform differently in terms of CSR practice during the COVID-19 crisis, this will be discussed respectively.

3.1 Non-compliance

The following section will first discuss non-compliance of SMEs with lockdown measures, which is further divided into mandatory and voluntary CSR regimes. Non-compliance of large companies in terms of disclosure requirement will be reviewed in the second place.

3.1.1 Non-compliance with lockdown measures

Ethical CSR strategies lie between mandatory compliance with economic and legal regime40_. As a basic rule, corporates have to comply with the law, which has always been a

39_{Snyder, J. (2009). What's the matter with price gouging? Business Ethics Quarterly, 19(2), 275-293.}

40_{Windsor, D. (2006). Corporate Social Responsibility: Three Key Approaches. Journal of Management Studies, 43(1), 93–114.}

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Page 16 of 33 precondition and acknowledged as a minimum CSR41_{. Compliance with the law can be a} powerful tool to contain the effects of the COVID-19 pandemic on health, economy and society. And this has proved to be effective in reducing and preventing the virus transmission though lockdown policies and measures.

In the scenario of non-compliance with the government measure, catering and hospitality businesses run the risk of either opening or going bankrupt as mentioned in Section 2.2.1. During the COVID-19 pandemic, the survival concern of small or medium businesses in the hospitality industry come into conflict with the current government measure, and thus law-abiding may be unfair to them in the absence of flexible operation strategies or governmental subsidies. Faced with the threat of civil disobedience, CSR strategies in terms of compliance with local rules seem to be ineffective in this regard.

Law-abiding relies on implementation of laws and regulations on the state and EU levels. Emergency issues such as the COVID-19 pandemic pressure on governments to update old laws, and the established principles of statute law need to be interpreted, clarified and re-applied. All leads to the need for new laws and updated interpretations. For example, the UK issued the Coronavirus Act 2020 (c. 7) to empower the government to deal with the pandemic in details. However, the legal system of CSR in Europe can be seen as incomplete, and there are regulation gaps and implementation deficits. Promulgation of rules and regulations requires multilateral coordination at both the EU level and the level of Member States, and ad hoc consent and collective action are hard to achieve and fragile. As observed by Gelter, European corporate law in this regard are still optional, market-mimicking, unimportant, or avoidable and harmonization is hard to achieve42_{. Besides, each Member} State has its unique history, culture and tradition, and the outbreak of COVID-19 happened at different points in time with different intensity43_{. Even if the governmental measures}

41_{Scherer, A. G., & Palazzo, G. (2008). Globalization and corporate social responsibility. The Oxford Handbook of Corporate Social}

Responsibility, A. Crane, A. McWilliams, D. Matten, J. Moon, D. Siegel, eds., pp. 413-431, Oxford University Press, 2008, Available at SSRN: https://ssrn.com/abstract=989565

42_{Gelter, M. (2018). EU company law harmonization between convergence and varieties of capitalism. In Research Handbook on the} History of Corporate and Company Law. Edward Elgar Publishing. https://www.elgaronline.com/view/edcoll/9781784717650/9781784717650.00020.xml

43_{Eidenmüller, H. (2020, March 31). The Race to Fight COVID-19: On the Desirability of Regulatory Competition. Research |}

University of Oxford. https://www.research.ox.ac.uk/Article/2020-03-31-the-race-to-fight-covid-19-on-the-desirability-of-regulatory-competition

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Page 17 of 33 addressing COVID-19 can be categorized as law in general, they may seem to be unfair to some companies such as restaurants and hotels that run high risks to lose partial or even full profitability compared to that in the normal times. The compliance problem may not be effectively resolved by rules and regulations at the state or the EU level, as there have been risks of civil disobedience from SMEs against lockdown measures in Member States. From perspectives of external stakeholders and the society, ethical CSR practice is expected beyond mandatory legal compliance. Therefore, in addition to law-abiding requirements, CSR practice could arguably be regarded as desirable philanthropy (prudent or voluntary)44_. To some extent, voluntary CSR practice can remedy the deficiencies of law abiding. ‘Voluntary’ means non-obligatory and CSR initiatives are adopted by individual companies. For example, restaurant businesses may choose to change their business models while awaiting further clarity from the government, from physical dining to delivery services in order to comply with the law. It is even proved that companies can be more resilient if they transform towards more inclusive business models45_{. In the coffee sector, advice could be} managing risks on receivables and inventory, offering various preparations, maintaining sufficient working capital, diversifying income, quality control, increasing the spread of clients, and improving digital marketing46_{. It is recognized that SMEs can be very adaptive} to the changing market opportunities in COVID-19 by quickly adjusting the trading capacities according to circumstances47_{. For example, café shops and small restaurants} could rapidly take advantage of new niche markets for personal hygiene equipment (for example, masks and sanitizers) which also incorporate social benefits in value.

However, the effectiveness of voluntary corporate actions is questioned. By its nature, the voluntary CSR activities lack legal accountability and clarity. Rather, they rely on

44_{Windsor, D. (2006). Corporate Social Responsibility: Three Key Approaches. Journal of Management Studies, 43(1), 93–114.}

https://doi.org/10.1111/j.1467-6486.2006.00584.x

45_{Linz, C. (2020, November 9). How to transform your business model for a post-COVID future. World Economic Forum.}

https://www.weforum.org/agenda/2020/11/transform-business-model-post-covid-future/

46_{CBI - The Ministry of Foreign Affairs of the Netherlands. (2020). How to respond to COVID-19 in the coffee sector.}

https://www.cbi.eu/market-information/coffee/how-respond-covid-19-coffee-sector

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Page 18 of 33 regulation through internal codes of conduct48_{. In terms of compliance with the internal} codes of SMEs themselves, it is argued that they are far less effective. The most common corporate structure of SMEs is the concentration of ownership and management to a small group of persons. The corporate behaviour of SMEs is usually regarded as psychological entrepreneur in the sense that they tend to possess a personalized characteristic of management and operation. Compared to large companies, SMEs are less responsive to external pressure on CSR practice from government institutions, competitors, external stakeholders, the environment and the society49_{. Moreover, it is highly doubted that CSR} strategies are scaled to a minimal degree for small cafes and restaurants, which may be deemed as non-existing.

In sum, companies can decide how to be socially responsible at their own discretion, instead of focusing on the requirements of external stakeholders, the environment, and the surrounding society. This may limit the effectiveness of voluntary CSR practice. In the most infectious industry, the loss in profits of restaurants, bars and other hospitality and leisure businesses due to the compulsory closure of premises may not be easily mitigated by adopting new business models. There are still risks that companies may protest against and even violate the government measures during the COVID-19 storm.

3.1.2 Non-compliance with transparency rules

The Directive 2014/95/EU, also called the non-financial reporting directive (the Directive), requires larger companies to report on substantial non-financial aspects. Under the Directive, the formulation of CSR policies is left to the individual company but the company is obliged to publish a self-commitment to its policy and to explain a possible non-compliance (‘comply or explain’). From the current picture, there is no explicit mentioning of addressing any health, economic, or social risks caused by COVID-19 alike emergencies. As of January 2021, the European Commission is still revisiting the Directive for a renewed sustainable finance strategy under which companies should priorities key stakeholders’ long-term

48_{Tamvada, M. (2020). Corporate social responsibility and accountability: a new theoretical foundation for regulating CSR.} International Journal of Corporate Social Responsibility, 5, 1-14.

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Page 19 of 33 interest. It is unclear when a revised Directive will come into force and even more unpredictable for the timeline for the implementation at the state level. Therefore, the current situation is that the EU and national legislatures are still lacking specific and detailed rules on disclosure requirement for large companies during the COVID-19 storm.

Transparency is a key condition to implement a CSR policy50_{. A transparent corporate} discloses information in a way that its stakeholders can have a proper insight into the issues which are relevant for them51_{. The COVID-19 storm has brought various economic risks,} and in particular, restricted corporate cash flows and tightened global liquidity constraints. The pandemic also negatively affects the transparency practice of large companies.

But CSR practice of transparency could tackle the economic risks from the COVID-19 crisis. Through CSR disclosure transparency, the liquidity of equity market improves because such strategy acts to reduce information asymmetry, ultimately making financial markets more equitable52_{. Research also shows that companies with more transparent CSR disclosure} strategies presents improvements in equity market liquidity53_{. Although companies run the} risk of non-compliance with disclosure requirements due to the COVID-19 emergency, the CSR strategy relating to transparency should not be overlooked. Making accurate disclosures is significant to investor protection and the market order, companies should ensure that proper internal training, coordination with stakeholders and effective communications are in place54_.

However, as illustrated in the scenario of non-compliance with disclosure requirements, CSR action in terms of transparency can be ineffective. Supervision on managers functions

50_{Dubbink, W., Graafland, J., & Van Liedekerke, L. (2008). CSR, transparency and the role of intermediate organisations. Journal of} business ethics, 82(2), 391-406.

51_{Kaptein, M., & Wempe, J. F. (2003). The Open Company. De Open Onderneming (ERIM, Erasmus University Rotterdam)} 52_{Egginton, J. F., & McBrayer, G. A. (2019). Does it pay to be forthcoming? Evidence from CSR disclosure and equity market}

liquidity. Corporate Social Responsibility and Environmental Management, 26(2), 396-407. https://onlinelibrary.wiley.com/doi/pdf/10.1002/csr.1691?casa_token=eqz6MCt78V0AAAAA:_ThxajepooUnqC-BEKWs-L_9Gbw7Su-yT2iNVjkPK-wfPSXvGVSnLJFGaoZC34a6qYDIn56rLcspBZim

53_{Egginton, J. F., & McBrayer, G. A. (2019). Does it pay to be forthcoming? Evidence from CSR disclosure and equity market}

liquidity. Corporate Social Responsibility and Environmental Management, 26(2), 396-407. https://onlinelibrary.wiley.com/doi/pdf/10.1002/csr.1691?casa_token=eqz6MCt78V0AAAAA:_ThxajepooUnqC-BEKWs-L_9Gbw7Su-yT2iNVjkPK-wfPSXvGVSnLJFGaoZC34a6qYDIn56rLcspBZim

54 _{Summerfield, R. (2020, August). Disclosure issues in a COVID-19 context. Financier Worldwide Magazine.}

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Page 20 of 33 as a check on the board. However, such check can be difficult to achieve due to the health and economic risks from the COVID-19 pandemic on companies. In the time of economic uncertainty, managers may make decisions with a short-term sight, for example, underinvestment, decrease in capital investment, decease in research and development55_, which will also hurt CSR practice regarding transparency. In Europe, many companies with concentrated ownership are family entrepreneurship in nature. This will also pose a threat to CSR action in transparency because there may be a conflict of interests between the CEO and the majority owners.

The European Commission also has spotted the transparency issue in the Directive during public consultation in 2020. Key issues found are as follows, which could make CSR practice ineffective. The current information required to be disclosed is not sufficiently comparable or reliable; Not all non-financial information that investors need will be reported; It is difficult for companies to determine which non-financial information to be disclosed and how and where to report on it56_{. However, the European Commission has not} yet taken any decisions about on the future revision of the Directive regarding non-financial reporting standards. Therefore, the situation remains unclear whether CSR practice of transparency could be effectively enforced in large companies.

3.1.3 Sub-conclusion

The CSR practice is voluntary in nature, and thus lacks legal accountability and clarity. This is equally true in the time of COVID-19 pandemic, in which the most infectious industry, small restaurants and café shops due to the compulsory closure of premises may not easily mitigate their business risks by adopting new and flexible business models. There are still risks that SMEs may protest against the government measures during the COVID-19 storm. Large companies, on the other hand, could be faced with risks of non-compliance with transparency requirements. Compliance with such may not be effectively enforced due to lack of clear disclosure regime in Europe.

3.2 State aid

55_{García-Sánchez, I. M., Araujo-Bernardo, C.A. What colour is the corporate social responsibility report? Structural visual rhetoric,}

impression management strategies, and stakeholder engagement. Corp. Soc. Responsib. Environ. Manag. 2020, 27, 1117–1142.

56_{European Commission. (2020). Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive.}

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12129-Revision-of-Non-Financial-Reporting-Directive/public-consultation

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Page 21 of 33 The following section will first discuss how state aid could promote CSR practice, in particular, in the field of sustainability and green economy. Secondly, the deficiencies and ineffectiveness of state aid will also be evaluated.

3.2.1 State aid boosting CSR practice

On whether MNCs should ask for state aid due to COVID-19 pandemic, proponents could find their grounds that state aid could promote CSR practice.

First, one underlying idea is that through state aid, large companies could effectively ensure and promote employee protection with stable pay. Granting state aid to Booking.com in the first round of rescue was intended to avoid the dramatic situation of unemployment in the US due to bankruptcy of large companies. This is in line with one aspect of CSR practice, i.e. employee protection. Under the equilibrium theory, economic, financial and monetary equilibriums are oriented towards the continuity and growth of a company including its long-term profitability, assets and liability, as well as liquidity57_{. As important stakeholders} of a company, employees could be regarded as the most important human assets for the business operation, and a company must serve its relevant stakeholders who are connected to its economic, financial and monetary equilibriums as well as the whole economy. For example, the Italian aid measures were granted to large companies which have experienced a severe revenue reduction in 2020. Aiding those companies is strategic to the recovery of the Italian economy and for the local labor markets58_.

Second, applying the stakeholder theory, state aid for MNCs could be justified on the idea that the company satisfies the interests of its internal stakeholders from an ethical perspective59_{. MNCs normally have CSR strategies incorporated into their corporate codes.} Compared to SMEs with concentrated ownership and management (personalized corporate practice subject to less external pressure), the management in MNCs exists in relationships with a variety of stakeholders and is pressured by its stakeholders. The thoroughness of CSR

57_{Di Carlo, E. (2019). The Real Entity Theory and the Primary Interest of the Firm: Equilibrium Theory, Stakeholder Theory and}

Common Good Theory. Accountability, Ethics and Sustainability of Organizations (pp. 3–21). Springer International Publishing. https://doi.org/10.1007/978-3-030-31193-3_1

58_{European Commission. (2020, September 17). State aid: Commission approves €44 billion Italian recapitalisation scheme to support} large companies affected by coronavirus outbreak. https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1668

59_{Di Carlo, E. (2019). The Real Entity Theory and the Primary Interest of the Firm: Equilibrium Theory, Stakeholder Theory and}

Common Good Theory. Accountability, Ethics and Sustainability of Organizations (pp. 3–21). Springer International Publishing. https://doi.org/10.1007/978-3-030-31193-3_1

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Page 22 of 33 strategies evolves to involve more internal and external stakeholders such as employees, creditors, suppliers, customers, and communities into the fold. Under the stakeholder theory, granting state aid to MNCs could bring positive outcomes in CSR practice, and in particular during the COVID-19 crisis. It is claimed that CSR can boost corporate immunity and resilience to the pandemic by building sound and loyal relationships with stakeholders. As a corporate is composed of explicit or implicit contracts between stakeholders, the trust that it establishes with vital stakeholders through CSR practices will in turn boosts their willingness to make adjustments to support the business during the storm of COVID-1960_. State aid will facilitate their investments towards employees, customers, suppliers, and the surrounding society, and the CSR practice of MNCs could be promoted by building loyalty and trust with their stakeholders with the subsidies.

Third, large companies, especially MNCs, usually come with more and well-maintained CSR strategies. Research has found that companies that participated more CSR activities before the outbreak of COVID-19 performed better in the stock market than their peers in the same industry61_{. Almost the same time with the COVID-19 pandemic, the Circular} Economy Action Plan, as part of the European Green Deal62_{, was published in March 2020,} which could be regarded as a major effort of the EU towards the transition to environmentally sustainable and carbon free economy. By promoting potential of digital technologies, European companies could facilitate its expansion of business, and collectively, companies will contribute to the circular economy, which will strengthen the industries, enhance innovation and boost entrepreneurship across the EU63_{. What’s more,} the enhancing effects of CSR practice of large companies brought by state aid are more easily found in societies with stronger preferences for CSR norms. The EU could be regarded as such a society with pro-CSR attitudes64_{. Granting state aid to large companies}

60_{Levine, R. (2020, May 5). Corporate Immunity to the COVID-19 Pandemic. The Harvard Law School Forum on Corporate}

Governance. https://corpgov.law.harvard.edu/2020/05/05/corporate-immunity-to-the-covid-19-pandemic/

61_{Levine, R. (2020, May 5). Corporate Immunity to the COVID-19 Pandemic. The Harvard Law School Forum on Corporate}

Governance. https://corpgov.law.harvard.edu/2020/05/05/corporate-immunity-to-the-covid-19-pandemic/

62_{European Commission. Communication No. 640, 2019. The European Green Deal; (COM no. 640, 2019); Commission of European}

Communities: Brussels, Belgium, 2019.

63_{European Commission. Communication No. 98, 2020. A New Circular Economy Action Plan for a Cleaner and More Competitive} Europe; (COM no. 98, 2020); Commission of European Communities: Brussels, Belgium, 2020.

64_{Ding, W., Levine, R., Lin, C., & Xie, W. (2020). Competition Laws, Norms and Corporate Social Responsibility. Norms and} Corporate Social Responsibility (May 20, 2020). Available at SSRN: https://ssrn.com/abstract=3605990

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Page 23 of 33 based on CSR thresholds could encourage them to invest more in CSR strategies in order to strengthen competitiveness in the internal market.

3.2.2 State aid forgoing CSR practice

In terms of allocation of state aid package, the current picture is that it remains unclear whether state aid should prioritize companies with more or better CSR practice. This paper generally assumes that MNCs have more or better CSR practice compared to SMEs. In contrast with proponents for MNCs to get state aid during the COVID-19 crisis state aid, opponents highly doubt whether state aid could effectively promote CSR practice. They could find grounds of objection as follows.

First, state aid would distort normal competition in the internal market, which is negative for mitigating COVID-19 risks and CSR practices as a whole. There is an idea that if companies are faced with financial risks or constraints (in the current case, the COVID-19 crisis), competition in the internal market could compel them to orient towards survival and resilience in a short term (e.g. workforce safety), even though long-term investments and expenditures including CSR strategies would be forgone for the time being. However, with state aid based on CSR thresholds during the pandemic, large companies need to further invest the subsidies in environmental protection and sustainability according to the objectives in the 2020 Action Plan. However, companies may be unable to cover the upfront operational costs in the supply chain aimed at improving workplace safety, or come across difficulties in obtaining state aid package to make such investments. This may trigger unethical corporate behavior. Large companies may be induced to compete against each other in terms of investment in green economy, while the problem of workforce safety and human rights of employees may be neglected and even worsened. Upfront operational costs may be reduced by abusing workers or pollution. With intensification of competition by state aid, other companies in the same industry without access to state aid could be driven out of business. From this view, state aid based on sustainability and green economy could

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Page 24 of 33 encourage companies to pay less attention on other important CSR thresholds, and to risk turning into socially irresponsible entities instead65_.

Second, CSR practice could be regarded as an inefficient use of corporate strategies for MNCs that could be ineffective to tackle the COVID-19 pandemic, or to create value for shareholders66_{. According to the equilibrium theory, the economic, financial and monetary} equilibriums should be achieved simultaneously for the survival of the company during the COVID-19 crisis and the possibility of growth could be maintained. State aid soley based on CSR thresholds could not contribute to shareholder value for large companies.

Third, state aid based on the CSR aspect of sustainability could be ineffective due to the deficiencies of CSR metrics, or even lead to social irresponsibility. Evaluation of CSR strategies of large companies is normally based on due diligence and disclosure report, in which external and independent consultancies and auditors will be involved. The tragedy of Rana Plaza factory in 2012 could be recalled here, where the well-established social audit report of the factory failed to disclose the poor CSR practice in reality and over 1,100 people died due to the accident-prone and poor safety standards. The tragedy suggests that the pressure for compliance with social standards has led the company to prioritize measurable standards over the socially-grounded needs of employees that were previously existing67_. Similarly, the pressure for measurements of CSR strategies in order to obtain state aid may prompt large companies to pursue upgrading of the supply chain through technological advancements but to forgo CSR aspects in terms of human rights, employee protection and others.

3.2.3 Sub-conclusion

In the European context where more stringent competition rules are imposed and CSR are favored in corporate practice, strengthening the competition power of large companies through state aid could further boost CSR practice and contribute to tackling the economic risks from the COVID-19 pandemic. Large companies with state aid during the pandemic

67_{Sinkovics, N., Hoque, S. F., & Sinkovics, R. R. (2016). Rana Plaza collapse aftermath: are CSR compliance and auditing pressures}

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Page 25 of 33 could effectively ensure and promote employee protection with stable pay, satisfy the interests of their internal stakeholders from an ethical perspective, and contribute to recovery of the economy and labor markets.

However, there are risks that state aid solely based on CSR thresholds, for example, sustainability and green economy, could distort normal competition in the internal market, play an inefficient role in mitigating COVID-19 risks and CSR practices as a whole, and even lead to social irresponsibility.

3.3 Profiteering

The following section will first discuss how companies could forgo CSR practice by profiteering in the middle of COVID-19 pandemic. Second, certain CSR practice will be evaluated with regard to the effectiveness to mitigate amoral profiteering. To what extent that CSR practice has been sacrificed by SMEs and large companies for the economic interests respectively? How effective that CSR practice could tackle the issue of legitimate profiteering?

3.3.1 Profiteering forgoing CSR practice

The amoral profiteering behavior of companies concerning surgical masks and respirators may be explained by short-sighted management decisions for a specific group within the company (i.e., shareholders, investors or employees), regardless of the effect of COVID-19 on external stakeholders, the environment, or the society. The sole emphasis on economic, financial and monetary equilibriums by retailors (normally seen in SMEs) will not contribute to social welfare, but may worsen the situation instead. Financial capital may be rewarded at the expense of the well-being of consumers, social infrastructure and the community. Because the corporate performance is solely measured by profit-making and share value, in the extreme situation, corporate may risk becoming amoral68_{. In the current} scenario, face masks and respirators are tied to basic human needs during the COVID-19 storm, and profiteering in this regard can be morally objectionable. The price increases can undermine the equitable access to the personal protective equipment across Europe, and also

68_{Winter, J. W. (2020). Addressing the Crisis of the Modern Corporation: The Duty of Societal Responsibility of the}