While forecasters warn us of steep lockdown falls in the macroeconomic numbers, the key challenges for swift recovery are at the microeconomic level. Businesses have a vital role to play in the fight against Covid-19 by protecting their staff, maintaining supply chains and innovating to serve society’s urgent needs.
Not all will survive, revive, or be recreated, especially amongst the hundreds of thousands of small companies and sole traders. And the wreckage of some industries (notably aviation) will have long-term consequences. But when the disease is eventually brought under control, the bosses of those that do will be asked: “What did you do during the crisis?” And the performance of those businesses will be rated on their answers to four questions:
- How did you protect your workforce?
- How did you look after your customers?
- How did you innovate and redeploy people and assets to meet the country’s most critical needs?
- How did you rethink your business strategies to emerge from the crisis fit for the future?
1. Your workforce
Protection takes two forms: physical (protective clothing, etc); and financial. Businesses are scrambling for masks, gloves and sanitiser, and obviously essential services should come first. But all have found that absenteeism will only stabilise when staff feel (relatively) safe. Social distancing can be difficult to achieve unless firms think carefully about how to stagger working times or reorganise working practices. Home working may be (relatively) easy in professional services. But there are limits: even call centre work can be hard to disperse if access to secure systems is needed. Firms providing non-essentials which began well by sending people home for their own safety (e.g., Next) rather than taking risks by staying open (e.g., Sports Direct) will still need to find ways of keeping staff safe as they try to get going again. Meanwhile keeping as many people on the payroll as possible, or making use of the UK government's furlough scheme, or similar schemes in other European countries, helps maintain incomes and clearly helps to slow the rise in unemployment, although in time redeployment may be better for the economy and (if their jobs aren’t going to survive long-term) for the people themselves.
2. Your customers
Businesses supplying food and other essentials face quite different challenges. Cash flow may look fine, but supply chains may be badly interrupted. Meanwhile serving the best customers has to be balanced with the priority need to serve the community in the crisis, by ensuring the most vulnerable do not go unserved.
Supermarkets have been facing a huge increase in demand, even after the initial panic buying subsided - hardly surprising when roughly a quarter of food spending had previously been satisfied by take-away food outlets and restaurants. Some are managing better than others to meet online shopping demand, and to write algorithms that give older or vulnerable customers a better chance of delivery “slots”; others are struggling to preserve social distancing with “click and collect”. Streaming services have played their part, by agreeing to reduce their demands for capacity on the telecoms networks to make room for the delivery of more essential services. Reputations will be made, and lost, by getting the balance between good business and social responsibility right; the stars go to food businesses which are acting directly to deal with the difficulties hospital workers find in getting supplies at the end of a long shift.
3. Innovation and redeployment
An array of industrial firms, as well as universities and Formula One teams, have sprung into action to design and manufacture ventilators and respirators. Away from the limelight, many restaurants have turned to home deliveries. Therapists, personal trainers and yoga teachers are stretching online. Health insurance providers are also facilitating access to GP services remotely. Rapid action and coordination between different businesses has enabled a lot of food meant for bars and restaurants to be redirected into the retail supply chain. Universities are having to completely redesign processes of teaching and assessment . To meet fast-changing needs, banks have re-engineered critical processes in days rather than the weeks it would normally take. Meanwhile although some sectors (notably hospitality and aviation) will inevitably see widespread bankruptcies, some at least of their employees are finding there is a demand for labour in the food industry, from field to doorstep, in online deliveries and in the expanded health service.
Businesses which sit on their unused skills and resources through the crisis will not emerge with reputations unscathed. The smartest are the quickest to realise this. Switching to stitching scrubs had made sense for Burberry as much as for the bottom end of the rag trade. Raising money to switch their engineering departments to making visors is a great simple move by which universities can boost local hospital supply. And, of course, creating networks of science labs to speed up testing and develop new kits is helping to make good the deficiencies in public supplies.
There will be business heroes in this crisis, and they will be the ones which achieve breakthroughs not only in the science of treating and preventing Covid 19, but in the manufacture, scaling-up and delivery of those solutions. Experts in logistics may not seem as important as biochemists, but without them populations can’t be made safe.
4. Business strategies for the post-pandemic world
If neither the length nor the depth of the crisis can be accurately forecast right now, that is no excuse for delaying strategic decision-making. Of course it is far from clear how much of the shift in social and economic behaviour developed during lockdown will be permanent, but even a minor legacy of the shift to a cashless, online, socially distanced world will have profound effect on business strategies, for which the best are already preparing.
The new Apps springing up to serve immediate needs for business communications or entertainment may not all survive the end of lockdown, but some will, and the best of them will win. Meanwhile, at the top of the FTSE, while corporate announcements are currently dominated by profit warnings and promises of socially responsible behaviour over bosses’ pay, transformation and restructuring is being furiously planned behind the scenes. The survivors will be those firms who have got furthest with this even during the storm.
Everything else isn’t equal
But all of these four questions are having to be addressed in real time against a backdrop of massive state intervention and rapid change in regulation, whose reversal is hard to forecast in either timescale or effect. Regulators are walking a fine line between the necessity to lighten requirements to enable businesses to respond to consumer need at speed (e.g., reducing the time it takes to “process” a loan application so that bank call centres are not overwhelmed) and the need to protect consumers from the sale of inappropriate financial products.
This balancing act may be most difficult of all in financial services, but is being faced by every regulator and government department. For example, in the UK, Ofcom has suspended all live BAU consultations and agreed to delay implementation of new obligations. The government and the energy industry have been working together, implementing emergency measures to make sure that energy supply to vulnerable customers is protected throughout these challenging times. In the water sector, Ofwat’s focus has been on supporting non-household retailers so they are able to cope with a potential increase in bad debt. Ofwat has also encouraged companies to support vulnerable customers through these difficult times.
With regards to the MoT, it was obvious that requirements had to be eased, but for how long before unsafe vehicles become an unacceptable danger to life? Equally, the health and safety officer who told the boss a workplace assessment had to be carried out before anyone could work from home was liable to get a dusty answer, but what practical steps needed to be taken to support employees through homeworking? And the overarching economic regulators, the competition authorities, are facing similar dilemmas.
The UK’s Competition and Markets Authority says it “wants to ensure that traders do not exploit the current situation to take advantage of people”. Fair enough. But what price scarce toilet paper or hand sanitiser? Where does the law of supply and demand end and exploitation begin? In the same vein, the European Competition Network (ECN) of national regulators says it makes sense in these unusual times for firms to work together more closely to ensure the supply and fair distribution of scarce products to all consumers. It adds that “in the current circumstances, [it] will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply”. At the same time, the ECN warns that regulators will not hesitate to take action against companies “taking advantage of the current situation by cartelising or abusing their dominant position”. But where does legitimate cooperation end and illegal collusion begin?
As they struggle to rise to unprecedented challenges, keeping up with a stream of government and regulatory initiatives can seem the last straw. Many have already needed to be revised. Some of this is inevitable, given that they were conceived in a hurry and sometimes, at the politicians’ request, launched too quickly. The UK Treasury’s Coronavirus Business Interruption Loan Scheme is a prime example. Not only is the cost of these measures hard to estimate, and the impact on public finances almost impossible to forecast, but their application is often hard to understand.
As ever, smaller businesses are the ones likely to struggle most to navigate these new, treacherous shoals. Take auditing, just for example. Helpfully in the UK, the Financial Reporting Council and Companies House have given both listed and private firms more time to prepare their annual accounts to reflect the impact of both the virus and the government’s rescue package. But auditors were instructed not to lower their standards, which smaller firms at least interpreted as giving qualified opinions if they were unable to gather all the evidence needed to complete their checks, because, say, of social distancing. A big company should be able to come up with a workaround fairly easily. But if you are a small, essential business working 24/7, and your auditor can’t come on site to watch you count end-year stock, you risk having your accounts qualified and worry about breaching your loan covenant. Regulators have, perhaps inevitably again, taken time to shift their attention from the biggest companies to focus on the needs of smaller ones, lacking the resources of sophisticated advisers to chart a way through.
Even as the pandemic rages, it is clear that we will need to learn some powerful lessons about how to do better next time. Just as the financial crisis led to a ramping-up of capital requirements for banks, so there will be a demand for greater spare capacity across a range of economic and social functions, most critically in the health service. And if we compare the co-ordinated global response to the financial crisis - in particular, the role of the G20 - with the haphazard global reaction to the pandemic, it is apparent that changes in global governance are desperately needed. Yet again, it has been demonstrated that nationalism is a wholly inadequate response to crisis in today’s interconnected world.
When the virus is under control, we’ll remember and reward those firms, large and small, that we know did the right thing. By the same token, companies seen to have selfishly exploited the crisis will suffer serious reputational damage, and worse, as the hunt for villains (and for more tax revenue) gets under way. Profiteering will be a prime target for the UK's Parliamentary Select Committee inquiries. Business has to steer a difficult course between bankruptcy and exploitation. For survival will be hard enough, but surviving in order to be placed in the pillory makes no business sense at all.