The coronavirus pandemic highlights the very real imperfections not only in terms of coordination among governments and international organizations across the globe, but in the business models of companies ranging from burgeoning startups to conglomerate-owned luxury giants. The global health crisis and the financial fall out that has come with it mean that responsible leadership from the private sector is needed more than ever, as the way that businesses respond will have an important influence on the state of post-coronavirus world and their own bottom-lines, alike.
Since employers are the most trusted institutions over government and media during this crisis, according to the 2020 Edelman Trust Barometer, the majority of the public expect business to adapt operations to protect their employees and the local community while continuing to meet the needs of the consumers. And, with many governments providing significant support to businesses, leaders are being urged to step up and respond responsibly.
In a world where short-term market performance – as tied to the expectations of investors and shareholders, alike – often drives decision making, some businesses have already committed to a new way of doing things. By moving beyond shareholder primacy, they are addressing imbalances in our economies by involving all stakeholders in potential solutions: suppliers, partners, employees and regulators.
BlackRock revealed in a recent letter that is has switched to this approach and will put sustainability at the center of its business. The world’s largest investment manager, New York-based BlackRock has invested in a number of fashion and luxury ventures – from Juicy Couture and Barneys New York owner Authentic Brands Group, in which it took a roughly 30 percent stake in August 2019 to fragrance company Creed, in which it is now the majority owner, a deal that was announced on February.
Here are five ways business executives can contribute to a more balanced post-COVID world …
1. Make supply chains more local
In recent decades, businesses have focused on maximizing efficiency. To cut costs, speed up production, and be more streamlined, manufacturers have concentrated their operations on suppliers in a few countries. These global supply chains created savings and boosted profits when all was running smoothly. But the disruption from the coronavirus pandemic has been immense.
More than 90 percent of the apparel sold in the U.S., for instance, is made internationally, with China serving as the hub for global apparel manufacturing and exports. Given that approximately 40 percent of clothing purchased in the U.S. comes from China, brands and retailers in the U.S. and other Western markets have suffered from significant delays in manufacturing and distribution when the first wave of COVID-19 originated in China, and forced factories to close for weeks.
Meanwhile, in the healthcare industry, about 80 percent of the basic components used in U.S. drugs come from China and India. The impact of supply chain disruptions is evident in the grueling lack of hand sanitizer and face masks, including for health staff. Europe faces similar issues.
Future markets will benefit from rebalancing their operations by bringing at least some of those that had previously been moved overseas nearer to home. Resilience will trump efficiency through a model where manufacturing is brought closer to places of consumption instead of relying entirely on global shipments.
By digitizing other processes companies can harness the opportunities that come from economies of knowledge, compensating for those lost in scale.
2. Collaborate internationally
More regional and local autonomy should not mean the end of international collaboration. In systemic challenges, collaboration is the best approach to avoid unintended consequences.
As countries seemingly engage in a zero-sum game that reflects the rise of populism and authoritarianism around the world, businesses should step in and call their governments to collective action and collaborative leadership through public-private partnerships. Indeed, according to Edelman, citizens expect businesses and states to collaborate to stem the crisis and limit its health and economic impacts.
3. Pivot and demonstrate societal purpose
A number of companies are demonstrating their value to society by switching their operations to provide much-needed medical equipment. LVMH Moët Hennessy Louis Vuitton, the luxury conglomerate that owns brands like Louis Vuitton and Christian Dior, has adapted some of its cosmetics manufacturing facilities to produce hand sanitizer for French hospitals that are suffering from resource constraints. Italian luxury brand Prada donated to fund “two complete intensive care and resuscitation units each to hospitals of Vittore Buzzi, Sacco and San Raffaele” in Milan, which has been hit particularly hard by the virus, and also committing to produce “80,000 hospital gowns and 110,000 masks, which will be provided for healthcare professionals in Italy.” All the while, cosmetics firm Nivea is turning to medical-grade disinfectants.
These moves testify to the ability – and willingness – of companies to improvise quickly because they are in tune with the needs of society around them.
4. Protect their people
Businesses can soften the economic blow of coronavirus pandemic for their most vulnerable employees and suppliers. For example, Google established a global COVID-19 fund that enables all temporary staff and vendors to take paid sick leave if they have any symptoms, or can’t come into work because they’re quarantined. Starbucks has extended its mental health benefits offering staff personalized, confidential mental health care. VF Corp, the clothes retailer behind Vans, North Face and others, is continuing to pay employees while closing all stores temporarily.
Luxury giants Hermès and Chanel announced that they would continue to compensate employees without relying on government funding. Companies that can afford to keep their staff during the crisis will be ready to bounce back faster once things subside.
5. Promote a green recovery
Instead of reverting back to business as usual in the wake of the coronavirus, companies should consider other potential crises in the future that could result from our continuous interference with ecosystems, or from climate change. A crisis is an opportunity to rethink things rather than patch up previous ways.
In the aftermath of the pandemic, growth might be relaunched by a decisive reinvention of our economies around green technology, renewable energy and natural infrastructure to develop more efficient and resilient low-carbon economies.
While the movement towards a multi-stakeholder approach to business has increased in recent years, the coronavirus pandemic creates an opportunity for a conscious mindset change. Responsible business leaders will recognize this moment as an opportunity to use a societal lens that contributes to stability and makes everyone better off in the long term.
Stéphane J. G. Girod is a Professor of Strategy & Organizational Design at the International Institute for Management Development. Natalia Olynec is the Head of Sustainability at the International Institute for Management Development. (Edits/additions courtesy of TFL).