The rapidly escalating COVID-19 global pandemic is causing enormous pain for people affected by its spread. The rising death toll and number of cases around the world is growing exponentially, just as experts predicted it would earlier in the year. The different response of many countries is a real-time experiment with people’s lives. There couldn’t be a more tragic way for 2020 to have turned out so far.
We will judge businesses and their response to COVID-19. The good ones are doing what they can to do right by their customers, their employees, their suppliers and their communities. The not-so-good ones are using a public health crisis as a lobbying opportunity for industry-specific bailouts and carveouts that protect executive compensation in a time of mass layoffs. Many boards and senior executives still haven’t learned the lessons from the Global Financial Crisis – your social license to operate can be revoked at any time in this new political climate if you act up.
One of the lessons of the past few weeks is that many well-managed businesses have been able to deal with this crisis as good corporate citizens. They had strong balance sheets, clear business continuity plans invoked, and the right attitude towards their stakeholders. These businesses operated in industries where their margins enable them to invest in preparedness and do the type of work where they can send their staff to work from home with no issue.
Small businesses are in a completely different situation. Already, non-compliance with regulation and community norms is an issue for small businesses. They are likely to be under-capitalised, trading on modest margins in highly competitive industries and aren’t going to have the balance sheet to “get to the other side of the bridge”.
Many small business owners will have looked at proposed support from their bank and wondered how on earth that helps them make lease payments and pay trade creditors. Many will have realised they can’t even last a month without revenue, and the rational course of action is to layoff their staff and close the business down.
Larger businesses not big enough to land a bailout will have moved fast to plan and execute redundancies and stand-downs. This fast decision making is because their cash flow pressures mean they can’t even wait a week because of how fragile their business model is to adverse external shocks.
There is a real-time example in New Zealand: Air New Zealand was able to secure a government loan with associated conditions, still stood down most of its people. Virgin Australia was not able to obtain any support, so is now consulting on closing its entire New Zealand operation.
There are many arguments from both sides – letting businesses close down isn’t the end of the world as long as there are strong social security supports for the people impacted. Because of the speed at which this crisis has developed, the welfare system in many countries is being overwhelmed. Lots of business owners have realised the uncertainty ahead and just pulled the trigger, likely without advice or engaging with any potential support avenues.
We will judge businesses by how they respond to this crisis. Already, some major corporations have shown their true colours and gone back on all of the ESG statements and claims they have made over the past few years. By re-running previous crisis playbooks, they are unlikely to have the goodwill of their stakeholders on the other side of the bridge. It’s already a difficult enough time for the world – doing the right thing is seemingly too hard for many. It’s great to see some businesses stepping up responsibly, they’re the ones who’ll survive.