What is your company for?
Conventional wisdom has it that the purpose of a company is to make money and to grow the business for its shareholders. For some time now this brutal simplicity has been mitigated somewhat by the ideals of wider corporate governance which holds that a company has a responsibility to a much wider range of stakeholders than simply its owners.
Employees, customers, suppliers and the wider community all have a claim on the business and management has looked to balance these often competing claims. For example increasing pay and benefits for the workforce reduces profits available for shareholders, as does sponsoring community projects or using local suppliers instead of cheaper overseas ones.
At the present time, during the Coronavirus crisis the objective of many companies is simply survival. Companies operating in many areas of business , particularly retail, have been hit by government proscriptions and been forced to close. Many others have experienced worker absenteeism due to self-isolation, disruption to supply chains, especially those from China and the Far East, and are struggling to decide how to or whether to pay furloughed workers.
The Coronavirus epidemic is currently all encompassing in the news media. Journalists are desperately hunting down stories to fill newspapers and the oceans of time being devoted to the epidemic by TV and radio. The eyes of the public are on business in a way that has never been seen before outside wartime.
So what are companies to do? Do they simply retreat into a silo and hide or do they respond positively and make a mark which will resound positively and benefit them when the world returns to normality?
There are some things companies can do even in the crisis to build a reputation which will outlast the present crisis.
They need to have regard to stakeholder needs. For example supermarket chains in the UK, which by and large are doing well out of the crisis, are prioritising the elderly and vulnerable and those that work for the National Health Service. They are helping to support food banks and local charities. By having regard to the needs of their employees and the wider community they are helping to make life easier for people struggling with loss of income and forced isolation.
Companies not forced to close can work to their strengths. Already, for example, we have seen:
- Formula 1 team Mercedes engineers working on designs for ventilators
- LVMH Moët Hennessy Louis Vuitton announcing that it would obtain 40 million medical-grade face masks from a Chinese industrial supplier to distribute to French health authorities
- Italian brand Prada stating that it is producing a run of 80,000 overalls and 110,000 face masks at one of its factories for Italian medical personnel
- Edinburgh Gin company has stopped making gin and started producing hand sanitiser
- NCP car parking company has extended its offer of free parking to NHS workers to all key workers
- British Land , which owns shopping malls which are now closed, has said it will scrap rent for three months for small and medium-sized companies renting its space, and will allow larger tenants to spread their second-quarter rents payments over an 18 month window
However not all companies have been doing so well
- EasyJet pilots and cabin crew have been asked to take three months' unpaid leave and accept a pay freeze. The airline then proceeded to pay an £174m dividend to shareholders.
- Hundreds of residents in Travelodge's hotels, including homeless families housed there by local councils, were evicted after the budget hotel chain closed its premises. The firm gave letters to all residents asking them to leave as soon as possible, apparently in defiance of government guidance, which said that hotels looking after homeless families in temporary accommodation should not close.
Clearly managers face the difficult decision in balancing the needs of the workforce with the survival of the business but companies which simply dump workers in an uncaring or unfeeling way, or treat customers and suppliers with indifference may well find a distinct backlash when things return to normal in terms of reduced productivity, loss of key employees, customers turning away from them and difficulties in supply as people avoid companies which have severely damaged their hard won image.
The impression given in that situation is that managers are thinking more about their shareholders and their own futures than that of their workforce, customers and suppliers. Companies which could do something but actually do nothing are likely to suffer in the longer term.
Leading from the front is vital in times of crisis but the actions that a company takes in a crisis do not have to be excessively generous or completely altruistic. The positive efforts shown above are in line with the companies' abilities and purpose – even a luxury clothing brand can turn the power of its supply chain on in order to benefit the community – it makes garments so make protective clothing.
Where a company decides to contribute to the struggle against the impact of the virus the decisions made by those executives both reinforce the company purpose and benefit the majority of stakeholders. By involving employees in the decision this can bring a sense of collective wellbeing and by treating employees well future loyalty and a sense of belonging to the business can be reinforced.
Of course, there is a financial cost which the business has to calculate but if this means reduced dividends later the long-term benefits of positive and community minded action now far outweigh that cost. In a crisis, managers who prioritise one group – shareholders – over many others should not be surprised if those other stakeholders turn against them when normality is restored.
John Taylor is an author for accountingcpd. To see his courses, click here.