Profound effects of Covid will change how companies operate long into the future
The Covid-19 pandemic is more than just a health issue – it is likely to have a profound effect on how we live and companies operate long into the future. The way businesses protect their employees and address their concerns about the crisis will impact corporate reputations in the long term. There appears to be a growing acceptance by organisations, and their stakeholders, that social issues matter more than ever before.
How companies manage their relationship with their stakeholders is a social factor that has not yet been seen by many investors as central to business performance.
Today, the way employees, customers, suppliers, the environment and wider society are treated is under greater scrutiny. A company’s longterm success, operational and financial resilience and shareholder returns are becoming increasingly reliant on how successfully stakeholder relationships are managed.
The value of stakeholder relationships
Many businesses across Ireland are gradually restarting their activities as the Government continues to lift quarantine measures on a phased basis. A significant challenge for these businesses will be how to do so responsibly without contributing to a second wave of infections through their operations and supply chains.
Those companies who attempt to understand and respond to worker, customer and other stakeholders’ concerns are more likely to remain resilient, and mitigate reputational risk during this time.
With regards to reputational risk, the risk of not delivering on obligations and commitments will be more severe than ever, and organisations need to quickly align their practices with the expectations of their stakeholders so that they don’t fall short. Over recent weeks, it has become apparent that responsible investors are paying close attention to how investee companies are responding to the pandemic and how they are treating their stakeholders.
Gap in attitudes to employees’ health and safety
Few employers appear to have been prepared for the crisis. Less than 10 percent of business leaders from the G20 group of the largest economies and countries in the Organisation for Economic Cooperation and Development
(OECD) considered the spread of infectious diseases as a global risk, according to the World Economic Forum Executive Opinion Survey back in March.
This seemingly implies a lack of readiness to the crisis by many employers. In response to the pandemic, a gap seems to be opening up between the companies looking after the interests of their staff and those that are not.
The International Labour Organisation (ILO) outlines principles on how workers must be protected from sickness, disease and injury arising from their employment. Yet every year approximately 2.8 million people die as the result of exposure to safety and health hazards at work and around 400 million workers suffer non-fatal occupational accidents every year, according to the ILO.
While higher health and safety risks are more commonly associated with sectors such as construction and the extractive industries, controlling the spread of Covid19 affects worker’s health and safety in every industry.
Responsible investing to the rescue
How companies treat, and protect, their employees will be put under the microscope by shareholders and the media to examine corporate cultures. This may provide a helpful proxy on how employers treat other stakeholders too – such as suppliers.
This means it has become important for investors to understand and evaluate how employees right across the supply chain are treated.
For example, ensuring that the pandemic and the post-pandemic period does not exacerbate working conditions for employees that may be already vulnerable to exploitation.
In developing markets migrant workers can be susceptible to poor living and working conditions that may make social distancing difficult to practice.
In developed markets, encouraging people to return to work, social distance and keep business facilities regularly cleaned is a minimum standard as part of the Government’s guidelines. But ensuring companies protect the welfare of all their employees equally – for instance, by not discriminating between permanent and contractor staff – is likely to be important for responsible investors.
Beyond boilerplating
Companies should go beyond applying so-called ‘boilerplate’ health and safety polices. Instead, boards should aim to exercise effective governance and to understand their own employee concerns, so that they can successfully monitor and overcome those arising from the potential exposure to Covid-19.
Those that neglect their responsibilities may face consumer hostility, negative press attention and difficulty executing their long-term business strategy.
Higher employee turnover may result in a drain on money and time along with possible business disruption. This could lead into rehiring and training at the worst time for many that are trying to keep businesses afloat.
However, company measures to support employees in the crisis, through a safe working environment – both remotely and in the office – and protecting their well-being, could improve employee loyalty and satisfaction.
Investors that encourage such practices in their investee companies are likely to find it is well worth it.
Firms who listen to concerns will avoid reputational risk
Investors must learn how employees are treated by companies