Robert Half held the latest in its series of online CEO/CFO roundtables on Thursday 29th October 2020. Normally run as a face-to-face event, the virtual roundtable presented an opportunity for senior board leaders to discuss emerging COVID-19 related ideas, challenges and opportunities in an open forum.
Attendees included Charlie Grubb, Senior Managing Director (Chair); Damian Reece, Financial and Corporate Communications Adviser, Bev Dew, CFO; Roi Lustik-Cohen, CTO; Nevin Truesdale, CFO; Sharon Kindleysides, CEO; Andrew Manning, Chair & CEO; Tony Buss, MD; Mick Axtel, CFO; Phil Halliday, MD; Andy Boteler; FD; and Darren Leigh CFO.
Poor judgements taken by organisations in response to the COVID-19 pandemic have been exposed in the media throughout the crisis, ranging from brands treating their people unfairly to companies taking government-backed funds when they had no real reason to do so.
Reputational damage from recent criticisms in the media has been amplified by the underlying trend for businesses to embrace the environmental, sustainability and governance (ESG) agenda. The question for the roundtable was whether organisations have reached a tipping point during the crisis: will the need to not only ‘do the right thing’ but to ‘show they are doing the right thing’ recede or accelerate?
An end to capitalism as we know it
Damian Reece talked through a presentation on Corporate Reputation and Influence in the Era of Covid-19. While it has been a difficult time for organisations, there are also opportunities to engage with stakeholder groups, he said. Quoting Warren Buffet, he added that reputations can take 20 years to build but five minutes to destroy.
The part of the quote that is often missing is that once business leaders understand that, they will take steps to do things differently, he said: “What can companies do to protect their reputations with their employees, investors, the media and governments?”
The way the media sees business evolved rapidly during the crisis. Since March when the pandemic forced a widespread lockdown in Europe, brands as diverse as Victoria Beckham, Virgin Airlines, Weatherspoon’s and Adidas have all experienced negative media coverage.
Such coverage may have caused irreversible damage, and consumer sentiment towards those brands permanently affected. Damian quoted a story from the FT, which said that now more than ever “companies need to be good citizens and to be seen as such”. In particular, they need to show that they have taken authentic action to change.
The impact on capitalism, which has operated in Western economies in a way that has remained unchanged since the 1980s, will be significant, Damian said. There has been a fundamental shift from delivering shareholder value in the form of financial returns to stakeholder value. Stakeholders can include employees, supply chain partners, customers and society itself as well as investors.
This trend is being driven by a reluctance to deploy capital in companies that misbehave and are not taking action to change. Even Forbes magazine, which focuses on business management, has written that the notion of shareholder primacy is no longer fit for purpose. And Mark Carney, writing in the Economist, said that when the war (i.e. the Covid crisis) is over, companies will be judged by how they behaved during it.
Building on the social contract
Changing relationships between companies and governments are driving the need to abide by a social contract with stakeholders still further. Businesses bailed out with public money need to show how they will repay these funds and help society recover as quickly as possible. Jim McLoughlin, adviser to two UK prime ministers, has said that businesses must adapt a new social contract as we “reinvent capitalism”.
This provides an opportunity to be constructive and for businesses to change, Damian concluded. Responding to questions from the floor, he said that businesses’ cultures needs to genuinely drive that change. Businesses that talk the talk but don’t walk the walk will be found out and accused of ‘greenwashing’.
The groundswell of demand from consumers for ethical products and services, pressure from investors and the success of companies that are taking a lead in this area will inevitably lead to cultural and business operational change.
Specific actions to introduce change will vary between companies and sectors, but the key lesson to learn is that they must be authentic. Is it at the heart of our model, and how can we take our people with us to a new way of doing business? An example of a company that has done this well is Unilever, which has taken specific action to adopt sustainable manufacturing processes that resonate well with consumers.
Organisations that have come through the pandemic with enhanced reputations include L’Oréal, which pivoted to make antiseptic hand gel instead of beauty products. Another is Spire Healthcare, which improved the engagement level with its employees, who were proud of the role the company took to support the NHS.
An unstoppable global trend
Asked whether the trends towards ESG and stronger social contracts are more prevalent in the UK and the US than elsewhere, Damian said that they are noticeable globally, but that the move towards more transparency in business will be adopted more widely in liberal, western economies.
He also said that while double standards will exist as we come out of the pandemic, with convenience often being prized over ESG standards, the direction of travel towards the latter is clear. The change in how companies behave will be one of the few good things that come out of the crisis, he observed.
Change will include admitting to mistakes and putting solutions into action, which can help to earn reputational goodwill. This can be difficult for senior leaders to accept, because of a general reluctance to do things differently, but the pandemic has exposed weaknesses that cannot be hidden away.
Finally, Damian said that while consumers’ memory spans can be short, the actions that are undertaken as a result of consumer behaviour can be highly disruptive. This is because it influences large bodies such as institutional investors or governments to take material action.
For example, consumers still buy VW cars despite the diesel scandal, but VW itself has had to invest heavily into making electronic vehicles as a result of the backlash against the use of diesel fuel.
The story that will unfold in the months and years ahead is how brands used funds they received from the government furlough scheme, and whether they have paid it back. Companies such as Kingfisher, Dunelm, Redrow have already handed money back to the government, but others will be under scrutiny for some time to come, not just by the media, but by stakeholders as well.
- The pandemic has exposed poor decision making and behaviour by organisations that will not be quickly forgotten about by investors or consumers
- This has happened against a background trend to move from delivering shareholder to stakeholder value, the adoption of a social contract, and the ESG agenda
- There is an opportunity for senior leaders to reassess the purpose of their businesses and how they can affect authentic change that will mean they are doing the right things for people and society
- Scrutiny of business practices will intensify, especially as commentators and the media examine how organisations contribute towards economic recovery
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