The COVID-19 pandemic has changed everything – socially, economically, politically. Those changes are obvious at the moment, as the world slowly and cautiously emerges from a months-long lockdown. The world into which we emerge will not be the same as the one we left behind. For businesses everywhere, there will be new realities to confront.
"COVID-19 is having a profound impact globally. Not only is it affecting our health, but it is fundamentally challenging and altering our political, social, and economic norms,” says Mark Palmer, CEO of consulting business Gobeyond Partners.
The global economy is in the deepest recession for decades and we have seen the return of mass unemployment, for the first time in decades in some countries. Some of this will be short-lived, but much of it will endure, as many businesses fail to survive the shock of the disruption.
For those that survive, and the people that they employ, working practices will be transformed and many trends – but especially the spread of digitalisation – that had been advancing slowly will accelerate, while unforeseen changes such as social distancing and wearing masks will become standard practice.
While the pandemic and the measures to tackle it have devastated global economic activity, there have been a few clear winners. These include companies helping people to work and entertain themselves at home such Netflix and Zoom, supermarkets and online retailers. The other obvious beneficiaries are pharmaceutical and healthcare companies.
The losers are more abundant. Any company whose business model relies on people gathering together has been devastatingly hit. Airlines, cruise lines, hotels, bars, restaurants, sports, theatres, music venues and hairdressers are some of the sectors that have ground to a halt.
These are some of the companies that have been directly impacted by the lockdown, but every business has been indirectly affected by the sudden stop in demand and economic activity. Because no-one is travelling anywhere, no-one is filling their cars with petrol, for example, which has led to a slump in oil prices – at one point in May, the US WTI benchmark price was negative at -$37 per barrel.
As virtually all companies except essential services have retreated into lockdown, this has had a knock-on effect on their suppliers. The International Monetary Fund says the global economy will shrink by 3% this year, with most large European economies including the UK set to see their economies contract by more than twice that and second quarter declines in many places are 20% and above.
One effect of the pandemic will be to tip over the edge businesses that were in trouble but had managed to survive thanks to the availability of borrowing at incredibly low interest rates, often known as zombie companies. Venerable retailers such as Debenhams in the UK and Nieman Marcus in the US have filed for bankruptcy, while scores of other companies in sectors ranging from aerospace to banking, have announced job cuts. Tui, one of the world’s largest travel companies has announced 8,000 job losses, for example.
Unemployment rates in the US have soared to levels last seen in the Great Depression in the 1930s, although many of those jobs will return as the economy starts to reopen. Jobless rates will be lower in Europe because of government support schemes, but unemployment will still rise significantly. Although the sectors already mentioned above will be the hardest hit, jobs will go across the economy.
“The COVID-19 crisis has exposed important vulnerabilities, even in the more resilient industries and companies. While there is a lot of discussion around returning to ‘the new normal’, that may not exist anymore – the illusion of stability is crushed,” says Catherine Kemnitz, global head of legal at legal recruiter Axiom.
There have been a few clear winners
And even when economies start to recover, they will not look like they did before. People will be reluctant to travel on public transport, and visit crowded restaurants, pubs, cinemas and theatres, as well as to send their children to school and nursery. It will take time for people to regain trust in activities they took for granted previously, both at work and in their personal lives.
Companies preparing to reopen will have to take steps to ensure that their workplaces are safe – social distancing will become the norm, and workers may have to wear PPE equipment. Unique Fire and Security has developed ‘fever screening technology’ that it says will be “a vital piece of armour to help business move towards a new normality”. The system involves cameras that will help to detect carriers of coronavirus who are presenting with high temperatures, before they potentially infect colleagues or other customers.
Currently around 100 fever screening units have been installed in various locations in the UK, including bus depots and healthcare environments, and are expected to be installed in airports, hospitals, schools, restaurants and retail outlets as lockdown restrictions are eased.
“Being able to quickly and safely spot someone with a fever entering the premises allows businesses to offer an enhanced level of personal security which extends beyond social distancing measures,” says Bradley Williams, director of Unique Group.
Antibody tests, temperature checks and distancing at work are other things that workers are going to have to get used to. They may also have to download tracing apps as part of national track and trace strategies, as health services battle further spikes of COVID-19. Technologies such as artificial intelligence, big data epidemiology models and other digital technologies have been key in fighting the virus and this may help to break down some of the barriers to digital healthcare apps.
Patients have so far been reluctant to embrace technologies such as these because of fears over privacy and cost, but the pandemic has accelerated the embrace of digital technology in many aspects of life, and healthcare may be one of the big beneficiaries of this trend, which will in turn help to make beleaguered health systems more efficient and better able to cope with the increased demands upon it.
Attitudes are changing in other ways, too, Accenture reports, and many of these new ways will remain post-pandemic. The virus has accelerated three long-term trends, Accenture says – the ever-increasing focus on health, a rise in conscious consumption and a growing love for local.
While purchases are currently centred on the most basic needs, people are shopping more consciously, buying local and are embracing digital commerce, the consultancy says. “To manage isolation, consumers are using digital to connect, learn and play—and they will continue to. Moving forward, we will see an increase in the virtual workforce as more people work from home and enjoy doing so.”
One in five online shoppers were doing it for the first time, a figure that rose to one in three for those over 55, in an Accenture survey. “The scale of the changes identified in our findings clearly suggest that this is a long-term shift,” says Oliver Wright, managing director and head of Accenture’s global consumer goods practice. “While we have been seeing these trends for some time, what’s surprising is the scale and pace — compressing into a matter of weeks changes that would likely have taken years. The new consumer behaviour and consumption is expected to outlast the pandemic, stretching far beyond 18 months and possibly for much of the current decade.”
From a broader investment and business point of view, there is a fundamental reassessment of who and what is important in public services and within companies. The key workers during the crisis – cleaners, healthcare workers, delivery drivers, shop assistants – are often the worst paid and least secure members of society. Businesses are in the spotlight over how they are treating their workers, especially relative to how they treat management and shareholders – if they take taxpayers’ money to furlough workers while still awarding management bonuses or paying dividends to shareholders, consumers are taking note and are likely to punish them for that behaviour.
Simon Marshall, founder of TBD Marketing, says: “We have seen big corporations look to furlough staff and take government funding when – from the outside – it looks like they clearly could have held out. Businesses looking to access these funds need to position themselves with greater care as otherwise, the headlines write themselves when bosses take home large sums of money year after year.”
A number of countries have said companies registered in tax shelters won’t be eligible for bailout funds and there is a renewed focus on what the purpose of a business is and for whom it is working.
These factors are likely to presage a realignment of priorities within businesses that will give more power, rights and money to workers, further eroding the primacy of shareholders in companies. This will be accompanied by an increase in rights for gig economy workers and a renewed recognition of the importance of developing and retaining talent throughout the economy.
A rise in conscious consumption
For consumers, “the pandemic is likely to produce a more sustainable, healthier era of consumption over the next 10 years, making consumers think more about balancing what they buy and how they spend their time with global issues of sustainability — suggesting a healthier human habitation of the planet,” Wright said.
Brands need to make it a priority to support healthy lifestyles for consumers, shoppers and employees. Meanwhile, consumers are more mindful of what they’re buying, striving to limit food waste, shop more cost consciously and buy more sustainable options.
Alessandro Brun, director of the Masters in Global Luxury Management at the Politecnico di Milano School of Management, says that “people want to support local brands and businesses. In part, it’s about local pride and a new feeling of unity.”
But local stores will also be better placed because people want shops that “make the customer feel unique and deliver something that they can’t find anywhere else in the world,” Brun adds.
It is not just consumers that will be changing – there is also going to be a reassessment of working practices, with more focus on resilience. That will mean firms carry a little more fat – in terms of cash, inventory and workforce, for example – at the expense of maximum efficiency and just-in-time practices. “The ‘lean, mean and agile’ business mentality left no fat on the bone to accommodate future risk. Businesses will have to wise up and build in more robustness and resilience moving forwards,” says Lindie Kramers, CMO of creative agency collective Istoria Group. “The convenience culture has exposed a lot of supply-chain vulnerabilities in these inconvenient times. The net result is likely to be a move towards de-globalisation and increased self-sufficiency at regional, national and international levels, reflecting a change in consumer mentality too.”
This could also translate into new ideas about how to make citizens more resilient. Is now the time for governments to introduce a Universal Basic Income, for example? The Spanish government has outlined plans to introduce a basic income scheme as soon as it can and the Finnish government recently published the results of a Basic Income experiment in 2017-18, finding that:
Recipients of basic income were more satisfied with their lives and experienced less mental strain, depression, sadness and loneliness than a control group.
Basic income had a mild positive effect on employment, particularly in certain groups such as families with children.
They also scored better on other measures of wellbeing, reporting a greater feeling of autonomy, financial security, and confidence in the future.
“The Finnish Basic Income trials results show the importance of getting cash to people now is crucial. Even getting a small amount of money has a big effect on people’s agency and sense of control, especially those in real trouble, who this experiment focused on,” says Anthony Painter, chief research and impact officer at the RSA. “The scheme did not have negative effects on employment; if anything, it was positive – an important rebuke to those who think it would lead to more people being lazy.”
More basic income experiments are needed in the UK, he adds. Modelling for a proposed pilot scheme in Scotland found an initial basic income of £48 per week would be affordable, help the lowest paid the most and would halve destitution overnight. “We need to explore this model being applied across the UK as part of a new social contract for Britain’s recovery after Covid-19 as the furlough scheme is wound down.”
Growing pressure from investors
And while the pandemic has brought the global economy shuddering to a halt, from here on it starts to collide with a range of important megatrends including sustainability and climate change. There is growing evidence that more sustainable companies have been more resilient than their peers, and as thoughts turn to how to restart the economy, there is a strong movement to ensure that the stimulus packages that will be put in place have sustainability at their heart so that we ‘build back better’ – many people are making explicit links between the pandemic and how we tackle climate change.
“The short-term imperative of dealing with the Covid-19 pandemic doesn't alter the urgency of dealing with the climate crisis,” says Vaughan Lindsay, CEO of carbon offset provider ClimateCare. “We need to learn from how we have responded as global nations to the coronavirus crisis so we can galvanise action and all take responsibility for our emissions and fight climate change. The parallels between the coronavirus response and how we should collaboratively tackle the climate crisis must not be overlooked.”
The corporate world is increasingly coming round to this idea, too. European oil and gas companies including Shell, BP, France’s Total and Eni of Italy have all signed up to net zero targets, while BNP Paribas, Barclays and HSBC are among banks that have pledged to stop funding coal projects in recent months.
JPMorgan Chase has agreed to replace the former CEO of ExxonMobil as lead independent director while some of the world’s biggest companies, in markets across the world, have been lobbying governments to link recovery plans to climate action.
There are signs that governments, at national and city level, have also realised that there is an opportunity to boost the recovery and tackle climate change at the same time. The French government has banned Air France from flying routes that can be taken by train as a condition of its bailout, while cities including Paris, Milan and London have introduced measures to encourage cycling and ban cars in parts of their cities, both to aid social distancing and to reduce emissions.
In the UK, the Committee on Climate Change (CCC) has advised the government to place climate action at the heart of the rebuilding of the economy.
And all of this is happening in part thanks to growing pressure from investors, many of whom realise that tackling environmental, social and governance (ESG) issues is a key part of preparing for a sustainable future. Companies with strong ESG credentials have performed better during the crisis and many investors want to see these issues prioritised in recovery plans.
“Coming out of the crisis, we have an opportunity to accelerate towards a more sustainable world,” said Larry Fink, CEO of Blackrock, the world’s largest asset manager, recently. “The pandemic we're experiencing now is further highlighting the value of sustainable portfolios. We've seen sustainable portfolios deliver stronger performance than traditional portfolios during this period.”
The world is starting to return to work. But it will not be business as usual as we have known it in the past.