By Marco Nicoli, former World Bank Senior Project Manager and currently Special Adviser to the director of the OECD Development Center for the Human Centered Business Model; and by Filipa Correia, Chair of the IAFEI International Tax Policy Working Group; and by Alessandro Valente, BBA, MA, LLB, Currently working in the private Capital Group at UK-based law firm Harbottle and Lewis. From IAFEI October 2020 Quarterly Bulletin.
With the COVID-19 pandemic still in full force, it is high time for businesses to reflect on the potential long lasting effects of this global phenomenon. In a recent survey, almost 3000 respondents from 30 three countries and 600 employees across levels of seniority were surveyed. The overwhelming majority, corresponding to 90% of the respondents, believe that disruption generated by Covid-19 constitutes a serious risk to ethical business conduct, but there is a concerning disparity between boards, senior management and employees on the implications for compliance.
In addition to the inevitable disruption caused to the global markets, the COVID-19 pandemic magnified some of the traditional challenges that businesses face in their daily operations. As such, it is necessary to also consider the impact that the severe change in working patterns is generating. On this note, the survey indicated that there is a real concern that such disruption will constitute a risk to the ethical conduct of the organization. There is in fact apprehension in relation to the thought that the disruption of supply chains and reductions in employee benefits and compensation could lead to heighten risks to company ethics. The multi-dimensional impact of COVID-19 will surely have a long lasting impact on all major aspects of human and business interactions. This paper will delve deeper into those social economic and business ethics issues that are being generated by the ongoing pandemic and attempt to find effective solutions for CFO’s and C-suites to use in order to fulfill their role within both companies and society at large.
the UN’s Framework For The Immediate Socio Economic Response To The COVID-19 Crisis has been on the forefront of the belief that the COVID-19 pandemic is far more than a health crisis. As such, calculating the impact of the COVID-19 pandemic on society, the economy and vulnerable groups is crucial to prepare the appropriate responses of governments and partners to recover from the crisis as efficiently as possible.
Without a prompt social economic response, the overarching impact of the virus will heighten, thus threatening lives and livelihoods for years to come. Urgent development responses to this emergency must be launched with an eye on the future. It is important to keep in mind that the recovery trajectory in the long term will be impacted by the decisions LED countries are taking in the present, as well as by the support they received.
Thus, a macroeconomic response is necessary and the fiscal and financial aspects seem increasingly vital period to achieve this, a multi-step plan looks appropriate to tackle the situation.
Firstly, to assist the scale of the needed increase in expenditure, a comprehensive understanding of the various channels of economic impact is essential. The countries’ original methods to limit the spread of the virus through the use of various quarantine structures, restrictions on travel and lockdown of cities have caused a critical reduction in aggregate demand, with the major areas affected being tourism, hospitality, and retail. This has also negatively impact labor markets and supply chains, effectively damaging the productive structure and lowering pay. Needless to say, developing countries are extremely exposed to the current breakdown of global value chains, which are increasingly affecting tax revenues.
In addition, the rapid decline in GDP growth cannot be underestimated. The IMF’s baseline projection for global economic growth is minus 3% for 2020, with a projected cumulative output loss of $9 trillion during the crisis. Should the negative trend continue, it would generate the largest contraction since the Great Depression. The IMF estimates a drop of 6.3 percentage points if compared with the pre pandemic growth projections. Furthermore, comprehensive fiscal measures, will be required to limit the scope of the pandemic, contained job loss, diminished job loss and provide minimum living standards, with a particular focus on the most vulnerable areas within the population.
The pandemic event caused financial and liquidity concerns for many companies worldwide that had an immediate impact on their workforce. While some companies have been able to shield their workforce from such impacts and are choosing to keep and pay employees during the suspension of their activities, many companies have had to lay off workers or reduce their working hours. In March 2020, the International Labor Organization (ILO) Estimated that the impact of COVID-19 will result in a rise of global unemployment or between 5.3 million (“low” scenario) and 24.7 million (“high” scenario).
Knew unemployment figures emerging from impacted countries suggests the impact may already be greater than the high scenario. In the US alone, about 16.8 million people filed for unemployment benefits, making up about 11% of the US labor force.
Such rising unemployment may hit hardest the workers that are not covered by regular (eg. sick or unemployment paid leave) or exceptional COVID-19 specific safety Nets, such as independent workers, 0 hour contract workers. Or informal workers, among which many or migrant workers and women.
Finally, the key impacts of the prospective policy measures will need to be Julie examined in order to make sure that policy makers take into account policy tradeoffs and that the predicted effects of such measures are sustainable overtime without generating excessive economic and social instability and environmental impact. Over the next 12 to 18 months, the socio-economic response will be critical to the success of the global fight against the inevitable repercussions of such a pandemic. Along with socio-economic aspects, the business ethics dimension will also be particularly relevant.
Business ethics dimension
The all-encompassing dimension of this pandemic is inevitably of an ethical nature. Since its inception, this pandemic has placed a nearly unprecedented focus on the value of life. This refocusing on some of the most essential aspects in our life has forced businesses to re evaluate the importance of their human capital as the true foundation of their enterprises, as well as the well being of their customers.
On this note, there has been great disparity in the way different countries attempted to provide aid to those that were most affected by the virus. For instance, the EU’s response to this pandemic has been prompted, with member states receiving substantial aid mainly in the form of loans and other financing instruments. The same cannot be said for major geopolitical players such as the US, Brazil, India [to name a few] there are still in the struggle to contain the virus effectively and are suffering from its most severe repercussions.
On this note, the COVID-19 pandemic allows for the opportunity to rethink and remodel the relationship between the company and its employees and customers. We have already experienced a considerable number of businesses giving back to their employees in these challenging times.
Examples of such an approach are the extension of the sick leave protection, making remote working accessible for all employees, or even promising full paid to temporary and daily wage earners. Such measures are great examples of corporate ethics and could improve the lives of millions of workers in most of the areas of employment. However, it is impossible not to mention what is likely to be the most vulnerable portion of workers: those who are part of the gig economy. It is no surprise that the gig economy has suffered extensively during the pandemic. Gig workers such as food delivery, personnel, etc largely enjoy no safety nets.
Moreover, since most of these workers tend to work very close to the line without sick leaves, burning low wages and constantly interacting with customers, they are naturally more exposed to the COVID-19 virus. In addition, it is common for the delivery partners of multinational big giant’s to not receive medical coverage or health insurance period for this reason, it is important for these companies to quickly take into account the ethical aspects behind their business.
Considering the severity and urgency of the context in which we live, The fact that these actions are taken due to a brand building exercise or for social good should not matter. What matters is that such efforts are put forward to aid society as a whole period
What is at stake for CFO’s
In a recent survey, CFO’s have shown to believe that the long term impact of the pandemic will be drastic and their profound changes at all corporate levels are necessary to respond to such an unprecedented event. When asked about their thoughts on the economy recovering, CFO’s of both EU and US companies tend to agree that it will be U shaped. This translates to a substantial dip before economies are expected to return to pre pandemic levels. Surprisingly, CFO’s of Asian companies are far more pessimistic in their prediction, believing in an L or W shaped scenario.
Independently from their views, CFO’s are inevitably at the forefront of the crisis and their decisions will ultimately be crucial for the future and well being of our society
As such, it is increasingly evident that CFO’s and C suites are taking decisive actions to back their businesses, by placing costs, cash, and performance as top priorities.
In the same survey, more than 80% of CFO’s interpret these times as a strategic opportunity for transformative change period such approach will likely see an increased focus on digital and innovation.
Furthermore, in a recent article, six major steps were proposed to see if those to efficiently manage the crisis. Those are: new
- Preparing for talent disruption, consider investing on benefits and access to health care and virtualizing the organization by providing resource is for staff and making clear how people should support one another, and by virtualizing the finance function and other parts of the organization to operate effectively amid social distancing; Furthermore, companies that invest on robust practices on worker leave and other benefits or better position to retain critical employee skills and know how and avoid talent disruption issues during the crisis, while helping on the quick recovery from its medium and long term effects.
- bolstering liquidity by managing short-term credit, cash, and performance needs;
- communicating frequently with critical stakeholders to keep them informed including engaging on social dialogue , industrial relations and more efficient stakeholder engagement;
- Driving operational improvements necessary to navigate the sharp downturn;
- Managing risks and serving as stewards of company assets during this vulnerable time;
- Planning for recovery by strategically positioning and utilizing assets.