As the initial shock of the coronavirus outbreak begins to subside, “build back better” has become a popular mantra.
Businesses, it seems, aren’t just expected to build back better either. According to various sources, they must build back bolder, and faster, and greener too.
It’s a tall order given that any sort of recovery is far from straightforward. Companies of all sizes and across sectors have been hit hard. Despite significant government support, rebuilding will be an onerous task, with cash tight and the future uncertain.
But while calls to build back better appear to heap yet more pressure on directors, it does in fact chime with how many of them already view the challenge ahead. “Never waste a good crisis” is another mantra I hear from Institute of Directors’ members.
Boards being forced to think about purpose
This crisis is forcing boards to think deeply about their company’s intrinsic purpose. The months ahead will be difficult, there’s no shying away from that fact, but they also provide opportunity for directors to regrasp the essentials underpinning their business.
By doing this, boards can indeed build back better. Workarounds created on the hoof often turn out to be more productive than the previous business as usual. It’s striking that only weeks into the lockdown, 40 per cent of our members said they had already made a change they intended to keep in place for the long run. As Microsoft’s Satya Nadella said, we have experienced two years of digital transformation in two months. This has been achieved as executives hone in on their firm’s core purpose.
If the pandemic has forced boards to think about what their organisation is for, then it has also highlighted another, related question: who is their organisation for?
In the UK, investors would traditionally be the straightforward answer. Our corporate governance regime is rooted in returning value to shareholders, as set out in the Companies Act. However, the crisis has unsettled simplistic reading of the situation.
In fact, during the outbreak, the steer coming from policymakers has apparently been the reverse. Boards have been encouraged to prioritise the survival of their companies – maintaining employment and contributing wherever possible to the broader societal response – over the short-term interests of investors.
Businesses have been prevented or discouraged from paying dividends, dishing out bonuses or buying back shares. Pre-emption rights have been weakened. Companies have been permitted to delay AGMs or hold them virtually, despite investors’ misgivings. Meanwhile, creditors have had their legal redress mechanisms suspended or weakened.
Focusing on stakeholders, not just shareholders
In a very short space of time, the entire framework through which directors were meant to be running corporations has been seemingly upended. Boards have been expected to do much more to balance investors’ interests with those of other stakeholders, not least government.
The lockdown has undoubtedly led to changes in businesses’ operations: the shift to digital, embracing remote working and other innovations. But, looking ahead, boards must also be alive to the potentially lasting changes occurring with regard to their governance. Moreover, directors must grapple with these accelerating trends at the same time as they do not let others, such as diversity, fall on the backburner as they all too often do during a crisis.
After the pandemic, a narrative based solely on maximising shareholder value is no longer likely to prove the be-all and end-all. A frame of mind that is more attuned to the concerns of wider stakeholders, and that hones in on a deeper corporate purpose, may be more suited to the post-COVID-19 landscape.
This is a frame of mind that could well help business build back better after all.
