The COVID-19 crisis has brought about a whole new set of problems for companies. Will they resort to old solutions? Olga Panashchenko, ESSEC Business School, contends that is time for both leaders and employees alike to explore new avenues.
Sink or Swim: Corporate leaders and the post-COVID-19 challenge, by Olga Panashchenko.
The Covid-19 challenge: Point of no return
It seems that it has been ages since the COVID-19 pandemic started. The word “lockdown” was named a word of the year – but “quarantine”, “isolation” and “crisis” also make good candidates. Our reality has changed, and lots of people are still struggling to adapt to this new way of life. We almost got married to our laptops, waiting for another Zoom conference to start. Our work schedule, our habits, our leisure activities are all changing, just as our mindset.
A bit more than a year ago we could take a flight to Italy in search of sun and a pizza with mozzarella, we could go to the cinema after work or throw a birthday party at Disneyland. Today, with all the restrictions, closed borders and corporate bankruptcies, a lot of people feel that these simple pleasures have become a thing of the past.
The uncertainty brought by the COVID-19 pandemic is a powerful disruptive force. It brings to the surface such issues as access to medical care, economic stability and job security. Under this burden, we sometimes feel an irresistible desire to book a ticket to somewhere and to just fly away and leave all the problems behind, taking a moment to relax. But how many of us will actually be able to afford their dream post-pandemic vacation?
Corporate Leaders: Need for action
The modern world has seen sanitary and economic crises before, but very few of them can compare with the COVID-19 pandemic and a subsequent lockdown in its scope, complexity and overall impact. According to the World Economic Forum, 114 million people lost their jobs during 2020 and there is no evidence to suggest that 2021 will see a substantially different situation. As the pandemic evolves, more and more companies find themselves in a state of financial difficulty, leaving managers with a tough choice: to focus on saving business or saving employees?
Let’s take an example of Hertz, one of the US largest car-rental companies, that filed for bankruptcy in 2020. They started losing money because there was no demand. However, they were still obliged to pay fixed costs to continue providing service to hundreds of thousands of vehicles, which were standing idle. With high costs and very low revenues, the company confronted a liquidity shortfall and had to search for all possible solutions to stay afloat. Prior to bankruptcy, they fired 16,000 employees. Yet, was such an action inevitable and unavoidable?
Our pragmatic side would probably say yes. When business is in trouble, it calls for drastic measures. Prioritizing a company’s interests increases its chances of overcoming temporary difficulties and getting back on track. Any hesitation might be critical: once a point of no return is reached, the very existence of the company is jeopardized. And if it ceases to exist, all the employees lose their jobs, not only part of them. A conclusion speaks for itself: save the company. This is logical. This is justified. Even altruists don’t want to see their business go bust.
To a large extent, the above scenario perceives employees merely as resources. They produce a certain output that gets registered in the asset side of a balance sheet, and they also cause expenses that get reflected in liabilities. As soon as decision-makers determine that this source of labor lacks productivity, they will cut wages and reduce workforce to the “optimum” level.
Corporate leaders and the post-COVID-19 challenge: New problems, old solutions?
Reducing labor costs by means of cutting wages and letting “extra” workers go is a well-known practice. Starting from the 1970s, massive layoffs became routine for US companies. IBM, Citigroup, General Motors, Boeing, Bank of America and dozens of others did not hesitate to significantly reduce their workforce in pursuit of lower expenses and higher margins. This practice quickly spread to other countries. From a certain point of view, it was regarded as a sign of corporate competitiveness: the company’s ability to restructure and to optimize profit & loss.
Nevertheless, the world has changed, largely due to the increasing global challenges, namely: growing social injustice, accelerating climate change, political upheaval, rapid technological disruption, and finally a fast-spreading virus, which is claiming thousands of lives and causing severe damage. Playing a major role in the fight against these challenges, companies can no longer reserve for themselves a simple production function. They have to adapt to the 21st century’s realities and to assume more environmental and social responsibility, taking into account how the results of their activity will impact a larger group of the stakeholders.
The stakeholder/CSR perspective is most consistent with the pluralistic environment faced by businesses today. Therefore, the criteria of competitiveness have also changed. Human capital is now placed above other resources. Knowledge, skills, experience, creativity and out-of-the-box way of thinking help people find the best use of other available resources as well as come up with innovations necessary for the corporate development.
Sharing this viewpoint, can we really advocate for prioritizing financial interests in the face of the COVID-challenge? Wouldn’t it be a double standard if a company donated for charity while depriving their employees of a source of income at the time of crisis and uncertainty?
Like leader, like worker
Being a leader has never been easy. However, today it has become more challenging than ever. A successful decision-making policy demands a long-term vision. In other words, it requires capacity to think ahead and to predict the results of one’s actions at a global scale.
If managers think solely about optimizing their balance sheet in the face of a financial struggle, employees are likely to be aware of this. Corporate culture is no longer something that is made secret of. It is an essential part of the working environment, something that employees unconsciously and inevitably absorb. If managers place financial well-being above everything else and opt for downsizing as a default measure to cut costs, they tell employees something like “everyone should think for himself”. And the employees get the message.
Massive layoffs are a thing of the past. This is the conclusion we draw if we look at the figures: according to recent studies, downsizing a workforce by 1% leads to an increase by 31% in voluntary turnover the next year. It can be explained by the lower performance of “survivors”, who tend to feel burnt out and have fewer job satisfaction and commitment to the company. Indeed, if hard work could not ensure a job for their colleagues, what would guarantee that they will not be next? Employees lose the incentive to try their best for the good of the company. As a result, long-term corporate success is under threat.
Hence, layoffs and furloughs are not an option any more. But then what is? How can the company take care of its employees and not cross the line after which it is bound to go bankrupt?
Corporate leaders and the post-COVID-19 challenge: Use your bootstraps
The key concept implies that saving a company is a collective challenge, especially during the COVID-19 crisis. Managers and employees should work side-by-side rather than be separated from each other by the wall of a corporate hierarchy. Engagement, collaboration, unity and mutual trust are among the main elements of building relevant corporate strategies in a state of financial distress.
At a time of great uncertainty, the need for joint decision-making processes is even more urgent. Corporate leaders should involve their subordinates in strategic discussions and organize open forums in order to give them possibility to share their thoughts. Employees that feel an integral part of the team will show more devotion to their job and to the company.
Furthermore, managers might consider introducing incentive-based compensation instead of a guaranteed one. It is also a means of cutting costs during hard times, but it is far less severe than downsizing. Employees know that they will earn back their salaries as soon as the company improves its performance. This “airbag” gives a certain feeling of confidence in their own future.
As the situation gets more difficult, stricter measures might be introduced. They may include a shift to a fully remote work mode, part-time pace for full-time workers, and enforced holidays with a mix of paid and unpaid leave. One thing is clear: layoffs are the last resort for a company with a long-term perspective on the market. Overall, the lesson calls for a collective effort to overcome COVID-19 challenge. Leaders must encourage other employees to use their bootstraps – to take ownership and responsibility for their own well-being.
The atmosphere of participation and a spirit of collaboration will help employees adapt to the new reality and come up with effective solutions. Hopefully, with a similar approach they will get out of the
COVID-19 crisis more resilient and empowered than ever before.
- Flood. A. Lockdown named word of the year by Collins Dictionary // The Guardian, 10 November 2020. – https://www.theguardian.com/books/2020/nov/10/lockdown-named-word-of-the-year-by-collins-dictionary
- Kelly J. ‘Hertz Files for Bankruptcy After 16,000 Employees Were Let Go And CEO Made Over $9 Million’, Forbes, 23 May 2020. – https://www.forbes.com/sites/jackkelly/2020/05/23/hertz-files-for-bankruptcy-after-16000-employees-were-let-go-and-ceo-made-over-9-million/?sh=bde2e7e2bcac
- Richter F. ‘COVID-19 has caused a huge amount of lost working hours’, World Economic Forum Agenda, 4 February 2021. – https://www.weforum.org/agenda/2021/02/covid-employment-global-job-loss/
- Sucher S., Gupta S. ‘Layoffs that don’t break your company: better approaches to workforce transitions’ // Harvard business review, 2018-05-01, Vol.96 (3). – https://hbr.org/2018/05/layoffs-that-dont-break-your-company/
- Zillman C. ‘The 10 biggest corporate layoffs of the past two decades’, Fortune, 20 September 2015 – https://fortune.com/2015/09/20/biggest-corporate-layoffs/
- Link up with Olga Panaschenko on LinkedIn
- Read a related article and download our book: Leadership, Governance, and Crisis
- Download this article and others in the special anniversary issue Global Voice magazine #18
- Discover ESSEC Business School, France-Singapore-Morocco
- Apply for the new ESSEC MSc in Sustainability Transformation.
Learn more about the Council on Business & Society
- Website: www.council-business-society.org
- Twitter: @The_CoBS
- LinkedIn: the-council-on-business-&-society
The Council on Business & Society (The CoBS), visionary in its conception and purpose, was created in 2011, and is dedicated to promoting responsible leadership and tackling issues at the crossroads of business and society including sustainability, diversity, ethical leadership and the place responsible business has to play in contributing to the common good.
In 2020, member schools now number 7, all “Triple Crown” accredited AACSB, EQUIS and AMBA and leaders in their respective countries.