Corporate Purpose and Global Pandemic
Updated: Dec 20, 2020
By Andrew Goldberg and Stephan Altrichter
Senior Partners, Metropolis Group 360 and Senior Strategists
The past two decades were an era of social purpose for corporations. In a fast-growing global economy, corporations, especially in the US and in Europe, found that they could marry good works and good business. Companies that were overtly “meaningful” in their strategies were certainly rewarded by higher market valuations. One study by Havas indicated that companies with clearly articulated and impactful social strategies outperformed the public markets by 134% up to 2019.
Yet what if there is no return to “normal”—at least "normal" in the sense of a reasonably stable global social order. Last week’s announcement of a new Coronavirus strain and attendant lock-down in the United Kingdom conveys an uncertainty over the immediate future, despite the rapid deployment of new vaccines. What if global disorder becomes chronic, at least for an extended period? How might this impact the role of corporations in a multi-stress environment?
Pressures on the ESG-integrated business model were already looming before the Covid -19 pandemic shock. But the pandemic compressed and clarified many severe geopolitical and socio-economic challenges to companies seeking to marry social and environmental values into their competitive strategies. The Economist calls 2020 “the year when everything changed.” We would say it was certainly the year instability accelerated.
Geostrategic conflicts intensified during the pandemic, particularly between western nations and China, where much of the worlds critical supply chains, and many western subsidiaries are located. A costly and organizationally wrenching process of economic de-linkage has intensified and appears to be a general trend. Many firms are beginning a retreat from global to regionalized and even localized operations and supply chains. This will inevitably force a re-assessment of business and social values to address the needs of a changing set of stakeholders.
The tension between geo-economic pressures and an increasing number of ESG imperatives weigh equally heavily. Pandemic-triggered recession has attenuated the business growth that made possible flush ESG budgets. Yet ESG concerns have grown. Rising social discontent arising from economic, environmental, epidemiological and ideological controversies have increased the number of social issues on the table. Among the many issues that struggle for attention are human anxieties over displacement by AI and automation, diversity and inclusion issues, and the continuing threat of environmental ruin.
Now decision makers must factor anxieties over repeatable epidemic episodes. Many scientists, over many years, asserted that pandemic risk will be a more frequent occurrence in our intensively urbanized and interconnected world. The new UK Coronavirus strain is a stark reminder that battle between medical science and pathogen may be a defining feature of our era for decades to come.
Given a more diverse and acute risk environment, employee and management populations may experience intense psychic conflicts over their own personal and social priorities. Yesterday’s ESG definitions may no longer align with today’s immediate urgencies.
CEOs and top management revisiting their strategies in a time of unrest must work even smarter and harder to rally their businesses around their vision and values. This was already a difficult task, thinking they are clear on how social purpose aligns with their competitive interests, the rest of the organization might not share the same clarity, urgency or executional path. A study of 1000 companies on the link between corporate performance and ESG strategy indicated that clarity of purpose declined sharply from senior to middle management and then to the rest of the employee population. In the post-Covid-19 world, social dissonance may now exacerbate the potential lack of clarity in the purpose cascade. Questions around ESG involve the entire supply chain and most businesses in today’s world are driven by ROI. For start-ups the ROI is easily calculated, as most of the time this is their product and company USP. In well established companies the ROI may take the form of a combination of lost and substituted sales and therefore maybe a harder sell to investors or the board of management.
There are no easy solutions as the dynamics of global readjustment and turmoil will take time to sort out. But every crisis bears many openings for competitive leaps for those who are prepared. Yet there are a few actions, validated by experience over time, that may be ameliorative.
1. Zero base your purpose/ESG strategy. ESG strategy and implementation doesn’t exist in isolation. It must be effectively integrated into the responses to the already accelerating challenges of digitalization, 5G integration, IOT, regionalization and other systematic changes facing the corporation. A “Copy-Paste-Adapt” leadership approach will only work to a limited extent. The point of departure is not a clean sheet of paper, but a grown organization with grown processes, reflecting the company’s culture/ values. Thus, one must weigh the ROI of existing vs. alternative scenarios perhaps better designed for a disordered world.
2. Think competitively. Before the Covid-19 shock, it was already clear that most ESG programs across various industries were converging. One company’s policy might look much the same as another. Yet for ESG programs to be successful they must integrate with a clear competitiveness strategy, redesigned for this new, fractious era and striving for a company or product USP. That means an integrated strategy and the appropriate application of resources to differentiating one’s position from the competition. Will you be in the driving seat or do you decide to hitch-hike, which might put you out of business in the mid- to long term.
Legacy companies, now facing economic stress, may find this more difficult, especially those with costly embedded structures and/ or union involvements, that creates disadvantages relative to clean slate upstarts due to existing structures and/ or union involvement, etc. But it is a vital task.
3. Clarify your internal influence network. Mobilizing around purpose driven strategies cannot be frustrated by lack of middle management engagement. The work-around here is to use evaluative tools to understand who are the most trusted, most motivating actors in the work force and mobilizing them effectively. These individuals are quite often not in the line of sight of upper management, and not flagged in traditional HR measures and management tables and score cards. Cutting through corporate latency is therefore critical.
4. Redefine communications. Cohesive, targeted and consistent communication is vital. But there are barriers. For one thing, managers often view communications as something one says or as content one distributes. Yet, the way managers throughout the firm model behavior, “walk the talk” and are clear about strategic priorities and resource allocation is extremely critical. It is also too common for channels of communications to be disconnected in application. Line management, Human Resources, and Corporate Communications often operate as parallel, non-complementary entities. Creative management can bring their efforts into alignment.
5. Bypass the “cascade” to align values. Top down strategy doesn’t work if it collides with employees, especially middle managers, who bear different views, or just may be confused about their beliefs. In an economic downturn, employees of effected companies are naturally more concerned about salary, safety and survival, while top management may have more grandiose visions. If you aren’t listening and aligning your purpose strategy with voices from the wider company, your strategy may be held hostage to economic anxieties that are intensified by social media.
Terms currently used, such as “new normal” or “next normal” imply a return to a new orderliness. That orderliness, though, may take a long while to develop. Our reality may be that normal is no longer an applicable word for some time to come. In the meantime, to survive, and thrive, companies need to reconsider what purpose means and how to apply it more effectively in their new adaptive strategies.