As panic surged around the world about COVID19 aka the Corona virus, contagion went from the organic form of virus to a virus of material losses when the world’s markets collapsed starting with the oil industry, and quickly spreading to other sectors. At its worst moments, Wall Street reminded us that given the right set of negative conditions, it could be September 2008 all over again, but from a very different starting point. In a rapidly evolving world, the unthinkable can happen in a heartbeat.
With fears about the Coronavirus influencing the global economy at such a scale, it might be difficult to imagine how to circumvent catastrophe for companies. But the response to Coronavirus from consumers, investors, and other stakeholders offers an important moment to reflect on how companies survive in the face of financial adversity.
There are many things a company and its board need in order to survive in our world beyond a strong balance sheet. Among the most important are competence, a robust business model, together with courage, and purpose.
Yet what keeps a company relevant and thriving beyond the numbers is that it’s leaders have effective ways to give and receive feedback and information from a wider set of stakeholders.
All living systems depend on feedback. Early cybernetics and control system scientists showed that without relevant and continuous feedback, a living system ceases to exist, or adapts to criteria that are no longer relevant to its survival. Feedback equals continued adaptation to remain relevant and vibrant.
Presently the Coronavirus is a case in point. To deal with the primary, secondary and even tertiary consequences of a pandemic, having an eye on the future is not enough. Businesses must be active in building relationships with stakeholders who will provide feedback on the future in real-time. Only then can they assess the scale of impact and develop scenarios for future responses.
There are big differences in the way companies engage with their stakeholders, especially in moments of crisis. The difference? Companies that have not taken the time to build rich stakeholder engagement that can provide an outside-in and an inside-out perspective on the business, often resort to hiring outside consulting firms to carrying out simplified opinion surveys with an eye to one-shot data collection followed by months of analysis, recommendations and report writing. By the time the report comes out the world has moved on and the stakeholders are wondering what happened to all the nice promises about staying in touch and “valuing their loyal contribution”. Alternatively, a continuous stream of data coming from regular and frequent contact with stakeholders provides a way to read the pulse of change before it appears in newspaper headlines.
Let’s look at an example. As is currently understood, the Coronavirus spreads mainly through airborne means. The closer a person is to another, the easier the virus can spread. If a large food service company sees its employees as important stakeholders who carry the reputational risk of the company literally in their hands, then they would make sure that they have ongoing and continuous conversations with unions and worker representative groups. They would cover topics such as sick-leave policies and contracting issues as they would understand that often workers cannot afford to miss a day on the job. They would see basic healthcare as preventative and linked to their license to operate rather than as an expensive extra.
A company is only as strong as its weakest links to its stakeholders
Then comes the day when a pandemic arrives and their workers have the potential to interact with hundreds of individuals a day and the likelihood to be infected with or spread such a virus skyrockets. In the absence of strong relationships with relevant stakeholders, the company must defend its policies in the face of the indefensible situation of chronically sick workers and their families without a safety net who have lost trust in the company no matter how many posters were put up declaring “We are a caring company” and “People are our most important asset”!
So what looked like a good cost-cutting idea at the top of the house, without rich feedback from stakeholders, no amount of profit, when the crisis arrives is going to prevent damage to reputation and goodwill. To mention Paul Polman, the former CEO of Unilever and a contributor to the Online Competent Boards Certificate Program, “If we myopically focus on the stakeholders and just making money as the purpose or the reason for being, it wouldn’t work because it would get you into conflict with the ethical standards that we put on companies.”
Consumers, investors, and a rich pool of stakeholders not only hold a business to a high ethical standard, they provide priceless feedback that will keep a company relevant and thriving in a bank of goodwill, especially when bad news arrives. And to be sure, the standards of the future are likely to be higher than the standards of today. Accenture’s December 2018 Strategy Research Report found that for consumers under the age of 30, six out of ten people consider a company’s ethical values before making a purchase. Today that number will likely be higher. The young consumers of today are the employees, investors and stakeholders of tomorrow, and will bring their demands for ethics and transparency with them. As Polman continues, “Increasingly, consumers have that opportunity with the transparency of the internet and other things to force companies out of business, and that is what you see happening.”
Developing long term effective relationships with stakeholders is not a guarantee of success, but it is becoming a necessary condition in the face of both internal breakdowns and external calamities. Even in the current crisis, we see that relationships with the stakeholders linked to vital supply chains, when in crisis, quickly bring new forms of exposure and reputational risk to a company headquarters in another part of the world.
Cultivating stakeholder relationships is more than stakeholder management. It is the ongoing investment in rich feedback to ensure understanding, transparency and the ethical position of the company and its strategic context over the long term. In short, the relevance and survival of a company is only as strong as its weakest links to its stakeholders. As the British remind us when it comes to building relationships: “Don’t try to drive ten-ton trucks over five-ton bridges!”
Helle Bank Jorgensen and Tom Cummings, Competent BoardsBack To News & Views