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24 April 2020

Coronavirus: The role of big business

Dr Kamini Gupta, Lecturer in International Business & Comparative Management

Why there may be long-term benefits from de-prioritising short term financial gain

A signing on an empty shelf limiting the amount of toilet paper and paper towel households can buy.

As the world deals with the anxiety, uncertainty and disruptions wreaked by Coronavirus, what, if any, is the role of big businesses?

Last year, the Business Roundtable, which consists of the CEOs of America’s leading corporations including Amazon, Ford and P&G, made the headlines with a revision to their corporate purpose statement. According to the revision, the purpose of these organizations was now not only to serve the interests of their shareholders, but to create value for all their stakeholders including employees, customers, suppliers and communities. Inevitably, given that stakeholders’ interests are rarely seen as perfectly aligned, the big announcement was met with some skepticism.   

A crisis such as the one we face today provides a test for big businesses’ commitment to its stakeholders. Businesses face a choice similar to the one we all face: whether to act only in our own interests; or to take a broader approach to our well-being by linking it to the wellbeing of our whole community.  While the first option provides us with short-term benefits; the second option has the potential to sustain us in the long-term.

Anything but business as usual

Some businesses are recognizing this trade-off and are doing what they can to support the interests of all their stakeholders. This means new and extraordinary challenges. How can they ensure the physical and mental well-being of their employees while also maintaining business continuity and sustaining cashflow?  The organizations that have taken a long-term approach are telling employees that they do not need to take unpaid leave if they cannot work because they are self-isolating; to do only as much as they can while taking care of dependents and prioritize family; providing a work from home kit allowance and sending messages of support.   

While some organizations struggle with a big drop in demand, others are finding their services in increased demand. Instead of profiteering from this, organizations in industries from fitness to film streaming are temporarily providing part of their offerings for free or at reduced prices; or providing extra content. Grocery chains are introducing shopping hours and reserved delivery slots for the vulnerable.

Others have diverted their resources and factory capacity to create ventilators and testing kits to meet this demand in a short-time and assist governments and communities. For organizations looking to find a win-win, there may be some low-hanging fruit such as finding ways of using excess capacity where your demand has fallen (such as for hotels which are offering rooms to healthcare workers); line managers consciously putting themselves in the shoes of their team members in order to understand and support their needs better; and giving potential customers a taster of your product for free to increase conversion post-crisis.

Will this pay off?

As these examples show, many businesses are responding to the crisis by adopting measures that diverge from the business-as-usual playbook. Given that many of the steps they are taking do not contribute to their immediate financial performance, you may wonder if these actions are sensible. But putting the moral imperative aside, these organizations stand to benefit in direct and indirect ways. Businesses behaving in a purposeful way are attracting attention leading to increased acquisition and retention of employees and customers; and improved productivity and engagement from them.

These measures can also help organizations benefit in indirect ways, such as by making them more adaptable. My research with microfinance institutions in India that faced uncertainty during a period of crisis shows that organizations that were socially focused, and had a deep relationship with their customers were able to recover from the crisis more easily. These organisations were able to create a bond of trust with their stakeholders and customers compared to those that had a purely transactional relationship with their stakeholders. As a result, they were able to exchange fine-grained and reliable information that helped them to plan ahead and be more adaptable, so that they could recover from and face uncertainty more effectively than others. 

Let’s not be under any illusions: this by no means is a simple choice, and I would perhaps not recommend small businesses to adopt this. The stakes are high, margins are often narrow, and there is no reason for organizations to commit financial suicide. Going back to the analogy of how individuals are dealing with this, it is the healthy, strong and best resourced who are most impelled to step in to help the vulnerable.

Similarly, the businesses that do have the organizational resources to weather this, and there are many that do, should consider contributing to the larger community. It is all fair and good to say that you care about your stakeholders in times of plenty; it is only during a crisis that your statement can really be tested. Will big businesses put their money where their mouth is?  

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Kamini Gupta

Lecturer in International Business & Comparative Management (ICBM)