The pandemic facing our world today is challenging businesses and economies and impacting millions of people, from employees to suppliers to customers to families and communities in the broadest sense. It is a salutary reminder of our shared responsibilities as we contribute to debates and discussions on the key issues facing our societies - to serve the interests of the common good on a global basis, to support the G20 in its endeavours to make progress accordingly, and to formulate concrete recommendations for change that can help us not only imagine but then realise the kind of world we wish to emerge from the present crisis.
It is heartening to see the commitments which so many businesses have made to protect employees through the crisis. It is interesting - and unsurprising - to see the reactions when some businesses are challenged based on whether they are actually delivering. It is also both remarkable and encouraging to see the energy, innovation, creativity, flexibility, compassion and commitment brought by so many people in so many businesses to help address the challenges of this pandemic and to support their communities. We have had plenty of evidence of negative attributes such as fear and greed embedded in economic and business models. I am sure this will continue to be a challenge. But now there is also large scale evidence of hope and care in so many actions by so many people in so many places.
This points the way forward, it highlights the choices available. We can choose to focus on recoupling economic and social progress, we can ensure that business and economic purpose are aligned with the needs of society, we can embed and institutionalise the many positives we now see, and we can look to make these become the expected norm - the new normal.
In this context, I will share with you a sense of how business generally has been reacting in the immediate throes of the crisis, and then elaborate on how some of these changes may be quite significant for the medium to long term.
Then I will make the case that the crisis reinforces the urgent need for the recoupling of economic and social progress.
And finally, I will describe some of the critical policy measures to be taken to drive this change.
So let me start by sharing some perspectives on how business is responding to - and learning from - the current crisis - a crisis which is not only an economic crisis, not only a health crisis - it is both, with implications for so many people.
For those fortunate enough to still be at least partly in business, the scale and pace of transition to home and flexible working is staggering - offices worldwide are closed and central business districts are empty.
This clearly suggests that business will not be going back to the old normal - this likely has significant implications for example for commercial property in Central Business Districts.There is likely to be some hybrid between old and new, with much higher levels of flexible working in terms of location, but without the same reliance on offices. This will also raise interesting issues and opportunities for transport, infrastructure, and urban and suburban planning - as well as the health and welfare of large numbers of people working from home for at least part of their time.
But there are also broader implications. Global businesses are already redesigning supply chains, typically looking to create greater resilience, with less risk of disruption. It is very likely if not inevitable that this will include much greater emphasis on regional and local supplies which in turn has significant implications for trade and investments. It may also be a positive contributor to reducing carbon footprints.
Businesses across the board are also recognising the urgent need to better leverage technology and especially to foster the skills in their workforces to support this.
For some time we have been challenging the idea that “the business of business is business”, challenging the doctrine of shareholder primacy, and therefore urging the need to “recouple” economic and social progress.
This crisis exposes just how flawed that doctrine of shareholder primacy is in today’s world. A business cannot operate in conflict with the needs of its broader stakeholders - it is not sustainable or acceptable. To put it in another (more positive) way - we need businesses and economies which actively look to address societal needs and challenges - including a global health challenge.
To do this effectively, we need active collaboration between businesses and governments. And this starts with redefining the very purpose of an economy, and therefore of economic actors, of businesses.
If the explicit purpose of an economy is to support society, to help address challenges like a pandemic, like environmental sustainability, like social prosperity and inclusion, we must acknowledge that this is not what our economic system has been designed to do, and we must change the system.
This crisis makes the case for this change more urgent than ever. Ironically, the last 12 months has seen growing acknowledgement of the need to shift to greater emphasis on stakeholders beyond shareholders - this will not happen without changing the current system which puts the emphasis on shareholders in the first place - now is the time to urgently address this.
I mentioned earlier that there is a “design problem”, and addressing this is at the heart of the need to drive recoupling. Economic and business systems are underpinned by the primacy of shareholder value, and therefore a priority emphasis on financial objectives, typically for the short term.
But if the goal is greater inclusion, and more emphasis on stakeholders and on sustainability, then the elements of the system which drive these behaviours - business and economic - need to change. What does this change look like?
It includes policy decisions requiring businesses to take account of broader stakeholders including employees, customers and suppliers, as well as shareholders.
It includes businesses articulating their corporate purpose - in effect why the business exists from the perspective of these broader stakeholders and how this guides the profit making activities of the business.
It includes an urgent need for a common reporting standard, requiring businesses to report their impact on broader stakeholders in a transparent and consistent manner.
And it includes governance requirements and incentives that reflect these enhanced requirements - all of which can help ensure there are valuable profitable businesses playing a role to support the societies within which they operate, and doing so sustainably.
The same challenge exists with economic thinking at the macro level. The primary objective is economic efficiency, and the models presume that economic actors are primarily rational and selfish. Policy options are assessed in terms of economic efficiency in this context, rather than focused on addressing human needs in the broadest sense. And economic performance is measured primarily in financial terms, using GDP. These are the macro equivalents of the doctrine of shareholder primacy, and the priority attaching to corporate financial performance. These economic models must change in alignment with the equivalent changes to business models, if we are to recouple economic and social progress. We must define and prioritise the societal outcomes to be achieved, measure and report progress against these objectives, beyond GDP, and assess policy options based on these objectives, beyond the traditional models of primarily financial efficiency.
The virus accelerates the need - and perhaps also the opportunity - to do this. The virus is amoral, apolitical, impersonal. Responding to the virus requires full alignment between the interests of businesses, economies and societies - it is a perfect illustration of why change to drive recoupling is so urgently necessary. And it does so on a global basis. Nowhere is out of lockdown until everywhere is out of lockdown. Elsewhere Paul Collier highlights this point when discussing the particular challenges facing Africa. Europe has a significant self interest in helping Africa to beat the virus.
We quite literally all have an interest in each other’s success. It is a shared common goal, which can only be addressed through cross border collaboration and alignment between economic activity and societal - human - needs.
For a host of reasons, we will not be returning to the old normal. We therefore have an opportunity to define the nature of the change. In particular, we have an opportunity to look through the crisis, and determine the measures which we want to see reflected in the new world as it emerges. For some time there has been an urgent need to focus on recoupling economic and social progress, on redesigning economies and business to ensure support for the societies within which they operate, and to do so sustainably. The virus accelerates the need to do so, and perhaps gives us an opportunity to accelerate the change itself.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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