Stakeholder Capitalism to Prevail over the Economic Shock of COVID 19

The COVID 19 crisis originated in China towards the end of 2019. As the virus began to spread at a faster rate national and international leaders, policy makers, and business heads looked upon the lock down and social distancing as an effective measure to contain the spread. While these measures surely helped in minimizing the reach of the pandemic, as time went by, the world realized the economic costs associated with it. This territory was uncharted, and the various dimensions of the crisis started revealing itself. Experts started forecasting the path of recovery. The “shock geometry” was studied and debates arose on the possible V, U or L- shaped recovery.

After the abrupt halt, the market and consumers slowly and cautiously began to adjust to the crisis. As per McKinsey survey, “In China, for example, one month after the end of lockdown, the return-to-activity rate was 97 percent in the automotive sector, 70 percent in the textile sector, but only 40 percent in the restaurant sector. Outside Hubei province, 99 percent of large firms had restarted—compared to just 77 percent of small and medium-size enterprises (SMEs).” It further says , most consumers expect their routines and personal/household finances to be impacted over the next two-to-six months. The exception is Japan, where a significant proportion expect the impact to last for more than seven months.

Stakeholder capitalism: So what is the need of the hour?

As leaders, we must understand the pandemic is about people’s lives. Here “people” include employees, suppliers, shareholders, customers, community partners and everyone who is directly or indirectly associated with the business. The need of the hour is to empathize with all these stakeholders, connect with them, and work together to find a sustainable solution to the current crisis. Jane Nelson founding director of the Corporate Responsibility Initiative at the Kennedy School of Government, Harvard University, with the organization Business Fights Poverty and support from the UK’s Department for International Development (DFID), has co-created the Business and COVID-19 Response Framework and talks about stakeholder capitalism. This is what world needs.

Even the Davos Manifesto 2020 says the same," The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large."

According to the World Economic Forum (WEF), businesses must focus on the Six Stakeholder Principles for the COVID era:

·        To keep employees safe

·        To secure shared business continuity with suppliers and customers

·        To ensure fair prices for essential supplies for end consumers

·        To offer full support to governments and society

·        To maintain the long-term viability of companies for shareholders

·        To continue sustainability efforts, including to fight climate change

Working together to prevail over the COVID 19 crisis

Businesses and their stakeholders around the globe must work together to improve their capacities steadily, rapidly deploying digital solutions to lower costs, making companies more flexible, improving the decision chains and streamlining processes. Let us look at a few examples which highlight co-operation among different stakeholders.

Jane Nelson, from Kennedy School of Government shared, "In Kenya, a group of companies has come together to form the National Business Compact on Corona virus, working with the Ministry of Health, the UN Country-Coordinator and AMREF, among others. Similar COVID-19-dedicated business leadership coalitions have been mobilized in Zambia and Nigeria. Other national and global business leadership platforms such as the Confederation of Indian Industry, Business for South Africa, Instituto Ethos in Brazil, the US Chamber of Commerce, the World Economic Forum, and the World Business Council for Sustainable Development, to name just a few, have created dedicated COVID-19 response initiatives to mobilize their member companies to take action.”

According to the WEF, “The National Business Compact on Coronavirus in Kenya has the leading brands in hygiene working together, not competing. The main soap manufacturers along with other companies are putting their resources into a unified platform of communication. They bring together the best of advertising, media and branding to remind consumers that the preventive actions are a matter of life or death. They’re targeting the estimated 6 million Kenyans who are struggling to maintain hand hygiene and other key behaviors. And they work with the government, UN organizations, community-based organizations and digital agencies to distribute essential hygiene products.”

The road forward

By endorsing the principles of stakeholder capitalism, we as leaders can pave the way for not only an immediate response to the current crisis but also create sustainable solutions which will reshape businesses, societies, and economies, enabling them to become stronger and more resilient for the future.

The WEF states, “A coordinated effort as a global community is crucial. The 1918 Spanish flu pandemic claimed 100 million lives and the Black Death is estimated to have claimed the lives of even more people. Both occurred when the world was more fragmented and information sharing limited. The 2014-2015 Ebola virus, a more recent example, was contained through an effective joint response from the international community. The unique challenge of COVID-19 as a highly infectious respiratory disease highlights the urgency of such an effective collaborative effort in public health, but also in trade and commerce, as it directly impacts the distribution of resources.”

Even , the International Monetary Fund states, “Together, monetary, fiscal, and financial policies should aim to cushion the impact of the COVID-19 shock and to ensure a steady, sustainable recovery once the pandemic is under control. Close, continuous international coordination will be essential to support vulnerable countries, to restore market confidence, and to contain financial stability risks.”

Closing thoughts

Our history clearly indicates that together we have adapted and adjusted successfully to shocks like, the Spanish flu, plagues, H1N1, SARS, and other outbreaks. We also navigated through the challenges of the economic downturns after the World Wars, DotCom bubble burst and the financial crisis of 2008 through resilience and reform. So remember, we will also get through the COVID 19 crisis through course correction, innovation, and systemic evolution.