The COVID-19 pandemic has brought many ESG factors to the forefront. It has reinforced the important role of business in society, and increased scrutiny around corporate social responsibility (CSR).

As governments around the world unleash massive fiscal and monetary stimulus packages to fight the effects of the pandemic, businesses have stepped up efforts to help employees, consumers, suppliers, and their local communities. The pandemic reminds us that “we are all in this together,” and everyone must play a role in battling this human, economic, and social crisis. 

The critical role that business plays in sustaining our society has been highlighted even in countries with public healthcare systems, like Canada. Many, both inside and out of the business community, believe this awareness will bring new attention to the need for companies to develop long-term plans while considering the rights and interests of all stakeholders, and not just shareholders.

While companies are continually balancing long-term objectives against short-term considerations, the drastic economic impacts of the pandemic have also put a spotlight on how employees are treated relative to other financial commitments.

Employees first

Along with obvious priorities such as health and safety, employers are increasingly expected to provide additional accommodations for employees when necessary, such as flexible work arrangements or paid leave. Since the prospect of widespread unemployment would exacerbate the crisis, threatening basic social stability and the financial markets, corporations are under added pressure to maintain employment levels, even if it means lower short-term profits.

While companies argue that job cuts are necessary to offset drops in revenue, critics say that companies should consider reducing executive compensation and limiting return of capital to shareholders before letting employees go. Firms that continue paying dividends and buying back shares after laying off workers are drawing criticism from labour unions, politicians, and corporate governance experts.

As the pandemic exacerbates poverty and inequality, a consensus is growing that any government support to corporations should come with restrictions on executive pay, dividend payments, and share buybacks.

“OSFI expects that banks will use the additional lending capacity to support Canadian businesses and households, and should not use this measure to increase distributions to shareholders or employees or to undertake share buybacks. Consistent with this, OSFI has today set the expectation for all federally regulated financial institutions that dividend increases and share buybacks should be halted for the time being.”

Financial prudence

Earlier this year, many Canadian corporations moved quickly to cut executive compensation. Companies exercised financial prudence in response to disruptions to their business, and also showed solidarity with their workers during the crisis.

Cineplex Inc. was hit particularly hard by the pandemic, and forced to close its movie theatres and other entertainment venues. In March, the company announced it had reduced base salaries for full-time staff while its senior executive team took an 80 percent reduction.

Cineplex also suspended its dividend to mitigate the negative impact of COVID-19 on its business and financial position.

Canada’s biggest banks, also, are being pressured to halt dividend hikes and share buybacks. The pressure on them, however, is coming from the federal government and from regulators, as Ottawa loosens capital requirements to bolster the financial system.

In a March press release, the Office of the Superintendent of Financial Institutions (OFSI) outlined a number of actions that were being taken to build resilience of federally regulated financial institutions and improve the stability of the Canadian financial system. The press release also included the following statement: 

“Whether at the discretion of management or under orders from regulators, companies will be subject to increased scrutiny over their capital allocation decisions.”

Company actions will be remembered

BlackRock, the world’s largest asset manager, assured its 16,000 employees that it will not lay off employees this year due to the corona virus pandemic. In April 2020, chairman and CEO Larry Fink said, “no one at BlackRock should be worrying right now about losing their job as a result of COVID-19.”

In a LinkedIn post earlier this year, Mr. Fink wrote, “we are committed to making sure our people have the support they need during this time. All of our employees have the flexibility to take off as much time as they need to care for themselves, their family or a loved one.”

Many large companies promote “values” and advocate social responsibility. They often discuss their commitments to employees and other stakeholders. Now is the time to make good on those commitments.

Throughout history, crises have often been turning points for organizations with “make or break” moments. How companies respond to this crisis will be a defining moment for each, remembered for years to come, and with lasting impacts on employee behaviour, including engagement, productivity, and loyalty. Only time will tell who rises to the top and who sinks.