A new normal?
The coronavirus outbreak has been a traumatic event in which hundreds of thousands have died worldwide, their families bereaved, and more than 2 million people have been unwell. Isolation and quarantine will have caused loneliness, anxiety, depression and income losses. The lockdown has required businesses, schools and public service organisations to close. Many people have worked from home, spent more time alone or with their families, reliant upon online technologies to maintain connections with friends and colleagues for social interactions or for shared work tasks. Zoom’s share value climbed significantly during the lockdown period, with share prices rising from $64 at the beginning of 2020 to $150 by the end of March 2020.
The situation could last for months with slow work production, reduced travel and reduced consumption. The economic consequences will be tumultuous and devastating. Many businesses will not re-open, or they will struggle to survive in the aftermath and this will bring with it many job losses and increased poverty. This pandemic has possibly changed the world, creating a potentially ‘new normal’. How might we describe that new normal? In a recent essay on the coronavirus crisis and its potential for change in our lives and in our economies, Charles Eisenstein asked an important question: “what parts of the economy will we want to restore, and what parts might we choose to let go of?” In this short piece, I explore what could become the new normal from a corporate governance perspective for the treatment of employees and workers. This is an urgent question, given the predicted economic consequences of the pandemic.
Pandemics and exploitation
One possibility is that the pandemic will result in a hardening of workplace terms and conditions. The pandemic has shone a light on ill will and greed for profits of a sizeable number of corporate leaders, many of them well-known household names. For example, following the lockdown restrictions that allowed only essential businesses to remain open, Mike Ashley responded by declaring Sports Direct and Evans Cycles as essential. The workers were concerned for their safety and Ashley’s decision created a backlash on social media. He issued an apology to protect his shares from continuing in free fall.
Tim Martin of Wetherspoons provided another example of egregious behaviour by campaigning for his pubs to remain open. When that failed, he stated that he could not pay his employees until the government’s furlough scheme was established and payments came through, encouraging his staff to seek alternative employment with Tesco. Some universities, faced with the potential loss of income from international and domestic students, made swift decisions to let their temporary staff go before their contracts ended or not to renew their contracts. Lists were created of good and bad employers. These examples indicate that, alongside extensive job losses, those who retain their jobs could face greater hardship and harsher working conditions when the economic downturn bites.
COVID and the collective spirit
However, there is an alternative possibility: a more compassionate workplace could be made, building upon the examples of more positive immediate responses to the crisis. Many individuals have sought to help others through community support groups and by volunteering for charitable organisations and the NHS. Not all corporations have behaved badly. Some have volunteered by delivering groceries to isolated people or by making protective equipment and medical supplies for care workers. Some employers have protected their staff by sending them home with full pay for a prolonged period. A sense of togetherness and a collective spirit has grown quickly to mitigate the impact of the crisis. As Eisenstein expressed it “every act of compassion, kindness, courage, or generosity heals us from the story of separation, because it assures both actor and witness that we are in this together.” Such compassion and kindness and generosity may be needed more than ever following the collective trauma we have experienced. Bereavement, recovering from illness or caring for sick members, mental health crises, financial worries and workload stress are widespread consequences of the virus. These experiences will be enduring memories for many. They need to be treated with compassion.
Could this collective togetherness allow us to redefine our values? Could it lead us as a society to treat those who have become accustomed to exploitation and marginalisation with respect? As some commentaries have made clear, in a crisis of this nature it is not the bankers, traders or elite hedge fund managers who are essential workers, but doctors, nurses, carers, porters, drivers, teachers, food shop workers, waste collectors and public service providers. Among these are some of the lowest paid workers who have been undervalued in our neoliberal, financialized world. The pandemic has made clear that such workers deserve to be recognised and properly rewarded for their efforts. The #clapforourcarers Twitter campaign has gone viral and news broadcasts have showed a whole nation applauding to thank workers in the NHS and in other essential services. Boris Johnson, the Prime Minister, acknowledged that NHS workers had saved his life. The next step would surely be to pay them decent wages to eradicate the stress of living in poverty.
The compassionate employer?
In an earlier blogpost I argued that corporate leaders should respond to the crisis with compassion. Although they will seek to recover financial losses, this is not a time for chasing profits just to satisfy their shareholders. They should demonstrate a willingness to protect their workers and alleviate their suffering, to share the burden, as the community volunteers have sought to do. Caldwell, Atwijuka and Okpala remind us that compassion goes beyond sorrow or sympathy and transcends empathy: “compassion is an active mitigating response to another’s situation and to his or her needs out of a desire to make those conditions better.” A compassionate corporate leader will thus seek to identify the challenges faced by their workers and will look for ways to reduce their stresses. They will not exploit them. They will not threaten or bully them. Instead, they will recognise their efforts and they will seek to enable them to work with purpose and to lead fulfilled lives. This pandemic, devastating as it has been, also provides the potential for a new beginning, rather than a bounce back to the old, ‘mean and lean’ ways. As Eisenstein states: “as Covid stirs our compassion, more and more of us realize that we don’t want to go back to a normal so sorely lacking it. We have the opportunity now to forge a new, more compassionate normal.”
How might corporate leaders respond to this plea for compassion? What does it mean to manage in a compassionate way? There are numerous guides for adopting a compassionate leadership approach. Researchers working with the NHS, whose constitution includes compassion as a key principle, learning from the lessons of the Frances Inquiry after the Mid Staffordshire NHS Foundation Trust failures, have suggested some important requirements for ensuring that an organisation operates in a compassionate manner. I draw on the work of Bailey and West and of Kline, Bailey and West summarise the key behaviours of a compassionate leader as follows:
“paying attention to all staff, truly listening to them and being present with them. It means truly understanding the challenges they face, rather than seeking to impose understanding. Empathising with them, feeling their fears, stresses, uncertainties, anxieties and exhaustion, provides the motivation to always ask the question ‘how can I help you?’, the most important task of leadership.”
Here, Bailey and West highlight the responsibility of managers to respect the importance of autonomy and control, to ensure that workers feel as though they belong and are cared for, and to give workers the resources and equipment necessary to make their tasks and workload manageable and to do their job properly. Voice and influence over workplace decisions and environments matter for workers, who seek to be trusted, supported, listened to and respected for their knowledge and skills, and for them to be able to share knowledge and ideas within teams, aided by supportive supervision. Kline identifies similar considerations, framed by an overarching principle of inclusion, in which staff at all levels within the organisation feel valued, are treated fairly and equitably, and are encouraged to contribute to the effectiveness of their work group. Kline points to evidence of the “links between psychological safety, supportiveness, positivity, empathy, leadership (in aggregate compassionate leadership) and innovation” as well as trust and better staff morale. Kline also warns against a top-down approach and gives guidance on how to instead achieve a compassionate and inclusive organisational culture and leadership model: clarity of purpose, “a small number of agreed team objectives with regular feedback, clear roles, good information-sharing and a strong commitment to quality improvement and innovation” ,as well as discussion and shared decision-making, and time for reflection. While these researchers focus specifically on the NHS, their suggestions could also be adopted more widely in the corporate sector. Incorporating a servant leadership approach, the compassionate leader in any organisation will, according to Caldwell, Atwijuka and Okpala, follow their “obligation to stakeholders to pursue long-term value creation, while simultaneously honoring stewardship responsibilities to employees and to assisting those individuals to simultaneously discover their greatness along the way.”
Building the regulatory foundations
How might such a compassionate leadership approach be supported within the regulatory and corporate governance framework? This question is relevant because the corporate governance system has capacity to affect the wellbeing of citizens through prevailing structures that affect the centring on the work environment, collective bargaining, wage rates and opportunities for training, all of which affect the wellbeing of workers and their families. In corporate governance we are at last beginning to see a change of direction. The long- revered shareholder primacy paradigm, that arguably contributes towards exploitative treatment of workers, is now being challenged more widely. In the US, for example, the Business Roundtable issued a statement in August 2019, indicating that it is no longer accurate to describe corporate purpose as being to exist principally to serve the shareholders; today’s company is committed to all its stakeholders, each of them considered essential. Some high-profile projects around corporate purpose are making clear the importance of trust and social responsibility. Investors, too, are focusing more strongly on environmental and social governance issues as sources of influence upon their investment decisions. Following the pandemic, corporate leaders are possibly mindful of the long-term memories of their customers and the public who will remember how different corporations responded to the crisis. The long-term ‘winners’ may well be those companies which adapted, innovated and collaborated positively to rise to the challenges for the benefit of the health and wellbeing of society, and those who treated their workers best by paying them bonuses, by retaining their jobs, and by protecting their safety, and possibly those whose CEOs accepted cuts to their own pay to show a willingness to share the pain.
Some voluntary measures seek improvements to the broader regulatory framework, including at the international level. For example, the Sustainable Development Goals, include goals directly concerned with work. Companies will generally be able to contribute to the SDGs by implementing a corporate social responsibility (CSR). However, CSR has generally been found not to be robust enough as a guarantee of sustainable or socially positive behaviour and might also be unlikely to ensure a more compassionate management or leadership.
COVID-19 has highlighted that companies operate through complex structures with interdependent sections, each connected with other participants and within ecosystems. How they treat one part of the business arrangement will impact on the other parts. Exploitation of the workers, or profiteering at the expense of the customers, will eventually hit the bottom line and the shareholders. This has been illustrated during the pandemic when ‘just in time’, over-concentrated supply chains, proved not to be resilient and production processes were hindered by supply shortages. Again, compassion, might offer a helpful response as it provides a path to “increased self-understanding and an appreciation of our interconnectedness.”
Compassion and the law
In the UK, the Companies Act 2006, section 172, is the pivotal legal provision for appreciating the relevance of stakeholders. Within the provision, directors are required, in their duty to promote the success of the company (for the benefit of the members), to have regard to those different stakeholder interests, including those of their employees. The provision is widely regarded as inadequate as a company law duty, because it is ambiguous regarding the extent to which those other interests are to be taken into account, it still prioritises the shareholders, and it retains for directors a discretion that is difficult to challenge, whether in corporate meetings or through the courts.
From the perspective of compassionate regard for workers, the provision is especially inadequate. The provision is limited to ‘employees’ which is problematic since in UK labour law, employee is a term with legal significance, excluding from protection many others who may work for an organisation. A blended approach between labour law and company law could cause section 172 to exclude those other non-employee workers’ interests from being taken into account when decisions are being made, although in reality that would not be a sensible business approach to adopt. No guidance is given to the directors about how they must regard their stakeholders, let alone their employees or other workers. The Corporate Governance Code includes provision for workforce engagement, on a comply or explain basis, by giving to the companies covered a choice of arrangements to allow for workers limited involvement in decision-making processes. Notably, the Code makes no mention of trade unions, although reference is made in the accompanying Guidance Document published by the Financial Reporting Council to established channels of communication that could include collective bargaining and existing worker representation systems established with trade unions. These company law and corporate governance provisions must be strengthened to ensure that corporate leaders involve and include all their workers in contributing to a corporate purpose that goes beyond making profit. An inclusive, listening, information-sharing relationship built on trust is a first step towards a compassionate organisation and workplace. Of course, there is need also for stronger protective labour law measures and to move away from insecure, low wage arrangements.
When the health crisis passes, a deep economic crisis is predicted to follow. How corporations respond to that anticipated economic downturn will be critical for the lives of many people. Responses to the virus showed two possible approaches: one that was mean-spirited, harsh and unimaginative and another that displayed a willingness to share the burden, to innovate and to be compassionate. The latter recognised our collective needs, our connectedness to each other, our interdependencies. The latter will be necessary, as a new normal, to help us rise to the inevitable challenges we will face.
Charlotte Villiers is Professor of Company Law and Corporate Governance at the University of Bristol Law School. Her research focuses on company law, corporate governance and sustainability and she is interested in treatment of workers through the interaction of labour and employment law with corporate governance.