As the human tragedy of the COVID-19 virus spreads and everyday life radically transforms, companies are asking whether “long-termism” and sustainability matter right now. After all, companies are considering worker layoffs, whether they can service debt payments, and how to regain revenue streams that have dried up overnight. At the same time, investors are liquidating assets across the board, reallocating toward cash and driving even traditional ‘safe-haven’ investments downward while volatility spikes. Do investors still care about ESG? And can public companies afford to allocate capital – human, intellectual, financial or otherwise – to things like ESG?
The better question, albeit a tough one, is whether they can afford not to.
Importantly, an issuer’s major long-term shareholders – index fund managers, ETF providers, and active managers who take a multi-year view -- continue to expect good governance, seeing it as inextricably linked with crisis management. In response to questions about whether the coronavirus crisis would affect their priorities and proxy voting practices, Michelle Edkins, global head of BlackRock’s investment stewardship team, said “we are looking at these long-term. These are not new issues… In times of crisis that becomes more apparent, not less apparent.”
In addition, these times of crisis are exactly when companies and their boards capture the value of strategic sustainability planning and a grounding in long-term corporate purpose. Here are a few priorities that should remain front of mind for every company:
Role of the board, and its relationship with management. In times of great uncertainty, the role of the board of directors as a strategic asset is most valuable. Executives should be leveraging the unique experiences and broad set of perspectives that their directors bring and harnessing the power of that cognitive diversity toward the end of better decision-making. Through a robust set of crisis management processes – such as risk mapping, supply chain management, “tabletop” crisis simulation exercises, and a track record of internal debate -- well-governed companies have a better sense of who does what, have built trust and rapport, and are positioned to respond rapidly to the unexpected.
Human capital management. The human toll of the coronavirus goes well beyond health and safety, as the world anticipates widespread layoffs, sick leaves, and sustained unemployment. Many companies identify their employees as their greatest asset; however, they must also acknowledge that employee wages may be a recurring expense without commensurate near-term revenue. Investors will want to understand how companies address the tradeoffs between near-term margin degradation and long-term work force preservation; how they think about the crisis’ economic impact on the welfare of their workers; and how they can preserve their ability to attract and retain employees in the future. These are difficult circumstances, and each company will have to evaluate these tradeoffs within the context of its own sustainable business strategy.
