Times of economic crisis are deeply unsettling for businesses. Across the world, and in many sectors, firms will be looking carefully at their budgets and trying to work out what needs to be prioritised at this difficult time and how the business can carry on trading, if at all possible, during the pandemic and beyond. Survival will, of course, be the key priority but, beyond this, directors need to be conscious of how the firm behaves, and is seen to behave, during these uncertain times.
Directors have a legal duty under s.172 of the Companies Act 2006 to consider the interests of the company’s stakeholders when making decisions, and the consequences those decisions may have on the stakeholders. A company’s stakeholders include its shareholders, its employees, its customers, its suppliers/creditors, the environment and the wider society. Decisions and actions taken by directors should consider not just the short-term but also the longer-term impacts on the business. Business ethical standards and reputational risk should remain important considerations, particularly as to how a firm treats its staff and customers.
Firms that attempt to exploit a crisis are likely to suffer reputational damage, which may have lasting impacts when the crisis is over. Consider the retail sector, for example. Some small businesses were reported to have bought essential items in bulk during the early stages of the crisis, before selling it on at inflated prices, contributing to panic buying and shortages, and thereby compounding problems for the most vulnerable in society. Customers will remember those who gave a helping hand in difficult times, but they will also remember those who tried to exploit them and may punish them by taking their custom and loyalty elsewhere.
In financial services, it is important to remember that regulation does not go away during this pandemic and that cutting corners with compliance is not advisable. Firms should be conscious of the need to ensure the fair treatment of customers and to make sure that vulnerable customers are supported appropriately.
The regulator will expect firms to continue to foster healthy, purposeful cultures and not to let the challenges of the pandemic detract from that. A healthy and responsible organisational culture at a time like this would implore staff at all levels to behave ethically. Therefore, the importance of ethical behaviour should be emphasised and embedded throughout the organisation.
Large firms that consistently make significant profits may be under pressure to maintain or increase those profits, irrespective of the global problems. As with the 2007-2008 financial crisis, there is a risk that firms may make cuts that affect staff or customers, in an effort to protect profit levels.
During the current crisis, of course, firms have the option of furloughing staff with state subsidies, thereby reducing the number of job losses. However, firms should only utilise the scheme where it is justifiable to do so either due to the nature of the job role, the individual circumstances of the employee, or where the financial position of the firm necessitates it. If a firm continues to be profitable and is able to pay large dividends to its shareholders, and the employee is in a position to continue working, is it ethical for taxpayer’s money to be used to subsidise 80% of that employee’s pay?
Another issue is how well do businesses treat their employees during this time. If staff are required to come into the workplace, then reasonable steps should be taken to protect the safety of employees – for example, making adjustments to allow for ‘social distancing’.
Many staff will be working from home for the first time in their careers. Managers should be mindful that this may prove challenging, particularly at a time where people are anxious about the whole situation and may have the additional challenge of having their children at home. Managers should keep in regular contact with their teams and make sure that everyone has enough work to get on with. Even making a phone or video call to have a quick chat with a colleague can help people feel connected.
Employees should also behave ethically and avoid the temptation to ‘take it easy’ and treat the situation as a holiday as this is unfair on the employer and hardworking colleagues. Some employees may lack focus and may take advantage of the lack of supervision and employ strategies or tricks to give the impression that they are working – e.g. a strategically timed email to a manager around 9am and 5pm, whilst spending much of the day doing non-work-related activities, perhaps watching TV, spending disproportionate time on social media, taking an extended lunchbreak and not fulfilling their contracted hours. Employees who are light on work should tell their manager or perhaps take the opportunity to catch up on some CPD. Most people, however, are likely to behave appropriately, and an experienced manager will know who is performing and who is not.
Good tests for business ethics, include asking yourself the following questions before making a decision to do (or not do) something:
- How would I feel if my colleagues, friends and family found out what I had done (or failed to have done)?
- How would I feel if this was reported in tomorrow’s newspapers?
The Covid-19 pandemic has presented a plethora of issues. Business ethics, organisational culture, reputational risk management and long-term decision making are among them and should be considered carefully.