This article was first published on Edie.
Business can never be the same again. If there is one lesson as we emerge from lockdown, it is how unacceptably vulnerable the machinery of commerce upon which our livelihoods depend is to shocks beyond our control.
So, to go back to the old ways of leading and managing businesses would be to assume that there will never be another traumatic shock. Yet we can see the evidence of such risks whether from climate change, other pandemics, civil unrest, and international political turbulence. We may not be able to influence those huge disruptions but we can and must shape our businesses so that they are more resilient and less vulnerable.
Covid-19 has accelerated changes in a way that would have been unthinkable only a few months ago. Working from home, video-conferencing, hot-desking – they were all there but after lockdown they will have become central and not marginal. Above all the fragility of supply chains were beginning to be recognised but now what was potential has become real.
We are therefore forced to act and act with courage. Small steps are not enough. Resilience is core to being a good business and being brave enough to change is essential. We must re-start, re-imagine and regenerate our businesses so that they are fitted for the sustainable economic recovery which governments are recognising as the only feasible way out of this crisis. Building back the same is not on the agenda. Building back better makes sustainability the only business strategy.
Over the coming months, the critical task for any Board must therefore be to identify how their organisation must change in order to become more resilient. This is not simply to reduce the risk of it being upended in the future. It is because in this increasingly complex world, resilience becomes the essential element in business success. Occupancy is less secure, trends less easy to predict, and the pace of change even more challenging.
All that was beginning to be true before Coronavirus, it is the acceleration that poses the real challenge. But the solutions were also there, best exemplified in the growth of ESG as an investment and management tool. It is noteworthy that ESG-screen investments have outperformed the market even during the pandemic. That has already shown that if businesses do not prioritise sustainability, their investors will lose out and they will not get the returns. Today, the facts of business life make it necessary to change our definition of economic growth to include social and environmental indicators. GDP is no longer a dependable index.
Now, every Chair of every Board should be demanding courage from their CEO. CEOs must be mandated to ensure that resilience is front and centre of their thinking. Otherwise their companies would not be fitted for the world in which we now live. Renumeration should reflect that and CEOs measured, not on short-term quick fixes, but on their contribution to the sustainability of the business.
Of course this means we must think differently about risk. From economic inequality, to excessive financial leverage; from exposure to climate change to over-reliance on finite resources, yesterday’s business models were undermined by basic structural risks. So, as businesses emerge into the ‘new normal’, business leaders must resist the temptation to treat these risks as distant issues. They must be confronted now and not left for future action or for others to worry about.
Leaders must confront systemic risk with greater urgency and accept that responsible, resilient and sustainable business practices, far from being too costly or too niche to be relevant in advanced diverse global economies, are the very structure that underpins long-term business viability and success. This is a job that cannot be done unless we challenge every assumption about the way we operate our businesses today. And it is only by measuring resilience through the lens of sustainability that we can then reimagine the kind of changes we need to make.
While in the past leaders may not have felt adequately equipped with the knowledge to do this on their own, the experience of the pandemic means that every business is now armed with insight around the vulnerabilities of the system and the kind of changes they need to make.
The next frontier for managing systemic risk will surely be climate change. The disruption wrought by Covid-19 is nothing compared to the widespread upheaval we can anticipate if global heating goes unchecked. We cannot act soon enough to prepare our businesses for future shocks or its present effects which interrupt food supplies, water availability, and the production of basic raw materials as well as the disruption of many people’s lives and the civil and political unrest that goes with that disruption. The evidence could not be clearer that sustainability, far from being a cost or a luxury, is really the only basis on which our businesses and institutions will survive in the future.
That requires a level of ambition, a leadership mindset and a willingness for business to act boldly and decisively to make the changes which recognise that it is people, planet, and profit together which will drive our businesses forward and secure their future. Businesses must lead the way. No longer simply meeting standards and obeying the law but using sustainability as a business tool to drive profit and minimise risk.