Coronavirus: Human Capital Management During and After the Pandemic

Posted on April 17, 2020

Tytti Kaasinen
Tytti Kaasinen
Director, Stewardship Services
Matthew Barg
Matthew Barg
Associate Director, Engagement Services
Enrique Figallo
Enrique Figallo
Senior Associate Engagement Services

The coronavirus pandemic has been sudden and significant. The transition from business as usual to crisis response has meant that daily routines are no long routine and future planning is in a state of constant revision. We are learning new ways to source essential goods and connect with people. The same applies to companies. While truly exceptional, the pandemic illustrates the importance of proactive business planning and robust risk management systems, with companies’ ability to respond to shocks and adapt to changing circumstances being tested profoundly.

COVID-19 has also very much brought to the fore the role of and impacts on employees. The recent events have reminded both individuals and companies how they depend on humans for essential functions, while also illustrating the fragile position of many professions. Eighty-one percent of the global workforce lives in countries with mandatory or recommended workplace closures, and projections indicate that the reduction in economic activity and working time in Q2 2020 could add up to a decrease of an equivalent of 195 million full-time positions globally, albeit that related countermeasures will likely result in lower redundancy levels than that[1]. Nevertheless, direct and indirect workforce consequences are vast and companies and investors alike should be mindful of not overlooking the long-term implications, as well as lessons, regarding human capital.

COVID-19 has created a lot of anxiety and fear among employees and the immediate response has rightly focused on acute needs of people. While near-term resiliency measures serve an important purpose, we should not lose sight of the fact that, even though the strategies currently being deployed to support workers are crisis-based and reactive, if they can be re-packaged, phased and formalized, they may provide a roadmap for transitioning workforces amidst other transformations and shocks in the future. The possibilities to properly prepare beforehand may have been somewhat limited in this case, but it can be agreed that strategic, well-reasoned thinking is better than intuitive, gut reacting. Furthermore, companies should now not only focus on remaining agile and acting responsibly during the storm, but also ensuring they have a long-term plan and the best resources in place for recovering afterwards.

Managing for the uncertain future

Indeed, this is not the time to be short-sighted. Life and business will return to something resembling normality in due course and while we don’t know what the new normal will look like, we do know the process is not going to be easy, and companies need to be ready to manage the new realities and capitalize on the opportunities. For this, they need skilled, healthy and committed employees.

What we have seen, however, is abundant news about mass layoffs, pay cuts and staff losing their social security provisions, in some cases while the same employers increase CEO compensation. At the same time, some companies continue to pay salaries and health benefits to employees out of work because of the functions they normally fulfill having become obsolete[2]. The latter certainly appears not only a more responsible approach but potentially also more successful in the long term: forward-looking human capital strategies that align with the needs of the organization and that support employees through difficult changes give companies a competitive advantage to attract diverse talent, mitigate potential staff shortages, and create a strong culture[3]. This has various direct business benefits: for example, retaining talent is more cost-effective than hiring and there is a strong correlation between employee satisfaction and productivity. Conversely, the lack of a skilled workforce and robust human capital practices could hinder smooth adaptation and innovation, as well as jeopardizing the utilization of emerging technologies and revenue streams in the post-crisis stage, resulting in companies missing out on the related benefits, such as regaining financial stability and improved market share.

Companies that look after their workforce and actively engage with the challenges and possibilities inherent in the current crisis are likely to be better positioned to handle other uncertainty, like that presented by rapid acceleration of the Fourth Industrial Revolution. Many workplaces were already going through and preparing for a major transition brought on by this fundamental change. While that process could be relatively structured and staged, it needed to consider the challenge of marked shifts in economic circumstances, human behavior and market dynamics as presented by rapid demographic and technological change – something on which a sudden and forced global pandemic provides a crash course. Hence the reaction to the coronavirus may actually be instructive for companies and sectors that were looking at a transformation because of the Fourth Industrial Revolution.

Integrated responses to collective risks

In the words of the futurist Alvin Toffler, “[t]he illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn”. This might not feel like the top priority while we find ourselves in the eye of the storm, but exploring and implementing the lessons learned will be invaluable in weathering future shocks.

Apart from companies, investors can and should also play a role in making society and the labour market better at withstanding upcoming disruptions. For instance, strategic engagement can be a powerful tool to positively and proactively influence issuer performance on emerging and collective risks and strengthen the role of investors as a stakeholder. Engagement aims to improve corporate preparedness and resilience. In the context of COVID-19, investors should assess the lessons from the pandemic and incorporate these in their active ownership efforts as all sectors look to manage immediate and future business opportunities and human capital risks and impacts.

One example of an investor engagement aiming to draw attention to strategic importance of human capital planning is the Future of Work project within Sustainalytics’ Thematic Engagement programme. It focuses on how companies in both blue-collar and white-collar industries can proactively manage human capital risks and opportunities in the face of various operational shifts over the short, medium and long term. Our engagement strives to improve corporate preparedness to disruptions particularly connected to the Fourth Industrial Revolution, playing out in areas such as technology, demographics and globalization, but also to other, not-yet-known risks. In this context, we will also be discussing the learnings that can be drawn from the coronavirus pandemic and assessing what kind of company responses best support recovery over the next three years.

Companies responding positively to investor engagement can have a more holistic preparedness overall. In the case of dialogues concerning human capital, the potentially resulting advanced talent management and risk mitigation systems are likely to contribute to corporate strategies that improve resilience against various shocks and ensure employment practices supportive of innovation. Moreover, investors should aim for impacts beyond individual companies by, for example, advocating participation in multi-stakeholder collaboration to create conditions conducive to a fair and well-functioning labor market more broadly, and explicitly being prepared to assume a more active role as a stakeholder in integrated responses to employment-related risks and opportunities.

Regardless of what the future of work and the world after the acute phase of the COVID-19 crisis will look like, preparing for the unexpected and treating employees well will provide a good foundation in calm and stormy periods alike.

To find out more information regarding Sustainalytics Future of Work Thematic Engagement or its wider Engagement Services, please contact us here.

Sources:

[1] ILO (2020) ILO Monitor: COVID-19 and the world of work. Second edition. Available at www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/documents/briefingnote/wcms_740877.pdf
[2] www.nytimes.com/2020/04/13/business/business-roundtable-coronavirus.html
[3] WEF. Future of Work project. https://www.weforum.org/projects/future-of-work

Recent Content

Physical Climate Risks: 6 Things Portfolio Managers Need to Know

The negative physical impacts of climate change are being felt by communities and corporations globally and are likely to get worse in the coming years. The knock-on costs of more frequent “once-in-a-century” climate events on economies are likely to rise. To prepare for this looming threat, investors must forecast the asset-level effects of climate change on companies in a granular and sophisticated way. Here are six things portfolio managers should know to manage and mitigate the physical risks of climate change to their portfolios and meet growing list of climate-focused reporting requirements.

human rights

Applying Business and Human Rights International Standards to Investor Due Diligence

Socially conscious ESG investors are interested in how to implement international business and human rights norms in their portfolios and understand the potential impacts of applying additional screening criteria within their strategy.

wireless users network outage

Telecom Network Outages, the ESG Risks of a Connected World

The telecom industry is exposed to several Material ESG Issues, including Data Privacy and Security, Business Ethics, Human Capital and Product Governance. Product Governance issues in the telecom industry include service quality, maintaining reliable, high-speed networks, and responding to customer billing concerns.

ESG Risk Data Center

ESG Risks Affecting Data Centers: Why Water Resource Use Matters to Investors

Data centers play a critical role for many technology and telecom companies and for their supporting servers, digital storage equipment and network infrastructure for data processing and storage. Data centers require high volumes of water directly for cooling purposes and indirectly, through electricity generation. Morningstar Sustainalytics’ recent activation of the Resource Use Material ESG Issue (MEI) within its ESG Risk Ratings recognizes water risks of data centers.