Why Stakeholder Capitalism Will Help Companies Through COVID-19

April 6, 2020 Sylvain Guyoton

In the midst of the COVID-19 pandemic, the Cassandras of this world are quick to point out that the virus and its impact pose a significant threat to recent progress toward stakeholder capitalism. Concerns that this economic shock will rejuvenate the focus on short-termism and revive the old doctrine of shareholder primacy are growing. But there are reasons to believe this is an overreaction. I'd like to argue that companies who are already moving along the path of sustainable and responsible business will not be so quick to ditch their commitments.

In fact, the crisis has the power to help these companies persevere through the volatility and push even more companies to accelerate their transition toward a stakeholder-based model. Why? Because in difficult times, responsible businesses will realize that this approach is the best way to ensure resiliency – for themselves and their network of business partners.

 

Hard Times Don’t Cause Responsible Companies to Break Values

Hundreds of studies have shown that sustainable equities outperform in a bull market and are also more resilient in a bear market. The time to strengthen your company’s commitment to sustainability is not dependent on market conditions – it’s dependent on your values.

Responsible companies have adopted a new management paradigm, one that evaluates the external consequences of their actions.  They constantly consider the impact business activities could have on their stakeholders and strategize from there. These kinds of companies have built responsibility into their character, and their character certainly won’t break in hard times.

 

Responsible Companies See the Opportunity to be Better

When it comes to driving cost savings, the coronavirus-induced slowdown may have a positive effect by incentivizing companies to reduce energy or water consumption. It may encourage businesses to scale up their recycling practices, or inspire product and engineering teams to develop lower footprint products. It could help scale up the usage of teleconference and virtual working platforms across the globalized economy, which will translate into less business travels -- which has a positive impact on cost and carbon emissions. For example, EcoVadis’ annual conference Sustain 2020 saved approximately 420 tons of CO2 emissions, while multiplying the audience size, by going 100% virtual when the COVID-19 crisis started.

The COVID-19 outbreak could push companies to be more cost effective, and that is a silver lining. A February 2020 survey conducted by QIMA on more than 200 businesses with global supply chains found that over half of respondents expected the coronavirus epidemic to increase their operating costs. The good news for sustainability: money can be saved by lowering a company’s environmental footprint.

This crisis won’t break the organizations that have already made the transition to be energy and resource efficient, as well as those that have encouraged their supply chain partners to do the same. 

 

Responsible Companies Know that the Transition Must Go On

Despite the devastating impact that coronavirus is having on the world and so many lives, business leaders know that the issues that were prevalent before the outbreak are still here.

For instance, climate change will not disappear with coronavirus, and companies must work on making their supply chains more resilient to global warming and adverse weather events. Unfortunately, social and human right issues are still prevalent – with forced labor, modern day slavery, discrimination and more spreading through global supply chains at an alarming rate.

Companies that have already confronted these issues with policies will be better prepared to confront a pandemic. On the contrary, companies who have not may face enormous human resources challenges throughout the outbreak. However, it’s not too late to adopt the stakeholder-based management philosophy – in fact, employees and suppliers may be more appreciative and loyal than ever.

 

Responsible Companies Will Prevail 

Companies that will navigate the rough waters caused by coronavirus have already adopted a stakeholder-based view and sustainable practices. Thankfully, this will encourage more companies that are less mature on sustainability practices to accelerate their transition. It will convince more businesses to change their management approach for the better.

Other companies can use this time as a trigger for change. They can implement work from home policies to ensure the safety of their workers or they can start cutting costs by reducing their footprint. These changes not only benefit business, but society as a whole. In the face of a pandemic, let us not stray from our commitment for a better world – it is more important now than ever.

 

 

About the Author

Sylvain Guyoton

Sylvain Guyoton is Senior Vice-President of Research at EcoVadis since its founding in 2007. He brings almost 20 years of experience in Sustainability and CSR. At EcoVadis, he oversees rating operations and methodology development, and sits on the Executive Committee. Sylvain holds an M.S. in Industrial Management from Cranfield University and an MBA from INSEAD.

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