Contractions: Companies now need moral restructuring

MAIN IMAGE: Shaun Barnes, Executive Director at 21st Century

Shaun Barnes, 21^st Century

Thanks to the Covid Pandemic, depleted state finances and associated upheavals, combined with the inherent societal inequality the country has experienced for generations, South Africans are facing huge economic contractions and businesses will be hard put to merge past profit levels with current employment needs.

Shaun Barnes, Executive Director at 21st Century, a specialist remuneration and human capital consultancy, believes we are in uncharted social and economic waters right now.

There are a number of tough issues facing businesses in South Africa right now:

• What will the new business model in a lot of industries be? How far will the ‘hybrid’ model be taken and what will the consequences be on areas like customer service and supply chains?
• What will the full economic impact of the pandemic be? This is assuming it can be quantified with an “end-state” in mind which is looking more unlikely.
• What can we do to ensure our commercial survival while bearing in mind the profound social impacts of continued retrenchments in a country with the highest unemployment rates in the world? With more than 3 million people (and climbing) having already lost their jobs during the lockdown months.
• What must the balance between ethical and moral business and profits be?

If we do need to downscale our business, how can we do it in a decisive manner that will not negatively impact us going into a period of economic recovery?

This all leads to the big question: is it possible to conduct a successful business with an ethical and moral compass that is firmly aligned with the challenges we face as a country? We believe it is, if you first define exactly what “successful” means.

New face of business

There has been a paradigm shift around the world ushered in by the pandemic in terms of ‘business as usual’. It took a global health crisis for business leaders to wake up to the fact that when people don’t feel safe, supported, or emotionally secure, they simply cannot do their jobs.

But this shift towards a more ‘caring capitalism’ is not entirely new. In the face of high executive pay levels coupled with global inequality increases over the last few years, we have seen a shift in business purpose from “making profits for shareholders” towards a “new social contract – a commitment to collaboration that addresses shared social and environmental problems”.

This involves the move from ‘shareholderism’ to ‘stakeholderism’ … in other words, a move from capitalism towards prioritising the protection and quality of life. Going hand in hand with this move has been the growth in the focus on governance under the banner of ESG (environment, social and governance) reporting with a fresh look at ESG measures that address the ‘reset’ that society is demanding.

This has seen corporate scorecards move beyond the “usual suspects” of financial, production and customer metrics to include measures relating to health and safety, diversity, equity and inclusion, values, environmental impact, sustainability, community impact, governance compliance, ethics and culture.

There has also been the emergence of the PESTEL analysis which allows a company to strategically consider the different macro-environmental factors for understanding market growth or decline, business position, potential and direction for operations.  This has recently been updated with the PESTELE approach which incorporates ethics as well.

The components of PESTELE fold very well into the ESG approach, being:

• Political factors
• Economic factors
• Social factors (which include health, workforce and community)
• Technological factors (automation, digitisation, innovation)
• Environmental factors (climate change)
• Legal factors and
• Ethical factors

We are thus moving towards a more inclusive view of the commercial world, one that does not only define success by profit, margins and financial growth but also by the impact an operation has on its people, community and environment.

‘Moral’ restructure?

It is without a doubt that businesses will be seized by challenges and changes over the next few years. This will include changes to markets, cost structures, customer interaction and products. There will be business contraction brought on by the devastation of the pandemic and related social issues such as joblessness and hunger, which we have seen come strongly to the fore with the latest unrest.

But does this contraction merely mean we will be going through all the usual motions of downscaling, downsizing, retrenching and cost-cutting or will we be able to put into place more forward-looking and morally responsible actions? It all depends on perspective. Is this a threat to our existence and ‘business as usual’ to be countered by battening down the hatches, or is it a challenge to face change and adapt to a ‘new normal’ in how we do business?

If we accept the changes that were already happening before the pandemic, coupled with the effects on society and employment that Covid has exacerbated, we should be able to move beyond the knee-jerk reaction so many businesses have that seem to focus mainly on ‘smaller, less’ and not on ‘faster, better, differently’.

Organisations can choose to implement a more caring form of restructuring that does consider the expanded ideas of stakeholderism, ESG and PESTEL. Planning and implementing restructuring in this way will not only show that the organisation is in tune with the society that has produced it and allowed it to grow but should also mean better business going forward.

Points to consider

Agility is the key: adapting to a more agile business model will no longer be a choice. As McKinsey have famously remarked, “Agility equals stability”. Agile organisations need stable backbone elements that evolve slowly and support dynamic capabilities that can adapt quickly to new challenges and opportunities. Yet as McKinsey also point out, while so many businesses profess to want ‘agility’ only 10 percent of global companies have made this move.

Be stakeholder aware: When implementing 100 retrenchments, be aware of the full scale of what you are doing. Is the downsizing you are considering causing 100 less jobs only, or 100 less jobs as well as 300 additional jobs at three suppliers that will be affected and 12 jobs in the local community at the 2 businesses that serve these newly unemployed customers? A more holistic view of the full impact of a decision might cause some reflection and the consideration of alternatives.

Use your CSR: Make sure that your CSR (Corporate Social Responsibility) programme already lends itself to the social considerations, community and stakeholders that impact your business. In this way it becomes an extension of your business and not just a ‘charity’ donation.

Consider alternatives: Ensure that you have considered all alternatives when considering restructuring. A simple “cut 20%” instruction is essentially a lazy choice. Alternatives like shift reductions, working week or working hour reductions, salary sacrifices, and consolidations and multiskilling exist and, although it is easier to ‘just cut’, would these alternatives provide a more moral outcome?

Accuracy through digitalisation: Each company is sitting on a mountain of data which can help make more accurate decisions as to staffing and workforce required. Yet we still work too often with an estimate of the cuts we require. If we can start properly using predictive workforce planning technology to inform us or obtain industry benchmarking information to give us complete clarity as to where we sit, we might be able to make different decisions.

Things are bad right now, but we have shifted to a world where we need to be more moral and flexible in how we approach our organisations and staffing and the sooner we get this right the better.

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