Covid set a high bar for corporates as they face the cost of living crisis

By Andrew Adie

Marcus Rashford hit the headlines almost exactly two years ago when, in September 2020, he launched the Child Food Poverty Taskforce in the midst of the Covid recession.

He stepped up and showed leadership by focusing on a very specific issue (child poverty and hunger) that had moved from being a hidden problem to being a very visible issue, exacerbated and inflamed by the Covid recession and lockdowns. Suddenly the closure of schools showed that these institutions are far more than places of education for vulnerable children. They are also places of refuge, nourishment and temporary safety. The loss of school meals highlighted the poverty faced by some families and the inadequacy of the support available.

Today, we saw news of the next hidden social horror that is set to haunt us, with news that councils, art galleries and public buildings are to open as ‘heat banks’, supplementing the food banks and other services that are part of the solution to alleviating poverty in one of the richest nations on the planet. When the residual heat from a public building needs to be turned into a community asset, you know we’re facing grim times.

Put into the mix the huge pressure growing from the Unions for ‘fair wage’ rises, from others for energy price caps and the warnings (also from today, this time from Goldman Sachs) that we face a recession that could last into 2024 and you’d be forgiven for thinking that the UK is teetering on the precipice of a full-scale Victorian social crisis. Many charities would say they’ve been warning this is the case for some time, many would argue that the UK’s social care system has been broken and running on empty for decades. Others would argue that pumping more money at the problem creates other issues, that new solutions are needed.

For me, as a corporate adviser, the question that sits in my mind is ‘how does business respond’? 

Around two years ago I wrote a blog that looked at the social purpose of business in the face of Covid. I argued that the recession and life in lockdown Britain highlighted that business serves a valuable social purpose just by existing. While we all want more from the corporate world, companies that are commercially successful, create jobs and pay taxes are serving valuable social purpose – assuming that the output of their operations is socially desirable.

During Covid, business stepped up to the plate. Many companies tried incredibly hard to retain their people, to help them get through the lockdowns and to recognise the hardship and challenges they were facing. While this act of corporate responsibility wasn’t celebrated as warmly as it might have been (business is rarely put on a pedestal in the UK) the individual acts of employers were, I suspect, recognised and appreciated by their people and communities. Business maintained support through Covid – which is sometimes as much as you can hope for. Those businesses that didn’t act responsibly were called out. Those that took furlough payments when they weren’t strictly needed, those that profiteered, those that didn’t step up and try to retain jobs were criticised and found themselves becoming lightning rods for consumer anger. Rightly so.

So the question for business now is what is it going to do in the face of a social and economic challenge that could be even worse than Covid? How does business step up to the plate this time? Does corporate UK have anything left in the tank and what will the public, investors and the political classes look for from business? 

In a world where a warm building is now seen as an urgent social need and in which local authorities are advertising museums and art galleries as ‘heat banks’ rather than cultural institutions, the answer is that a lot will be expected of business.

One of the few positives that came out of Covid lockdowns was this sense that the country bound together. We clapped on door-steps, people accepted wage reductions to preserve jobs for their teams, investors accepted the loss of dividends in the face of the common need.

Many of those things will not be possible in the face of a major cost of living crisis. In the face of inflation that is surging beyond 10% temporary wage cuts are not going to be a solution. Yet people will look back to Covid and expect business to fight to retain jobs even as wages rise. Is the Government going to step in with a scheme that looks like furlough to help business meet that cost? It seems unlikely.

So business may find itself in a situation where its reputation hinges on repeating the same level of support and delivering the same commercial purpose that it did in Covid yet without the financial lifeline from the Government to achieve that. Will shareholders support business if they drop dividends to preserve jobs? In the face of 10%+ inflation that’s going to be a tough call. 

Unfortunately, this extraordinary challenge doesn’t come with simple solutions and it’s hard to see where any glimmers of light exist in what will undoubtably be a very tough 12 – 18 months. What we do know from Covid is that business will be judged on how it responds and in a world of stakeholder capitalism, the way that it treats its staff, suppliers and communities will be the litmus test by which it is judged. Investors may not like that but it maybe that their needs are once more judged to be the most expediently dropped. If investors have an issue with that then they need to consider that their reputations will be judged using exactly the same yard stick.

Some will argue that this is a very simplistic statement to make. That investors are often pension schemes and that the entire economy is so interlinked that damaging the needs of one group will impact all others. I wouldn’t disagree with that but we live in extraordinary times which are about to get far worse. Social purpose and corporate responsibility – doing the ‘right thing’ will trump commercial considerations, at least for the next 18 months. Business could be forgiven for feeling that after Covid, it could do with a break and a chance to refill the tank but so could the rest of us. ‘We’re all in it together’ is about to get another outing.