Professors Sarah Kaplanprofessors Sarah Kaplan
Ken Corts: Many people have spent the last few months asking, ‘When will things get back to normal?’ Rather than hoping for a return to normal, both of you have talked about the need to ‘build back better’. Please explain.
Sarah Kaplan: One thing that both the COVID-19 crisis and the Black Lives Matter protests point out is that our previous state of ‘normalcy’ was not that great for many people. For example, if you think about who has suffered the most during this crisis, front-line workers are at the top of the list. And the fact is, in most cases these are people who haven’t had the same opportunities and privileges that many of us have enjoyed.
Going forward, the goal can’t be just ‘to get back to where we were’. We have to pay attention to the pervasive inequality that has always been a feature of our society—but that many corporate and political elites have mostly ignored. Inequality should never be viewed as normal or acceptable—and nor should the degradation of our environment. Addressing all of these issues has to be part of the rebuild.
KC: Talk a bit more about how the current crisis has highlighted or exacerbated inequality with respect to the workforce.
SK: First of all, unlike previous recessions, more women than men lost their jobs this time around, and there are a few reasons for that. One is the structure of the labour market itself, in which women are much more likely to do part-time work. They are also more likely to have been the most recently hired (and therefore the first to be furloughed) and to work in the sectors that have been the most affected, like hotels. That’s one aspect of it.
Secondly, this is an unusual crisis in the sense that for several months children were not in school and normal caretaking and daycare weren’t available—even to people who could typically afford them. There has been an increased demand for caregiving at home, and because we live in such a gendered society, most of that falls upon women, forcing them to reduce their hours, or drop out of the workforce entirely.
KC: What have we learned from past crises, and what does effective crisis management look like now?
Soo Min Toh: This is a great opportunity to trigger conversations about what is possible and the changes that need to happen. Already, we have seen that radical change is possible: Governments, organizations, and individuals have had to change their daily habits dramatically—so we all know that it is possible to do so. We have to build resilience into our systems in preparation for the next crisis—and for a time of ongoing crises.
What have we learned from the past? A few things. We know that crises evoke significant emotions and an urgent need for direction and clarity. As we seek answers, we look to our leaders for reassurance and to tell us what to do. But in responding to a crisis, leaders should not just be concerned about communicating what actions people should take. They must also deal with the fact that they, too, are experiencing fear, frustration and shock. As leaders we need to consider how we and the people we lead are feeling. It’s important to listen to employees, show concern, and provide direction and emotional support.
KC: In terms of the workforce, what will it mean for businesses to build back better after COVID-19?
SK: First, we now all realize how essential certain workers are, which raises questions around what the minimum wage should be. In the U.S. there is a big debate about whether it should be raised to $15 per hour—which, even if people work full time, basically puts them at the poverty level. If Amazon warehouse workers, grocery store employees and delivery people turn out to be some of the people we depend upon the most to keep our daily lives going, why are they being paid the least in our society?
The second thing is, this crisis has uncovered the importance of flexible work. Previously, people who took advantage of flex work tended to be seen as being ‘less committed’. But we now realize that lots of people need flexible work because they have significant obligations in their personal lives. During the pandemic, many of those who were lucky enough to have a second parent in the home had to work different shifts and decide who would work when. Flexible work has become an essential concept.
This whole crisis has also uncovered the deep importance of universal healthcare, which we have in Canada, but also universal childcare—which we don’t. Universal childcare would mean affordable access for all. Pre-crisis, we already knew that one of the reasons women were being syphoned off in the workforce was due to the lack of childcare. Now we can plainly see how this is going to be crucial for building back better—not just for those who need childcare, but also for the childcare workers themselves, who, it turns out, are among those essential workers who are the lowest paid people in our society.
SMT: Building back better will require some very broad systems thinking and a realization that many of these issues are interdependent. You simply can’t have a thriving business without a healthy workforce or a supportive government that enables that. The other thing to consider is that lots of quick fixes have been necessary, but they sometimes also have long-term negative consequences. Sarah mentioned how layoffs have disproportionately affected women and minorities. Organizations need to realize that their decisions have long term consequences and that they don’t necessarily lead to greater resilience. Important priorities like equity, diversity and inclusion cannot take a backseat at this point in time.
SK: Research prior to the pandemic showed that where there have been mass layoffs and furloughs, it has literally destroyed diversity in organizations. Even if people are applying supposedly neutral rules—like, ‘We will only lay off the most recently-hired employees’ or ‘We’re just going to lay off part-time workers’—both of these things are implicitly gendered, because women are much more likely to be in part-time work and to be recently hired. That’s why diversity and inclusion must be a central decision-making component when leaders are making these decisions—even in the midst of a crisis. Otherwise, the progress that has been made in recent years—while far from sufficient—will be destroyed.
KC: What does it mean to build back better in terms of strategy?
SK: Sadly, despite the Business Roundtable announcement that its member CEOs were going to address all stakeholder needs and other laudable initiatives, this is still a shareholder-focused world. When we think about building back better, we need to think about how to make good on the promise to create value for all stakeholders. Every organization needs to look at how it defines and understands who its stakeholders are, and how its operations are leading to consequences for some that might not be intentional. Some have proposed that leaders look to the United Nations’ Sustainable Development Goals. These are very well negotiated, well thought-out principles that encompass the environment, the health of the workforce and people’s access to education. I believe they could easily be used as a guide post for every organization.
SMT: This is a time for deep reflection around, ‘What are we trying to achieve?’ Again, it brings us back to having an inclusive environment and diversity in our organizations so that we’re not just listening to people who already think the same way we do. We need to be taking the perspective of others and taking counsel from people who are not like us in order to come up with creative ways to move forward.
KC: Soo Min, you have talked about recovery from this crisis as being an innovation challenge. Please explain that.
SMT: Innovation can be defined as something that involves change as well as some type of improvement. The pandemic has led to widespread shock and disruption and has caused people to re-evaluate their assumptions, their routines and what is truly important to them. That makes it a great opportunity for businesses to innovate, because customers are very open to new ways of interacting and doing things right now. Leaders should be looking at this as a prime opportunity for innovation.
KC: Does COVID put an even greater spotlight on the importance of embracing environmental, social and governance (ESG) frameworks?
SK: We haven’t used the term ESG yet in this conversation, but that is really what we’re talking about here. The challenge up until now is that ESG has always been viewed as a ‘nice to have’, an add-on—something that you do on top of your day job. This crisis is pointing out that in fact, ESG must be central to your mission. And by making it so, you are actually going to spur greater innovation, because by considering diverse points of view and diverse issues, you will come up with more innovative ideas that positively impact your bottom line.
SMT: Businesses are facing great pressure to get the engine of our economy back up and running. But you simply can’t do that if your workforce doesn’t feel safe, or if people are unwilling to come back to the office, or feel too stressed out to work. That could make this even more costly for organizations. We have to think about these things holistically. How do we ensure that people are not pressured to return to work and put themselves at risk—and thereby put their companies at risk?
KC: This pandemic has illustrated that it’s not just workers who care about workers: Customers care about workers, too, and they also care about the safety of products and services. Business continuity depends upon workplace conditions and the health and safety of workers. It’s all inter-related, and I think the ESG framework highlights those considerations.
SMT: I actually don’t think companies have a choice at this point. The expectations of workers and customers alike have changed. The whole social contract has changed. We are now in a situation where it is necessary to do better.
SK: Definitely. The fact is, innovation is universally recognized to be difficult. That’s why companies often put their best and brightest people on projects like creating new products or services. You have to accept that there will be many failures along the way, because you’re trying new-to-the-world things. And yet, somehow, we don’t adopt this same mindset when we think about ESG issues. We don’t want that to be hard; we don’t want to use up our smartest resources; and we don’t want any failures. But in fact, if you apply the innovation lens, as Soo Min suggests, you give yourself much more freedom to experiment learn and engage with all of your stakeholders. The innovation mindset is absolutely crucial for building back better.
KC: What are some of the first concrete steps managers can take to put these ideas into practice?
SK: The initial step is to convene your board of directors and have a deep discussion about all the different stakeholders touched by your organization, to make sure that all of them are being considered going forward. Additionally, the leaders of every company should go back and examine the lessons learned from this experience, and figure out what worked and what didn’t. We know from the research that companies that invest in ESG in its different dimensions are more resilient in periods of crisis. For those that have struggled in recent months, this can be a wakeup call. For instance, if you really have to do furloughs, just be extremely thoughtful about who is actually getting furloughed. And ensure that you continue to top-up the hourly wages of people providing essential work. These are things that can be done immediately.
SMT: This is the time to think about how we manage our workforce, how we strategize, and how we do business. Companies are accepting that remote work here to stay and some are even talking about the possibility of a four-day workweek. Will these things work for your organization? This is a conversation that needs to happen with your employees, because either way, it’s going to require their buy-in. It’s way too easy to just want our familiar routines back. This process of learning and taking stock has to be very deliberate and sustained.
SK: As Soo Min’s research indicates, as humans, we have a tendency to want to feel comfortable. But just think about what has happened in the past few months. At the Rotman School, we had been debating for years about whether we should offer online learning. Then, between March 13 and 16,, 2020, we took all of our courses online. We did it over a weekend! There are so many things happening in the world right now that we could never have imagined, and this tells us something very important: We are all capable of radical change. We need to build on that.
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KC: Do you think businesses, particularly in Canada, can make these innovative changes now, or are there regulatory changes that might facilitate positive change?
SMT: The mindset of Canadians is quite unique in that they are very open. There is a lot of compassion and empathy for other people, and with that, I think there is an impetus and motivation to change, to do better, and to show even more care for others. People have an almost innate interest and desire for change. Of course, the system needs to support that. Individuals, organizations, and government need to pull together in the same direction.
SK: As an immigrant to Canada myself (and a new citizen) that is why I am so happy to be a Canadian. That collectivism doesn’t exist so much in the U.S. (my home country). Historically, Canada hasn’t been as innovative as the U.S. for a whole host of reasons—but maybe this is the moment when Canada can be more innovative than ever, because we are already collectively committed to social goods. Places like Silicon Valley, with its ‘go-go-go’ mode of innovation, just don’t have the skillsets to achieve exactly what Canadians have a natural ability to do.
KC: How can we balance building back better with the need for economic recovery, considering the financial pressures that businesses are under?
SK: I had an executive say to me the other day, “I don’t need a fancy new shampoo when my hair is on fire.” The problem with that mindset is thinking of ‘social good’ as ‘a fancy new shampoo’ as opposed to being essential for building back. I’ve also talked to other executives who have said, ‘Screw EBITDA; I’m not even going to mention that right now. I’m going to talk about how I treat my employees and how I repurposed my supply chain to get PPE to people who need it. And I’m going to go to my investors and tell them that this is what we are doing’. This mindset is the foundation of an ability to build back better.
KC: Are there examples of firms that you’ve seen starting to demonstrate what it means to build back better?
SK: Sadly, I’m not sure I have seen it yet, but we are seeing a lot of companies learning that they can work effectively in new and different ways. Many have realized, ‘We need to offer shiftwork because some of our people have to care for their kids in the morning; so they can start work at 1:00 pm and go until 8:00 pm’. Companies have learned a lot on that front.
I also think a lot of companies are discovering that when they furlough people but they don’t also cut CEO pay, that has terrible optics. We’re seeing many companies where the CEO foregoes their pay or radically reduces it. That’s the kind of innovation in governance and compensation that is beginning to take hold—and I hope it’s just the beginning.
Ken Corts is Interim Dean (effective June 3, 2020); Marcel Desautels Chair in Entrepreneurship; Academic Director of the Lee-Chin Institute for Corporate Citizenship; and Professor of Economic Analysis and Policy at the Rotman School of Management. Sarah Kaplan is Director of the Institute for Gender and the Economy (GATE); Distinguished Professor of Gender and the Economy; and Professor of Strategic Management at the Rotman School. She is the author of The 360º Corporation: From Stakeholder Trade-Offs to Transformation (Stanford Business Books, 2019). Soo Min Toh is an Associate Professor of Organizational Behaviour and HR Management in the Department of Management, University of Toronto Mississauga and Director of its Institute for Management and Innovation. This article originally appeared in a recent issue of Rotman Management, the magazine of the University of Toronto's Rotman School of Management. www.rotman.utoronto.ca/connect/rotman-mag.
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[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]