The post-pandemic world: key considerations for business leaders

Torys Quarterly: Strategy for accelerated change

As companies emerge from a protracted crisis mode—evolving from their immediate response to the COVID-19 pandemic to managing through the crisis and preparing for resumption of on‑site operations—business leaders have been stabilizing their organizations and are looking ahead to plan for a post-pandemic world.

How they address the strategic challenges before them will determine the success of their organizations for years to come. Below we consider some key themes that business leaders are navigating.

Accelerated change: a common observation from senior leaders of our clients has been the unprecedented pace of change inside their organizations during the pandemic period: “we’ve accomplished more fundamental change in our business in the last four months than the last four years”. The external environments in which businesses have been operating have experienced similar fast-paced change. Trends that existed prior to the pandemic have rapidly accelerated and evolved, challenging businesses to keep pace and refocus their strategy for a new reality. Across a wide range of industries, that new reality prominently features transformation driven by technology, data digitalization and communications advances. The explosive growth of online commerce, video and electronic communications technology and innovative healthcare research and applications through the lockdown phase of the pandemic are key examples.

Leaders will need to continue to be innovative, nimble and ready to act in real time. Governments and regulators will need to adapt their approaches, and legislative and regulatory regimes will need to evolve rapidly to address new and emerging issues.

Greater government involvement is here to stay: through the pandemic period, governments have played an unprecedented interventionist role. They have imposed wide-ranging public health measures, enacted new regulatory responses and provided massive stimulus to individuals and businesses, all in a manner without parallel since the second world war. The effectiveness of these measures has been critical to how countries have been able to manage the health impacts of the pandemic and protect their citizens and their economies.

We expect governments will remain major players in the economy during the long process towards full recovery. The degree of intervention to date has met with relatively little public criticism. An increased level of regulation across the economy is likely to be sustained, and governments will likely need to continue to provide financial and regulatory support to key businesses and industries.

Businesses will need to anticipate and understand evolving legislative and regulatory changes and factor them into their strategic calculations. As a result, governmental relations capabilities will become an even more important aspect of the corporate strategic toolkit.

Capital raising will remain a critical concern: access to sufficient quantities of capital on reasonable terms remains essential to permit businesses to preserve their viability and strengthen their balance sheets for what is likely to be a long and uncertain recovery process ahead, and to position them to achieve their longer-term strategic goals. Government stimulus programs and the current low interest rate environment are fostering very favourable debt capital markets conditions for corporate issuers. Debt capital markets transactions are proceeding at very healthy clip across a wide range of industries. However, the return of equity markets will be critical to restore balance sheet equilibrium and allow issuers a more traditional suite of financing options, including to support growth projects and acquisitions carrying a higher degree of risk. The prospects and timing for a large-scale and broad-based reopening of the equity capital markets for new issuances remain uncertain.

Many cross-border M&A and investment transactions will become more politically sensitive and challenging to complete.

The limits of globalization: the pandemic experience has profoundly challenged previously held assumptions of a beneficial, continuously advancing process of globalization - open international travel contributed to the spread of the virus, businesses experienced major offshore supply chain disruption and countries realized a shortage of domestically available PPE (and witnessed an international bidding war to obtain scarce supplies).

With the challenges of globalization under these circumstances becoming more apparent, governments and businesses have begun to focus on how they can facilitate more diversified supply chains and strengthen domestic capacity for key industries, including through the growth of national procurement strategies and requirements. Meanwhile, the pre-pandemic trend toward less free and open global trade and investment flows continues to rise.

Since the installation of the Trump administration in the United States in 2016, we have become accustomed to the “America First” refrain. Now in Canada too, a growing “Canada First” public sentiment is gaining momentum, with public support pivoting toward self-interest, protectionism, and a preference for domestic sourcing, investment and deal activity. As a result, many cross-border M&A and investment transactions will become more politically sensitive and challenging to complete.

With contractual relationships around the world disrupted by COVID-19 impacts, litigation is on the rise and likely will be for the foreseeable future.

At the same time, the relationship between many Western countries and China has come under increasing strain. This is posing a major challenge to the China strategy of Canadian and U.S. businesses. Their focus has notably shifted to balancing the need for access to and growth in the China market with the need to mitigate the growing risks such as supply chain over-reliance, increasing restrictions on the activities of foreign firms in China and increasing trade and political friction.

The need for higher government revenues will drive ongoing tax changes: in order to pay for the massive levels of fiscal stimulus unleashed during the pandemic, governments will seek to raise tax revenues and identify new sources of revenues. Governments can also be expected to focus on measures to discourage companies from transferring operations to lower tax jurisdictions, to challenge offshore tax structures and to maximize collection of tax revenues from ecommerce and other “new economy” activities within their borders. These factors are likely to result in business leaders reviewing and reformulating their offshoring and supply chain strategies in favour of diversification, redundancy and reduction of tax and political risk.

Focus on the individual and social concerns: the COVID-19 crisis has seen heightened focus on the individual and key social concerns. Unlike the 2008 financial crisis, the primary focus of government intervention—both from a public health perspective and an economic aid perspective—has been on directly on individuals rather than on businesses and the economy as a whole. There has also been intensified and sustained public focus on certain key social issues, most significantly on civil rights, anti-racism and reconciliation with Indigenous peoples.

Business leaders will need to find ways to ensure their corporate strategies reflect these trends and avoid ending up on the wrong side of them. These factors are likely to encourage the further development of a broader stakeholder view of corporate legitimacy where corporate directors’ and officers’ attention will shift toward a model embracing broad principles of stewardship, sustainability, employee well-being and long-term value.

Confronting new risks: businesses will need to prepare to address emerging or evolving risks in the areas of data security, litigation and employee misconduct.

The pandemic has brought on heightened awareness of the importance of data security issues, such as developing corporate best practices around digital platforms for payments, privacy and cybersecurity. These matters have become even higher-stakes pressure points for organizations as they navigate the accelerating shift to digitization of business services.

With contractual relationships around the world disrupted by COVID-19 impacts, litigation is on the rise and likely will be for the foreseeable future, with consumer class actions and other litigation commencing in jurisdictions across Canada and the United States.

Employee misconduct/white collar crime (alleged or actual) is an ever-present risk for organizations. When it comes to internal risk mitigation, organizations will want to assess their current compliance and investigations infrastructure to address vulnerabilities and be ready to respond.

Learnings for the future

While the COVID-19 pandemic continues to pose a fundamental challenge to our economy and society, a number of key learnings have become apparent. In navigating the unprecedented economic and social disruption, most businesses have exhibited a significant degree of resiliency and ingenuity. The crisis has accelerated major changes already underway in markets and facilitated critical changes within organizations. It has also exposed flaws in the architecture of globalization and social structures, such that those issues can begin to be more effectively addressed. These types of learnings will position businesses well to harness new opportunities going forward and respond to other inevitable challenges that they will face.

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