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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.
Originally published by Torys, July 2020
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
