Systemic racism and COVID present dual challenges for business .
Businesses—the successful ones, anyway—historically have been known for their ability to adapt to the changes that can come at them from any direction. Rarely, however, have businesses had to face two tremendous change agents at the same time, as they do now.
How do they deal with a major public health crisis in the COVID-19 pandemic and also responsibly address the painful national self-examination stemming from the Black Lives Matter movement? How do they remain financially viable amid a worldwide health threat, maintain their supply chains, keep their employees working and working safely, distribute their products, plot a financial course—all while trying to understand how the bottled-up societal change now on display also has huge implications for their futures?
It’s an uncertain time, and uncertainty—even less complex levels of uncertainty—are seldom good for business.
“For businesses, uncertainty is usually costly,” said Keven Yost, associate professor of finance at Harbert. “Uncertainty increases risk to investors, which negatively affects a firm’s value. Business uncertainty comes from an unknown future outcome of the pandemic. But uncertainty also stems from civil unrest from protests across the country, as well as the elections.”
The consequences can be grim. Consumers—not to mention investors and creditors—have seen the fiscal carnage. “While some businesses are maintaining their revenues or even thriving, there have been a number of high-profile bankruptcies during the past few months,” Yost said.
Finance executives were forced to operate in what an Accenture report called “firefighting mode: preserving cash, assessing risks and trying to rapidly redo all financial plans and forecasts…” That harsh reality underscored the importance of transitioning finance “from the transactional to the strategic,” which gives an advantage going forward to the financial officers “who recognize there is no ‘getting back to normal.’”
The pandemic has accelerated other changes in financial trends, such as the move away from cash as a payment method. Recent surveys indicate that more than 80 percent of consumers use credit or debit cards and more than 60 percent have used a transfer platform such as PayPal.
Venture capitalist Shomit Ghose predicted the pandemic “will force all business models to virtualize, following in the footsteps of e-commerce and fintech. The pandemic has pushed us into a new reality, and this reality will persist even after a vaccine has vanquished the disease.”
The pandemic alone would have been a colossal disruption of the business climate. For example, the impact on elements of the supply chain, notably in the food industry, was widespread and exposed vulnerabilities few had considered previously. As a report from the consulting firm McKinsey notes, spending on food had been stable, growing by about 4 percent over the past five years, with sales split roughly evenly between retail outlets such as grocery stores and food service operations such as restaurants and schools.
That changed dramatically as the pandemic led to varying levels of business shutdowns and a sharp shift in consumer behavior. As consumers prepared more meals at home and stockpiled groceries, retail food spending rose significantly, but sales plummeted at restaurants and other food
SHORTAGES AMID PLENTY
Although raw materials and many goods were not themselves in short supply, the inability to convert products quickly from food service configurations to retail configurations contributed to shortages in stores. Substantial differences in packaging size and labeling, for example, left food products stuck in a distribution limbo, affecting both cost and availability for consumers—and profit margins for businesses.
As businesses wrestled, often for the first time, with the challenges created by the pandemic, they also were confronted—decidedly not for the first time—with the challenges of systemic racism and an approach to diversity that goes beyond lip service and tokenism.
“The civil unrest due to racial injustice is causing many organizations to rethink how they have approached diversity issues within their organizations,” said LaDonna Thornton, assistant professor of supply chain management at Harbert. “The front-line supply chain workforce within plants, warehouses and trucks is incredibly diverse. However, many times this is where diversity ends.”
Thornton contends that organizations should rethink why diversity dwindles as one looks higher up the organizational chart. If the managerial workforce doesn’t reflect the diversity in the front-line workforce, that should prompt some questions, Thornton said.
“What is the composition of your managerial hiring pool? If you are concerned about the response to a minority manager, why is that?”
The discussions and protests stemming from the Black Lives Matter movement have broad implications for businesses as well as individuals. These create new opportunities for understanding and personal growth for employees and management, but also for overdue organizational change.
“Many are having difficult discussions regarding racism and personal and organizational practices which may perpetuate an unfair system. Hence, many organizations are revisiting treatment of minority employees as well as minority businesses,” Thornton said. “In addition, the minority employees are trying to psychologically and emotionally process the horror that was witnessed in the George Floyd video and so many videos before this one. At the same time, many of their white counterparts are struggling to comprehend and find the words to express what they are feeling. There is a lot to unpack for many people and it can be overwhelming.”
Talk is necessary and important, but action is critical, both for employees and for the other entities involved with an organization. Thornton noted that businesses are becoming “more intentional” in dealing with minority-owned suppliers. Rather than merely stating a desire to work with these suppliers and claiming that opportunities exist, some companies, such as Walmart and Lowe’s, actively engage in helping these suppliers develop their businesses.
That type of intentionality is particularly important now. “The pandemic shock has no analogy in modern times and so pandemic-driven uncertainties of timing, capital, customer and product variability all need careful assessment and distinct responses,” noted Mark V. Cannice, professor of entrepreneurship and innovation at the University of San Francisco School of Management, writing in California Management Review.
The potential impact is enormous. Thornton cited a 2019 study by the Federal Reserve Bank of Atlanta that found that minority-owned businesses tended to apply for smaller amounts of financing on average and were nearly twice as likely to be turned down for financing as white-owned businesses.
“The initiatives that Lowe’s and Walmart have put forth are real substantive change in sourcing that can have a positive lasting impact on black businesses in the future,” she said. “This offers incredible opportunities to black-owned businesses who overwhelmingly face hurdles when pursuing funding and support.”
In addition, a broader pool of suppliers increases competition, which can elevate quality and reduce costs.
These efforts also help attract new talent—and customers. Harvard Business Review cited a study conducted for UPS that found 52 percent of respondents want to work for a company with a supplier diversity and inclusion program. Another study conducted for Coca-Cola found that individuals who knew of the company’s supplier diversity initiatives were 25 percent more likely to view the company favorably and 49 percent more likely to buy its products.
INNOVATION ALSO INCREASES
The payoff from such changes in a corporate mindset extends beyond the minority-owned suppliers or the minority employees who begin to play greater roles in the organization. There’s a broader benefit in the development of a more innovative, responsive company better equipped to thrive in the turmoil of a changing economy.
“Diversity and inclusion are inextricably linked to innovation,” said venture capitalist Harry Alford in an interview with Inc.com. Alford’s firm, Humble Ventures, focuses on minority entrepreneurs and business owners. He noted that the different perspectives historically underrepresented people offer can help companies identify and reach new markets.
How will pandemic, societal struggles shape business?
Even a brief glance at business reporting reveals the dual impact of the COVID-19 pandemic and the societal debate growing from the Black Lives Matter movement. But what are the longer-term consequences? What happens when a vaccine curbs the pandemic and the public health concerns ease? And what happens if the societal debate begins to fade from the broader national consciousness?
“We’re in the middle of a strong watershed moment,” said Americus Reed, a marketing professor at the University of Pennsylvania’s Wharton School, in an interview with CNN.com. “It seems like everyone is unambiguously saying, ‘Here’s where I stand. Here’s where my company stands. Here’s my plan to support the Black community and Black Lives Matter and social justice.’”
However, the article notes that, particularly for smaller, minority-owned businesses, there are fears that “any business gains from this moment of public soul-searching over racism could prove ephemeral if the country—and customers—move on.”
Forbes contributor James Phillipps wrote “The impact of Covid-19 sweeping the world and the scale and depth of the protests following the killing of George Floyd feel like an inflection point. People are questioning the actions of governments and they also want to have a conversation about companies’ wider role in society.
“There is an overwhelming appetite for real and lasting change. Those companies seen to be behaving poorly or merely paying lip service to demands that they are better corporate citizens will be punished.”
So what to do about it? Phillipps quotes Mirza Baig, global head of governance at Aviva Investors, who contends that real change on diversity must begin in the boardroom: “Boards must seek to reflect modern society; mirroring its customers, employees and suppliers.”
“The key is that corporate management is held to account over its pledges,” Phillipps wrote, noting that Baig says investors also will look unfavorably on companies perceived as treating staff and suppliers poorly during the pandemic.
Uncertainty, Unrest Create Opportunities
Despite the challenges that some businesses face, others are doing quite well during this time of crisis. A recent article in the Wall Street Journal showed, for example, that home improvements stocks, such as Lowe’s (up by 30%) and Home Depot (up by 35%), are doing better during the pandemic compared to the beginning of the 2020.
As the uncertainty of the pandemic persists, resulting in individuals staying at home due to work-from-home requirements or furlough work hours, these individuals are more likely to resort to do-it-yourself home improvement projects. As a result, companies such as Lowe’s, Home Depot, Wayfair, Overstock.com, Amazon, etc., have benefited from significant increases in sales revenues. These are among the examples showing how uncertainty has created wealth opportunities for some businesses and brand recognition/popularity for others, such as Zoom, Microsoft Teams, etc.
The pandemic has also tested the resiliency and adaptability of business models. Physical gatherings for meetings, presentations, training, medical appointments, etc., have transitioned to virtual platforms such as Zoom, Microsoft Teams or other webinar formats. John Emerald Distilling Co., a distiller located in Opelika, Ala., transitioned a portion of its alcohol manufacturing capacity to produce hand sanitizer.
The emboldened and widespread social movement against racial injustices has also found its way to the profit line of businesses. Threats to profitability from reputational and legal risks, or loss of revenues from product boycotts or supply disruptions, have forced businesses to acknowledge the strength of the movement. Whether it is a function of their social consciences or investor wealth protection, the co-opted responses proposed by businesses will only prove beneficial when translated into impactful and verifiable action.
Based on a survey of 50 black corporate directors in the Black Corporate Directors Time Capsule Project (March 2020), Brian Lawson Williams determined that “racially diverse boards are more likely to prioritize racial diversity within their company.” Actioned inclusivity by businesses provides market information regarding their progressiveness. These inclusivity benefits should result in expanded customer market shares, expanded supplier and supply chain accesses and, ultimately, added investor wealth.
Department of Finance