In business, everything changes, everything evolves—yet nothing can compare to the levels of disruption and uncertainty leaders are facing in 2020. Even before the coronavirus (COVID-19) pandemic, a variety of political, economic, social, environmental, and technological factors were percolating, creating a perfect storm for disruption. These macro-forces continue to challenge the ways organizations think about doing business, raising many questions about what the new normal will look like when the dust settles.
With this in mind, it’s understandable that many organizations are struggling. How do you plan for the future with so many unknowns? How do you prioritize when so many external forces can reshape your business in the blink of an eye? How do you stay focused when the pace of change potentially requires your business to change tack with little or no warning? As we will discuss, in order to bounce back, businesses—and the finance function more specifically—need to fundamentally change how they operate.
It’s important to state that this new operational challenge is not solely a result of COVID-19. The winds of change have been coming for a while, but it often takes a significant event to drive such a fundamental shift. Businesses must look hard at their level of agility and ability to react quickly to change, and revisit relationships with stakeholders—from employees and customers to shareholders. Finally, organizations must plan and scale for the future, positioning themselves for change whilst accepting the fact that “I don’t know” might be the only answer available in today’s uncertain world.
A Plethora of Macro-Challenges Driving Uncertainty
A catalogue of external factors are cranking up the pressure on businesses. The coronavirus pandemic means a global recession is now highly likely, with far-reaching implications for global businesses. Strained trade relations between the U.S. and China, and the UK and its pre-Brexit EU partners, all point to additional market instability.
California’s recent wildfires and the 2019 Australian bushfires brought into sharper focus that extreme weather and other climate incidents will become increasingly common. Businesses will need to better understand how these factors will impact aspects of their operations, such as risk management, the supply chain, and ultimately the bottom line. Stakeholders will start to apply pressure on business leaders when companies are not making sufficient progress on sustainability-related disclosures and the practices and processes that underpin them. Climate change will no longer be viewed as a long-term risk, and CFOs will now be held accountable for guiding the business through the most turbulent of storms.
At the same time, we are seeing an evolution of our social, political, and economic systems that are driving social change. Under the banner of “stakeholder capitalism,” business leaders are increasingly under pressure to deliver a more inclusive, citizen-driven, sustainable economy where profits are optimized not maximized, and organizations function far more for purpose than profit.
Today’s employees are pushing back, wanting to work for companies that are purpose-driven and focused on a broad set of stakeholders. And they aren’t just demanding this for themselves. Consumers—whether purchasing for themselves or for their organization—increasingly want to buy from companies that demonstrate integrity in how they treat their employees, their customers, and the environment. These consumers seek honesty, transparency, equality, and a better overall experience.
This growing sentiment led to a Business Roundtable meeting in late 2019, where 181 CEOs representing nearly 30% of total U.S. market capitalization committed to lead companies for the benefit of customers, employees, suppliers, and communities in addition to shareholders. Of course, such talk has been met with scepticism from some quarters, but will this be a watershed moment in a much larger movement that investors and business leaders should brace for in the future?
While profit is not the ultimate goal, research shows that companies with high levels of purpose grow faster, have higher profitability, and outperform the market by 5% to 7% per year—on par with companies with best-in-class governance and innovative capabilities.