During difficult economic times, companies often turn to investors for help. However, investors prioritize agile and resilient companies since they have much higher chances of surviving economic and financial crises. Thus, immediate corporate actions like firing employees may actually do more harm than good in the long-run. George Serafeim, a professor at Harvard Business School, backed this belief as well, stating, “the way that a company responds in relation to its labor force, to its suppliers, and to its ingenuity in repurposing its products and services all seem to be evaluated by investors. Many organizations in times of crisis might be moving very fast at capping resources and imposing negative externalities on their employees, customers, and suppliers without considering all the costs and benefits of those responses.”
According to Serafeim’s Corporate Resilience and Response During COVID-19 paper, positive sentiment surrounding a company’s response to the pandemic led to less negative stock returns, with a difference of around 3% points. This was more significant for businesses that depend highly on customer service and satisfaction and industries that were hit the hardest by the virus. Investors mainly evaluated how companies treated their employees and suppliers, how they monitored their supply chains, and whether they met the sudden shift in demands.
“The way that a company responds in relation to its labor force, to its suppliers, and to its ingenuity in repurposing its products and services all seem to be evaluated by investors in capital markets in a time of crisis. This is why you’re observing organizations responding to and elevating internally the importance of those issues, allocating more resources, and disclosing more metrics. That is why you also see an increasing number of investors that are focusing their efforts on those issues,” warned Serafeim.
Moreover, making well-detailed contracts and sending proper messages to supplier providers can help a company maintain control of input provision during fluctuations in the market. Having alternative input providers and working with the providers can minimize the risks regarding input provision as well. It is also vital for businesses to think beyond and constantly bring awareness to social and environmental issues rather than temporarily addressing them only in certain situations. These can include topics like employee-centric approaches and sustainable strategies, which will give your company a competitive advantage.
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