Member Article

Covid-19 is upending capitalism as we know it. Amid the pandemic, how can businesses rewrite their rule books so as to emerge stronger?

Americans have allegedly outbid the French for masks “right on the tarmac” just as the goods were to be flown off to their destination. From Amazon to Rakuten to Carousell, traders exploited fears by price-gouging on masks and hand sanitisers. Meanwhile, panicked shoppers worldwide cleaned stores out of rice and toilet paper, leaving the vulnerable with no access to necessities.

The Covid-19 free-for-all calls to mind the theme of critically acclaimed Spanish movie The Platform, where each prisoner in a vertical prison receives food on a platform, accessible for only two minutes a day before the dumb waiter is lowered to the next level. In theory, no one would go hungry if everyone took only what they needed. In practice, those who got first dibs gorged on the smorgasbord, leaving others with nothing.

When the protagonist suggested a fairer way to distribute the food, his cellmate retorted: “Are you a communist?”

Good old-fashioned capitalism

Indeed, some have been tempted to conclude that authoritarianism trumps democracy because China’s crisis response appears better than America’s so far. That would be a mistake. After all, democracies such as Taiwan, South Korea, New Zealand and Germany have been lauded as role models, and not Iran or North Korea.

Similarly, we do not quite have to turn to the planned economy to save lives and the economy. Good old-fashioned capitalism will accelerate the process of rewarding flexible, forward-thinking businesses that forge brave new paths.

This year’s Formula 1 season has been suspended. No surprise there, since the races mean tightly packed crowds and spectators flying internationally, activities verboten at this time. The twist was the replacement: virtual races by F1 drivers and celebrities, including former boy band One Direction member Liam Payne and YouTube gamers. The first, which took place on 22 March, garnered 3.2 million online views and 1.2 million television views, reflecting a desire for novel entertainment as a reprieve from the doom and gloom. While the virtual races may have only attracted a fraction of the audience of the traditional ones, which saw 1.9 billion television viewers last year, surely some revenue is better than none. And this new series may well form another profit centre catering to a new generation of motorsports fans post-pandemic.

Fujifilm Holdings is another prime example of a nimble company. Better known for its photography equipment and materials than its pharmaceuticals, it saw its shares rise by 15.4 per cent when its influenza medicine appeared to be effective against the coronavirus that causes the Covid-19 disease. Its photography business outlived its erstwhile competitor, Kodak, for an entire decade because it had pivoted decisively towards digital cameras. At the same time, it diversified aggressively, including its 2006 foray into pharmaceuticals. It was a smart decision, considering Japan’s ageing demographics, and appears even cleverer now in light of the Covid-19 pandemic.

A moral compass for the bottom line

To survive this crisis and the next, businesses will also need to take greater care of their employees and the wider community, instead of fetishising returns at all costs. The American Business Roundtable, a non-profit whose members comprise major US-company CEOs, redefined the purpose of a corporation last August, from that of profit maximisation for shareholders to a commitment to take care of all stakeholders. Rather than rejecting capitalism, the realignment affirms the members’ belief that the “free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all”.

Johnson & Johnson, one of the 181 supporting signatories, walks the talk. It donated one million surgical masks to Chinese healthcare workers and over 1,300 packs of contact lenses to Wuhan’s physicians and nurses to help them see under their mandatory protective goggles. After it announced that it would begin human testing of its coronavirus vaccine by September, its shares surged by nineper cent.

Would its share price performthe same without the do-goodery? Perhaps in the short term, as long as it makes progress towards the vaccine. But in the long term, it may not continue to be the world’s largest healthcare company if it did not provide a sense of purpose to its 130,000 employees.

To quote Richard Branson: “Take care of your employees, and they’ll take care of your business.” The Virgin boss is well-supported by data. Oxford University’s Said Business School concluded in a 2019 study that workers were 13 per cent more productive when happy. Harvard Business Review showed in 2018 that nine out of 10 employees, across all demographic classes and salary levels, were willing to sacrifice pay for greater meaning at work. The average American worker would forego 23 per cent of their entire future lifetime earnings if they had a job that is always meaningful. Such work also benefits their employers, translating into an additional annual output of US$9,078 per worker, as well as US$6.43 million savings in annual turnover-related costs for every 10,000 workers.

A moral compass is not a nice-to-have. A company’s toxic culture can be its downfall. Boeing’s share price nosedived after its 737 Max was grounded. Crash investigations revealed the rot, including an employee email that said the “airplane is designed by clowns, who in turn are supervised by monkeys”. Ed Pierson, an erstwhile Boeing senior manager, said that employees were overworked and making mistakes. When employees are not looked after, businesses suffer and lives can be tragically lost.

Circuit breaker

Amid the hardship, businesses that have instead turned the tables around to give back to the community may well thrive. The world’s largest luxury group, LVMH, swapped production from sumptuous perfumes and cosmetics to hand sanitisers – to be distributed for free. CEOs across the globe, including that of hospitality giant Marriott, Arne Sorenson, took salary moratoriums in solidarity with suffering employees. Singapore Airlines worked with hospitals to redeploy grounded cabin crew as caregivers – meaningful community work for those who avail themselves to the opportunity.

These actions embody true leadership. According to a study by PR and management consultancy agency Edelman, 64 per cent of consumers choose, switch, avoid or boycott a brand based on its stand on societal issues. When the pandemic is over, consumers will fly Singapore Airlines to stay in Marriott hotels and shop for LV bags.

Clearly, not all social aims may be achieved by companies alone. Those goals ought to be discerned at the ballot box, and guided by laws passed by legislators accountable to the electorate. We see that in action now. Under pressure from regulators and to avoid reputational damage, online marketplaces have since removed thousands of exploitative listings, leaving at least one online merchant stuck with 17,700 bottles of hand sanitiser. The Ministry of Trade and Industry in Singapore invoked the Price Control Act for only the third time in history, to clamp down on the price-gouging in Singapore.

As Singapore trudges through its two-month-long circuit breaker, in time we will see which businesses can rewrite their rule books so that they can emerge stronger, just as the laws have been rewritten to deal with this pandemic.