COVID-19 Pandemic Highlights the Social and Ethical Responsibilities of Companies

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Article by Aniqua Zafar

In March 2020, the World Health Organization declared the global spread of the novel coronavirus disease, COVID-19, as a pandemic. Due to which multiple bans and restrictions were imposed worldwide. As the world slowly fell into turmoil, businesses were not safe from this disaster as well. Two types of companies emerged from this scenario, ones that quickly grasped the situation and adapted whereas there were others that were adversely affected by the pandemic.

The companies which were adversely affected by the pandemic had to take stringent measures to control costs and safeguard the business from being shut down. Two of the main measures taken by such companies were layoffs and restructuring. Layoffs and restructuring during such hard times are the companies’ right but ethically whether they are right or not is a debatable issue all over the world. As such, we noticed that as soon as companies faced financial difficulties, the first suggestion for cost cutting was the reduction in workforce and salaries. This can also be seen by the data published by OECD.

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The OECD unemployment rate increased by an unprecedented 2.9 percentage points in April 2020 to 8.4%, compared to 5.5% in March, reflecting the impact of COVID-19 containment measures. The number of unemployed people in the OECD area increased by 18.4 million to 55 million in April. The United States accounted for the main part of this increase, with a rise in unemployed of 15.9 million.

The unemployment rate rose faster among women than among men in OECD countries; increasing by 3.3 percentage points in April (to 9.1%) compared to an increase of 2.6 percentage points (to 7.9%) for men. Younger people (aged 15 to 24) have been particularly affected by the crisis. The youth unemployment rate surged by 5.5 percentage points (to 17.6%), compared to an increase of 2.7 percentage points for people aged 25 and above.

In light of the above circumstances, what options do companies have to curtail costs and maintain their business. Some of the alternatives are discussed below:

Availing Government Policies

Many employment laws and policies were introduced by the government on every level to help and protect businesses and for employees to have social security. These included:

  • Social assurance through existing plans or specially appointed installments for laborers, including casual, easygoing, occasional and transient specialists, and the independently employed (for example through admittance to joblessness benefits, social help, and public business programs);
  • Employment retention schemes, including short-time work arrangements / partial unemployment benefits and other time-bound support for enterprises, such as wage subsidies [and temporary cuts to payroll tax/exemptions from social security contributions], provision of paid leave, and extension of existing entitlements to workers, and training leave, grants, and related schemes; and
  • Time-bound financial/tax relief and income smoothing measures to support business continuity, especially small businesses and the self-employed (e.g. subsidies, credit mediation/re-financing to overcome liquidity constraints).
Dynamic Leadership and Open Communication with Employees

It is understood that, to keep a company afloat, leaders need to make many difficult and responsible decisions. But leaders who can manage the crisis in the best possible way by taking all the stakeholders into account create more value for their companies and come out stronger than before out of adversity. Therefore, when a company is facing difficult times, the management should have open communication with its employees by giving advance notice to those affected and even taking suggestions for other possible solutions.

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A true leader always welcomes new ideas, and this is what can keep the company’s culture flourishing. By taking the employees into confidence, they will feel more valued and this way will build a level of loyalty. Everyone knows that we are going through a global pandemic, everyone knows that certain sectors of the economy are already getting hit hard by changes in consumer behavior as a result of this virus and everyone knows that a slowdown in parts of the economy and increased uncertainty might impact their company as well, so it might be a good idea for leadership to take their employees into confidence when discussing the future of their organizations.

Cost Reductions Across the Organization

Since the basic way to avoid losses is through cost reduction, therefore, this should be led by example. If the lives of the leaders have no impact of salary reduction, then it will be worthless and will demoralize the lower staff who barely meet their needs with full salary. Therefore, the upper management salary should also be reduced to avoid any luxury spends and salary reduction for mid-level can be made on a judgmental basis based on performance.

Before layoffs, organizations should consider all non-obvious options for reducing cost: A four-day workweek for roles where you have excess capacity will reduce staff costs and some employees might also agree to work half-time if they know that doing so will save jobs. Organizations can also offer employees the opportunity for unpaid leave if they so wish — framing this leave as a “sabbatical” can help take some of the stigmas of the absence away. A number of employees will welcome these options and wish they could have had them all along. By making it clear that one of your overriding goals is to avoid layoffs, you might find that employees are amenable to the personal sacrifices inherent in salary-increase freezes, halting bonuses, bans on overtime, pausing of payments into retirement funds, reduction of vacation days, and other cost-saving measures.

Conclusion

Many companies have suffered due to the pandemic, a number of businesses have been closed, and a lot of factories were shut down resulting in people being laid off. But the question is whether companies can take other measures rather than laying off employees who the company values so much.

The companies have a corporate social responsibility as well in the country they operate. If a country is already facing the pandemic then unemployment will make things even more difficult. Instead, the industry leaders can access government help in making policies and guide what can be put in place to avoid the worst possible scenario or reduce costs in other areas of their business. A big role can be played by organizations in the rebuilding of the economy and we need to see whether the corporate sector will do so while fulfilling their ethical and social responsibilities.


About the author
Aniqua Zafar is an accountancy student currently working and studying in Pakistan.

About The Accountant 103 Articles
The Accountant’s Diary aims to provide short, snappy and shareable content on the topics of accounting, auditing, finance, business and technology.

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