The world we live in today is bigger in size than what it was hundred years ago when it saw its last major pandemic. Nowadays, it is a matter of few hours for a viral infection to travel from one part of the world to another through human carriers. However, business houses are seldom concerned about the issues that don’t affect their profit earning capacity. In January 2019, World Economic Forum (WEF) in collaboration with Harvard Global Health Institute released a report titled “Outbreak Readiness and Business Impact Protecting Lives and Livelihoods across the Global Economy[1]” (‘hereinafter the Report’) emphasising the need for business leaders to be more aware of the dialogue about global health, a topic which is rarely considered a subject worthy of attention, investment and advocacy. The aim of the Report was to warn the corporate houses about the threat that may haunt them in the worst of their dreams, which has now become a reality after the outbreak of COVID-19. Therefore, in this article, the authors have analysed the relation of the Report to the current situation along with crisis management tools necessary to be deployed in such a situation.
International obligation
Considering the shared vulnerability of all the countries due to global outbreak of diseases, 196 countries of the world (including all member nations of the WHO) being a part of International Health Regulations (IHR), had agreed to help the international community prevent and respond to acute public health risks that could potentially cross borders and threaten people worldwide. The regulations have two primary objectives which focus on strengthening preparedness and capacity to respond public health threats and support international response to outbreaks.
Key aspects of the Report
The Report suggested that more than 80% of countries that have assessed their preparedness to date, were not ready to find, stop or prevent an epidemic. A year later, this proves to be correct and we see the whole world coming to a standstill[2] and waiting for the situation to improve. Had this Report been taken seriously, the world could have been in a better situation to face this crisis.
The Report also stated that “Investments needed to improve pandemic preparedness are not large relative to the risk of being unprepared. After all, responding to outbreaks once they have occurred is far more expensive, in lives and money.”[3] Such analysis, a year ago, cannot be considered a mere prediction but based on facts and past precedents as was the case in Ebola, SARS, MERS etc. Using data from the flu pandemics of the 20th century, a report by the Commission on a Global Health Risk Framework for the Future estimated the annualised impact of flu pandemics at roughly $60 billion[4], more than doubling the previous estimates. In the current situation, however, it is difficult to predict the amount of loss the whole world would be suffering from.
The Report also stated how, many companies assume that operational continuity insurance would compensate them for any losses arising from outbreaks, being unaware that such policies mostly exclude infectious disease outbreaks as a contingent event. Such policies are therefore, bound to change in future and more attention would now be given to mitigate such a situation. In times when only a few companies would have thought about pandemic insurance, Wimbledon paid around £25.5 million as premium over 17-year period. Defying many experts this proved to be a very sensible investment[5], as they are now set to receive an insurance pay-out of around £114 million on this year’s cancelled tournament.
During an outbreak, loss of access to a major mineral deposit (or in other contexts to production facilities, among others) through border closures, quarantines or worker illness represents a significant threat to firms. Extensive layoffs can have far-reaching effects, including reductions and disruptions in investment in human capital, leading to concerns for broader investment and development goals for the affected regions. In the present scenario as well, though advisories have been issued by the government prohibiting layoffs, it can neither be considered as law nor a solution to those companies who are left with no other option. For example, fitness group ‘Cure. Fit’[6] axed 800 employees and is now inclined towards all digital move. Therefore, until and unless the Government takes an initiative to protect these companies, extensive layoffs are bound to happen.
Analysing it further, taking example of the new recruits selected through campus placements we can see that many law firms including CAM, Khaitan & Co. have pushed their joining dates to October[7]. However, in many sectors, companies have restricted themselves from issuing new joining letters in these immediate months of financial stringency. Thus, along with layoffs this will lead to a situation of rampant unemployment in the country which would eventually result in decrease in aggregate demand. As a consequence, production would be reduced bringing us to the similar situation where companies would be compelled to reduce their workforce.
Changes in business model so as to overcome pandemic like situations
The Report under discussion had enumerated how infectious diseases may pose potential threats on various variables of the trade and commerce which would lead to a shift in their traditional ideologies regarding suppliers, employees, chains of trade, customers and even investors and other regulatory regimes. This change was earlier experienced during liberalisation in favour of cross-border trade and now, after the outbreak of COVID-19, a limitation to global integration is thought upon. Companies should employ both domestic and multinational variables in their operations. For instance, supplier of raw materials should not belong to one particular country so that any adverse event in that particular nation does not affect their potency. Therefore, domestic suppliers must also be identified. Furthermore, maintaining a varied customer base might ensure continued sale even if a part of the world faces adversities and prevent a total shut down of the operations during such crisis.
Economists had estimated that, in the coming decades, pandemics would cause average annual economic losses of 0.7% of global GDP[8] – a threat similar to that estimated for climate change, which businesses can no longer afford to ignore. Thus, public-private cooperation has become essential in order to mitigate costs and strengthen health security effectively. Also, businesses should apply their vision to provide for any similar risk that may occur like creating a provision in advance for the salaries to be paid during lockdowns i.e. at the time of non-contribution to the business. The provisions must also be made for any contributions that the company, in order to appear socially committed and to fulfil their CSR obligations, have to contribute towards national funds. Moreover, alternatives to the already existing suppliers must also be identified keeping themselves ready to pay any higher amount for raw materials at the time of emergencies.
Crisis Management
Companies that effectively put a business continuity plan in place in the occasion of unforeseen contingencies can mitigate the effects of any negative event that occurs. Where risk management is to plan for future unforeseen events, the crisis management is to manage the already occurred negative event. In order to have a business continuity plan in the aftermath of a crisis, most firms start by conducting risk analysis on their operations. However, the question remains whether the companies globally have ever wondered to consider pandemic as a major risk to their operations?
A model to cope up with the changing dimensions of the diversified variables in the business domain may include supply chain modifications, developing infrastructure for work from home to avoid disruptions and shifting from total human force to machine intensive model (to some extent) in order to keep the factory running even at the times of human absence.
This episode of economic duress outlines the importance of savings and maintaining a contingency fund (might coin a term “pandemic fund”) to deal with fixed costs during business shutdowns become necessary. Taking the example of US Airlines, the Senate had approved a $50 billion bailout package in order to save the airline industry. However, such bailouts using taxpayers’ money would have been easier to stomach if airlines had not spent their cash flow during boom years on stock buybacks and rather conserved it for the times of unforeseen economic shock[9].
In this event of crisis, the organisation which is able to swiftly diversify and succumb to the need of the hour wins the battle of gaining public reputation by yielding the benefits of operating in another field. For example, quick action to undertake production of hand sanitizers and masks by companies who were known for different line of production[10]. Therefore, companies must have a proper management to take quick decisions during emergencies and to immediately capture the emerging opportunity in the business environment.
Pertaining to the current circumstance, the development of sensitive gears fostering health care requires proper regulatory clearance and certification. This is where the role of the Government sneaks in to undertake the certification on a priority basis. It can also lure business organisations by offering tax benefits, including their operations under their CSR activity, reducing their licensing fee, fixing minimum support price for the products to be manufactured and ensuring availability of duty-free raw material.
Conclusion
Since the Report was issued in 2019, in a way, it had a capacity to warn the world at large which was totally unprepared to contain an unforeseen emergency in the form of a global disease outbreak. Since, no country paid adequate attention to it at that time; the unprepared world continues to suffer from the pandemic.During COVID-19, the world is experiencing an extraordinary blow in terms of health and economy, which eventually are somehow connected. Stern measures and policy decisions should be undertaken to prevent such losses in future. Post COVID-19, the world may experience a steep shift from globalisation to domestication owing to the fear attached with the spread of the disease, affecting sectors like EXIM, tourism, aviation, etc. the most. Therefore, a comprehensive plan, both by the Government and companies, should be devised to fight the upcoming economic depression and proper crisis management tools must be deployed by the companies for any future unprecedented event.
* IIIrd Year, BA LLB (Hons.) students at Dr. RMLNLU, Lucknow
[1] World Economic Forum, Outbreak Readiness and Business Impact Protecting Lives and Livelihoods across the Global Economy (White Paper, January 2019).
[2] Rosamond Hutt, ‘Here’s what countries are doing to slow the coronavirus outbreak’ (World Economic Forum, 14 April 2020) < https://www.weforum.org/agenda/2020/02/coronavirus-spread-virus-disease-countries-epidemic/> accessed on 1 May 2020.
[3] The Report (n 1).
[4] The Commission on a Global Health Risk Framework for the Future, ‘The Neglected Dimension of Global Security: A Framework to Counter Infectious Disease Crises’ (National Academy of Medicine, May 2016).
[5] ‘Wimbledon Shows How Pandemic Insurance Could Become Vital for Sports, Other Events’ (Insurance Journal, 13 April 2020) <https://www.insurancejournal.com/news/international/2020/04/13/564598.htm>.
[6] ‘Covid-19: Fitness group cure.fit axes 800 employees, mulls all-digital move’ (Livemint, 4 May 2020) <https://www.livemint.com/companies/start-ups/covid-19-fitness-group-cure-fit-axes-800-employees-mulls-all-digital-move-11588602490506.html>.
[7] Pallavi Saluja, ‘Cyril Amarchand Mangaldas, Khaitan & Co. push joining dates of freshers to October’ (Bar & Bench, 2 May 2020) <https://www.barandbench.com/news/corporate/exclusive-cyril-amarchand-mangaldas-khaitan-co-push-joining-dates-of-freshers-to-october>.
[8] The Report (n 1)
[9] Clancy Morgan, ‘Airline salaries compared to stock buybacks show why so many people are angry at the bailout’ (Business Insider, 22 April 2020).
[10] ‘From perfume to hand sanitiser, TVs to face masks: how companies are changing track to fight COVID-19’ (World Economic Forum, 24 March 2020).