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Supply chain risk, employees and the coronavirus

EOS Insight
24 March 2020 |
The coronavirus is having a hugely disruptive impact on everyday life, affecting businesses and individuals alike. In the second of our blog series on the deadly pandemic, EOS at Federated Hermes looks at how companies can manage supply chain risk and support their employees as working arrangements change.

Fast reading

  • Companies should improve global supply chain risk management by conducting an impact assessment
  • Boards should review flexible work practices to support their workforce
  • Companies should provide regular, clear communication and leadership to employees

The coronavirus pandemic is forcing governments around the globe to enact emergency legislation to contain the spread of COVID-19, with cities in lockdown, shops, theatres and restaurants closed, and office workers logging on at home. What can companies do to manage their way through this difficult period?

In part one of this series we looked at how boards can take a proactive role in crisis management. In this article we will explore two areas likely to be most impacted by the virus – supply chains and employees.

We recommend that companies improve global supply chain risk management by conducting an impact assessment.

Understanding the supply chain is a challenging task for most global companies. Shifting to a just-in-time production model may have improved operational efficiency and cut costs in the past, but during a prolonged period of disruption it can leave companies exposed.

For example, Wuhan, the epicentre of COVID-19 in China, is a manufacturing hub in the Hubei province, which accounts for a quarter of China’s steel output. Steel demand, production and logistics challenges persist after extended travel restrictions were implemented in China in early January. This could impact leading car manufacturers around the globe, as well as auto parts suppliers and consumer electronics. The actual impact, especially the supply chain impact, can only be quantified through engagement with companies.

We recommend that board members review flexible work practices to support their workforce.

In a knowledge economy, where intangible assets such as human capital are estimated to account for on average 52% of a company’s market value, it is vital that businesses look beyond physical assets to understand their sources of long-term value.

There is a significant benefit to wider society from happy and fulfilled employees, given that many people spend more time at work than anywhere else. Companies that effectively implement an agile working policy can give employees greater flexibility, leading to a better work-life balance and job satisfaction. This will enhance the attraction of working for the company, improve retention of talent, and maximise productivity.

Companies that have already implemented best practice agile working arrangements may find that the impact of the coronavirus on productivity is reduced. Employees who are already familiar with working from home will be better adapted to getting on with their roles. However, there needs to be a commitment from individuals and teams to maintain productivity levels and standards, regardless of working arrangements. Companies need to invest the time to ensure this is embedded in their corporate culture.

Ensuring that staff have the technology to cope with their full workload whilst working from home is crucial to business continuity. Companies should also provide regular, clear communication and leadership to employees, including disseminating public health advice, and help regarding mental health issues for the socially isolated. They should also provide care and assistance to employees with particular concerns and worries as carers, or because of their own underlying health conditions.

Of course, some companies require their employees to be on site due to the nature of the business or production process. These companies will need an effective monitoring system in the event of a public health crisis. For example, do they have an established process for quarantine? Are health personnel readily accessible?

Companies also need to provide paid time off for those who are unwell or required to self-isolate and unable to work from home. If work is paid for only if workers turn up, employees may not report that they have a fever, or feel able to call in sick, contributing to the spread of the virus. In the event of a public health crisis, employee medical rights may be vital.   

At EOS at Federated Hermes, our engagers are discussing the impact of COVID-19 with companies. These conversations are highly connected to the engagement themes outlined in our Engagement Plan. We hope that by being open and transparent about addressing a public health crisis through the lens of ESG, we can support companies in being better prepared to create long-term value for all stakeholders.

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