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Rotman Insights Hub | University of Toronto - Rotman School of Management

How to build back better

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Kenneth Corts, Sarah Kaplan, Soo Min Toh

Ken Corts: Many people have spent the last few months asking, When will things return to normal? But rather than hoping for a return to normal, both of you have talked about the need to build back better. Please explain.

Sarah Kaplan: One thing that both the COVID-19 crisis and the Black Lives Matter protests point out is that our previous state of normalcy was not that great for many people. If you think about who has suffered the most during this crisis, frontline workers are at the top of the list. And the fact is, in most cases these are people who haven’t had the same opportunities and privileges that many of us have enjoyed.

Going forward, the goal can’t be just to get back to where we were. We have to pay attention to the pervasive inequality that has always been a feature of our society — but that many corporate and political elites have mostly ignored. Inequality should never be viewed as normal or acceptable — and nor should the degradation of our environment. Addressing all of these issues must be part of the rebuild.

KC: Talk a bit more about how the current crisis has highlighted or exacerbated inequality with respect to the workforce.

SK: First of all, unlike previous recessions, more women than men lost their jobs this time around, and there are a few reasons for that. One is the structure of the labour market itself, in which women are much more likely to do part-time work. They are also more likely to have been the most recently hired (and therefore the first to be furloughed) and to work in the sectors that have been most affected. That’s one aspect of it.

Secondly, this is an unusual crisis in the sense that for several months, children were not in school and normal caretaking and daycare weren’t available — even to people who could typically afford them. There has been an increased demand for caregiving at home, and because we live in such a gendered society, most of that falls upon women, forcing them to reduce their hours — or drop out of the workforce entirely.

KC: What have we learned from past crises, and what does effective leadership look like now?

Soo Min Toh: This is a great opportunity to trigger conversations about what is possible and the changes that need to happen. Already, we have seen that radical change is possible: Governments, organizations, and individuals have had to change their daily habits dramatically — so we all know that we are capable of it. We have to build resilience into our systems in preparation for the next crisis — and for a time of ongoing crises.

Where there have been mass layoffs and furloughs, it has literally destroyed diversity in organizations.

What have we learned from the past? A few things. We know that crises evoke significant emotions and an urgent need for direction and clarity. As we seek answers, we look to our leaders for reassurance and to tell us what to do. But in responding to a crisis, leaders should not just be concerned about communicating what actions people should take. They must also deal with the fact that they, too, are experiencing fear, frustration and shock. As leaders we need to consider how we and the people we lead are feeling. It’s important to listen to employees, show concern, and provide direction and emotional support.

KC: In terms of the workforce, what will it mean for businesses to build back better after COVID-19?

SK: First, we now all realize how essential certain workers are, which raises questions around what the minimum wage should be. In the U.S. there is a big debate about whether it should be raised to $15 per hour — which, even if people work full time, basically puts them at the poverty level. If Amazon warehouse workers, grocery store employees and delivery people turn out to be some of the people we depend upon the most to keep our daily lives going, why are they being paid the least in our society?

The second thing is, this crisis has uncovered the importance of flexible work. Previously, people who took advantage of flex work tended to be seen as being less committed. But we now realize that lots of people need flexibility because they have significant obligations in their personal lives. During the pandemic, many of those who were lucky enough to have a second parent in the home had to work different shifts and decide who would work when. Flexible work has become an essential concept.

This crisis has also uncovered the deep importance of universal healthcare, which we have in Canada, but also universal childcare — which we don’t. Universal childcare would mean affordable access for all. Pre-crisis, we already knew that one of the reasons women were being syphoned off in the workforce was due to the lack of childcare. Now we can plainly see how this is going to be crucial for building back better — not just for those who need childcare, but also for the childcare workers themselves, who, it turns out, are among those essential workers who are the lowest paid in our society.

SMT: Building back better will require some very broad systems thinking and a realization that many of these issues are interdependent. You simply can’t have a thriving business without a healthy workforce or a supportive government that enables that. The other thing to consider is that lots of quick fixes have been necessary, but they sometimes have a negative impact. Sarah mentioned how layoffs have disproportionately affected women and minorities. Organizations need to realize that their decisions have long-term consequences and that they don’t necessarily lead to greater resilience. Important priorities like equity, diversity and inclusion cannot take a backseat at this point in time.

SK: Research prior to the pandemic showed that where there have been mass layoffs and furloughs, it has literally destroyed diversity in organizations. Even if people are applying supposedly neutral rules — like, We will only lay off the most recently-hired employees or We’re just going to lay off part-time workers — both of these statements are implicitly gendered, because women are much more likely to be in part-time work and to be recently hired. That’s why diversity and inclusion must be a central decision-making component when leaders are making these decisions — even in the midst of a crisis. Otherwise, the progress that has been made in recent years — while far from sufficient — will be destroyed.

KC: What does it mean to build back better in terms of strategy?

SK: Sadly, despite the Business Roundtable’s announcement that its member CEOs were going to address the needs of all stakeholders and other laudable initiatives, this is still a shareholder-focused world. When we think about building back better, we need to think about how to make good on the promise to create value for all. Every organization needs to look at how it defines and understands who its stakeholders are, and how its operations are leading to consequences for some that might not be intentional. Some have proposed that leaders look to the United Nations Sustainable Development Goals. These are very well negotiated, well thought-out principles that encompass the environment, the health of the workforce and access to education. I believe they could easily be used as a guidepost for every organization.

SMT: This is a time for deep reflection around, What are we trying to achieve as an organization? Again, it brings us back to having an inclusive and diverse environment in our organizations so that we’re not just listening to people who think the same way we do. In order to come up with creative ways to move forward, we need to be taking the perspective of others and taking counsel from people who are not like us.

KC: Soo Min, you have talked about recovering from this crisis as being an innovation challenge. Please explain that.

SMT: Innovation can be defined as something that involves change as well as some type of improvement. The pandemic has led to widespread shock and disruption and has caused people to re-evaluate their assumptions, their routines and what is truly important to them. That makes it a great opportunity for businesses to innovate, because customers are very open to new ways of doing things right now. Leaders should be looking at this as a prime opportunity for innovation.

KC: Does COVID-19 put an even greater spotlight on the importance of embracing environmental, social and governance (ESG) frameworks?

SK: We haven’t used the term ESG yet, but that is really what we’re talking about here. The challenge up until now is that ESG has always been viewed as a nice to have, an add-on — something you do on top of your day job. This crisis is pointing out that, in fact, ESG must be central to your mission. And by making it so, you are actually going to spur greater innovation, because by considering diverse points of view and issues, you will come up with more insights that positively impact your bottom line.

SMT: Businesses are facing great pressure to get the engine of our economy back up and running. But you simply can’t do that if your workforce doesn’t feel safe, or if people are unwilling to return to the office, or feel too stressed out to work. That could make this even more costly for organizations. We have to think about these things holistically and ensure that people are not pressured to return to work and put themselves at risk — and thereby put their companies at risk.

KC: This pandemic has illustrated that it’s not just workers who care about workers: Customers care about workers, too, and they also care about the safety of products and services. Business continuity depends upon workplace conditions and the health and safety of workers. It’s all inter-related, and I think the ESG framework highlights those considerations.

SMT: I actually don’t think companies have a choice at this point, because the expectations of workers and customers alike have changed. The whole social contract has changed. We are now in a situation where it is necessary to do better.

SK: Definitely. The fact is, innovation is universally recognized to be difficult. That’s why companies often put their best and brightest people on projects like creating new products or services. You have to accept that there will be many failures along the way, because you’re trying new-to-the-world things. And yet, somehow, we don’t adopt that same mindset when we think about ESG issues. We don’t want that to be hard; we don’t want to use up our smartest resources on it, and we don’t want any failures. But in fact, if you apply the innovation lens, as Soo Min suggests, you give yourself much more freedom to experiment, learn and engage with all of your stakeholders. The innovation mindset is absolutely crucial for building back better.

KC: What are some concrete steps that managers can take to put these ideas into practice?

SK: The initial step is to convene your board of directors and have a deep discussion about all the different stakeholders touched by your organization, to make sure that they are all considered going forward. Additionally, the leaders of every company should go back and examine the lessons learned from this experience, and figure out what worked and what didn’t. We know from the research that companies that invest in ESG in its different dimensions are more resilient in periods of crisis. For those that have struggled in recent months, this can be a wake-up call. For instance, if you really have to do furloughs, be extremely thoughtful about who is affected. And ensure that you continue to top-up the hourly wages of people providing essential work. These are things that can be done immediately.

SMT: This is the time to think about how we manage our workforce, how we strategize and how we do business. Companies are accepting that remote work is here to stay and some are even talking about the possibility of a four-day workweek. Whether these things will work for your organization is a conversation that needs to happen with your employees, because either way, it’s going to require their buy-in. It’s way too easy to just want our familiar routines back. This process of learning and taking stock has to be very deliberate and sustained.

We are now in a situation where it is necessary to do better.

SK: As Soo Min’s research indicates, as humans, we have a tendency to want to feel comfortable. But just think about what has happened in the past few months. At the Rotman School, we had been debating for years about whether we should offer online learning. Then, between March 13 and 16, 2020, we took all of our courses online. We did it over a weekend! There are so many things happening in the world right now that we could never have imagined, and this tells us something very important: We are all capable of radical change. We need to build on that.

KC: Do you think businesses, particularly in Canada, can make these innovative changes now, or are there regulatory changes that might facilitate positive change?

SMT: The mindset of Canadians is quite unique in that they are very open. There is a lot of compassion and empathy for other people, and with that, I think there is an impetus and motivation to change, to do better and to show even more care for others. People have an almost innate interest and desire for change. Of course, the system needs to support that. Individuals, organizations and government need to pull together in the same direction.

SK: As an immigrant to Canada myself (and a new citizen), that is why I am so happy to be a Canadian. That collectivism doesn’t exist so much in the U.S. (my home country). Historically, Canada hasn’t been as innovative as the U.S. for a whole host of reasons — but maybe this is the moment when Canada can be more innovative than ever, because we are already collectively committed to social goods. Places like Silicon Valley, with its go-go-go mode of innovation, just don’t have the skillsets to achieve exactly what Canadians have a natural ability to do.

KC: How can we balance building back better with the need for economic recovery, considering the financial pressures that businesses are under?

SK: I had an executive say to me the other day, I don’t need a fancy new shampoo when my hair is on fire. The problem with that mindset is thinking of the social good as a fancy new shampoo as opposed to being essential for building back better. But I’ve also talked to executives who have said, "screw EBITDA; I’m not even going to mention that right now. I’m going to focus on how I treat my employees and how to repurpose my supply chain. And I’m going to tell my investors what we are doing." This mindset is the foundation of the ability to build back better.

KC: Are there examples of firms that you’ve seen starting to demonstrate what it means to build back better?

SK: Sadly, I’m not sure I have seen it yet, but we are seeing a lot of companies learning that they can work effectively in new and different ways. Many have realized, for instance, that they need to offer shiftwork because some of their people have to care for their kids in the morning; so they are letting them start work at 1 p.m. and work until 8 p.m. Managers have learned a lot on that front.

I also think a lot of companies are discovering that when they furlough people but they don’t also cut CEO pay, that has terrible optics. We’re seeing many CEOs forego their pay or radically reduce it. That’s the kind of innovation in governance and compensation that is beginning to take hold — and I hope it’s just the beginning.

This article originally appeared in the Winter 2021 issue of Rotman Management magazine.

Ken Corts headshotKenneth Corts is the vice-dean, research, strategy and resources, Desautels chair in entrepreneurship, and professor of economic analysis and policy at the Rotman School. He previously served as interim dean of the Rotman School and as acting vice-president, university operations at the University of Toronto.
Sarah Kaplan headshotSarah Kaplan is director of the Institute for Gender and the Economy (GATE), distinguished professor of gender and the economy, and professor of strategic management at the Rotman School. She is the author of The 360º Corporation: From Stakeholder Trade-Offs to Transformation (Stanford Business Books, 2019). 
Soo Min Toh headshotSoo Min Toh is an associate professor of organizational behaviour and HR management in the department of management, University of Toronto Mississauga and director of its Institute for Management and Innovation.