Author: Gregory Smith, President and CEO, September 2020
COVID-19 has posed unprecedented health and economic challenges for nations, businesses, communities and families. The human impact is immeasurable, with more than 29 million cases of the virus and 929,000 deaths to date. The reality behind these staggering numbers is one of personal losses, record unemployment and income instability, and a dramatically altered global environment.
THE NOVEL coronavirus is reshaping our societies and economies with direct disruptions to production, supply chains and markets, exacting a financial toll on companies and ultimately financial institutions. In countries and regions where the virus has been more successfully controlled, consumer optimism has rebounded even as official views on the COVID-19 recovery have become less favourable. Concerns over the potential for a “second wave” of COVID-19 this autumn, and, accordingly, further shutdowns — whether or not such a wave actually occurs — appears to be tempering economic activity. As companies reinvent their business and growth strategies for this new era and beyond, the prolonged uncertainty is spurring greater conservatism from banks and other lenders as coronavirus slowly extends liquidity and capital problems to the real economy.
COLLECTIVELY WE HAVE THE POWER TO ABSORB AND OVERCOME CHANGE AND MUST QUESTION AND HARNESS OUR INDIVIDUAL AND SHARED PERCEPTIONS TO FIND NEW POTENTIAL AND PURPOSE
While we must remain vigilant about the health risks posed by coronavirus, fear has the power to cause an outsized economic impact, an echo that could persist and plague consumer confidence until an effective vaccine is widely available, accelerating COVID-19’s direct economic footprint and dampening demand growth. This “COVID echo” could reverberate for some time and challenge businesses and governments as they plan for the future.
HOW THE POWER OF PERCEPTION ECHOES
From the Spanish influenza to SARS, myriad tangible factors contributed to the final toll of each crisis, from the infection rate to the number of countries affected. In each case, however, the resulting public panic and fear precipitated real change in economic activity that echoed back and reflected those same concerns.
Researchers have long studied the link between perception and reality. In medicine, placebos can produce a beneficial effect in a patient that cannot be attributed to the properties of the placebo itself but rather to the patient’s belief in that treatment. Sociologists have also explored this phenomenon at a community level, where collectively held beliefs can exist independently of objective facts, exerting social control and shaping real outcomes. Similarly, psychologists and risk perception researchers have found that rather than the scale, likelihood or proximity of a particular danger itself, the biggest factor found to influence people is the availability and flow of knowledge.
THE BIGGEST OBSTACLE TO OVERCOMING ANY CRISIS, EVEN MORE SO IN MATTERS OF PUBLIC HEALTH AND IN THIS PARTICULAR GLOBAL CRISIS, IS A LACK OF TRUST
During the SARS epidemic in 2003, there were few cases reported outside of specific areas in the United States and Canada, infecting around 10,000 individuals with an estimated 1,000 deaths. While SARS did not lead to the devastating health impact that many feared, studies today estimate the total economic impact of that time to be between US$30-100 billion, giving each individual case a ripple effect on the economy of around US$3-10 billion. These numbers suggest an economic impact disproportionate to the actual risk to the population. The “echo” of this crisis reflected public perception of danger, rather than the reality of danger itself.
Perceived experiences can profoundly shape behaviour, public opinion, and, logically, the policies and economic responses that come after. An echo can ultimately be more substantial than the original sound. In the words of Albert Einstein, how can companies and governments be a voice rather than an echo?
MANAGING THE RIPPLE EFFECT
Crises shape our cultural values and our individual and national psyches. The biggest obstacle to overcoming any crisis, even more so in matters of public health and in this particular global crisis, is a lack of trust. If panic has a fundamental multiplier effect, it is at once paralyzing. Overcoming this trust deficit and addressing the hidden resistance that lurks within perceptions is key to managing and mitigating the COVID echo.
There are three critical levers to improve confidence and the conditions for personal and business fortitude in the uncertain months ahead.
FOCUS ON RELATIONSHIPS
Trust within an organization and among stakeholders significantly improves resiliency and therefore our ability to overcome adversity. These relationships are key to the sustainability of any business and enable a new path forward. In the face of uncertainty and evolving public needs, there is a significant opportunity for individuals and companies to redesign how we live and work. Despite the terrible toll of this crisis, in some ways it creates more room for hope than for fear by underlining our interconnectedness and the social contract between businesses and all stakeholders. We must have the courage and vision to translate this hope into action, innovation and a sense of purpose for the long term.
COMMIT TO COMMUNICATION
Belief informs reality and gains in strength when held as a collective perception throughout the population. This points to the need for an evidence-based perspective on coronavirus, which is essential in a fast-changing environment, and for a flow of consistent, timely and factual information. Throughout this crisis, corporate leaders have often been viewed by their teams and stakeholders as the most reliable source of knowledge and stability. Clarity and quality of communication shows respect for employees, customers, partners and communities, builds public trust and connection, and influences people to make more informed decisions.
INNOVATE THROUGH THE ECHO
In addition to helping people to believe in the future, companies must move decisively on strategic change to accelerate into the curve of recovery and reimagining. Research from McKinsey shows companies that have pursued big strategic moves persistently through every phase of the economic cycle increase their odds of outperforming their peers, and that this gap in corporate performance, which has been forming since the 2008-2009 financial crisis, is now more rapidly widening through the pandemic. This crisis offers an unprecedented opportunity to invest in innovation: to embrace transformation and abandon unwieldly or dated legacy practices and risk-averse decision-making. Those “first movers” who can innovate quickly will secure a distinct competitive advantage and diffuse opportunity to others in the new era that is emerging.
As early as April, it was clear how profoundly this humanitarian crisis would upend the way we live, connect and conduct business. As the prospect of a COVID echo looms, collectively we have the power to absorb and overcome change and must question and harness our individual and shared perceptions to find new potential and purpose.