After the pandemic

Curbing the economic pain of the COVID crisis has been a key priority for governments and regulators, but the fiscal support provided by various governments will naturally come to an end and the loans provided by banks will have to be repaid.

Countries have taken an accommodating and pragmatic approach to the struggles that businesses and the wider society have faced during the pandemic. However, organisations can expect a stream of new regulations and a shift in the workplace paradigm. Riding out the remainder of the COVID crisis and the era that follows it will be a challenging prospect for many.

For some, the effects of the pandemic have not been wholly disastrous. Leaving aside the tragic loss of life, the effects on physical and mental health, and the wider impact on society at large, some industries have actually been buoyed by the crisis. Digital infrastructure, fintech and logistics are examples of  industries that have been boosted by the COVID crisis. Of course, some sectors such as aviation, high street retail and hospitality have been hit hard by the pandemic. This inequitable phenomenon will lead to what is widely referred to as a K-shaped recovery, with some businesses experiencing a quick upturn in fortunes and others facing enduring difficulties.

In future, businesses will need to make bold operational changes or seek funding from non-government sources as public sector finances become further depleted.

The sector that businesses operate in and their geographic emphasis will be pivotal to their ongoing financial performance. Those that are facing difficulties have options to restructure, refinance or accept investments from distressed investors and other financial sponsors, many of which are naturally looking for opportunities to deploy healthy capital reserves.

Re-imagining the workplace

More imminently, organisations will need to address their approach to remote and flexible working arrangements to account for the new ways of working triggered by the pandemic.

Remote working has proven to be effective for most businesses, many of which might require smaller and more dynamic office environments. Rita Lowe, Co-Head of the CMS Banking & Finance Group, remarks, “We’ve seen systemic changes to businesses, to the extent that pre-COVID arrangements may never return. A lot of businesses will not come back to the same office space or the same amount of office space. So, there's going to be significant changes in the way businesses operate and technology has accelerated that to such an extent that there's also been a recalibration of work/life balance.”

Scaling back up after furloughing staff or bringing them back into the office will pose considerable challenges. The costs involved will need to be funded, so too will the requirement to provide mental health support where it is required. The longer-term impacts of the COVID pandemic will take time to fade away.

Facing up to more regulation

Just as businesses attempt to bring back some kind of normal into their day-to-day operations, they cannot escape the advent of more regulation. Regulators and governments may have offered greater leniency and practicality during COVID times with, for example, the European Commission (EC) acting quickly to provide governments with a toolbox of state aid and supportive measures. These, though, have a limited shelf life, according to Michael Bauer, Head of the CMS Competition & EU Group, “When we faced the global financial crisis some years ago, the Commission also reacted quite actively and quickly, but then it was phased out over the years and we will definitely see the same here.”

Keeping sights on ESG and growing protectionism

Europe is entering a new phase of regulation mainly due to two major trends: the trend towards more protectionism and the trend towards ESG and a ‘green’ industry.  As an example, the EC announced in May 2021 that it was adopting proposals for regulations on foreign subsidies distorting the internal market. This followed a White Paper in June 2020 and a consultation period. The regulator has expressed concern with foreign subsidies providing ‘recipients with an unfair advantage to acquire companies or obtain public procurement contracts in the EU to the detriment of fair competition’.

Further regulatory developments are likely to come in the environmental, social and corporate governance (ESG) arena, with regulators and governments paying even closer attention to sustainability and other important elements of the ESG movement.

The EU Regulation on sustainability-related disclosures in the financial services sector came into force in March 2021. It is one example of the changing requirements for those in director and manager positions, shifting the emphasis away from just financial reporting to a wider focus on sustainability and ESG results.

“Companies are really being affected by the green agenda. Actually, this will impact their whole corporate governance which in turn impacts the company's value, because ESG isn't just about climate change and  the environment. ESG is all about governance and a responsibility for longer term sustainable business which considers employee needs”, comments Rita Lowe. Getting the balance right given the pressure from shareholders will be key for business leaders .

In competition law, for example, one of the most hotly debated issues is to what extent businesses will be allowed to coordinate their market activities to achieve sustainability goals, even if this could potentially result in higher prices for consumers. “Legislators need to decide which private initiatives by businesses may contribute to achieving wider sustainability goals for society as a whole and how to weight higher consumer prices against general welfare improvements”, Michael Bauer adds.

The route out of the COVID crisis has to be with ESG considerations in mind. Businesses need to understand that recovery is not just about putting profit above everything else, that customer attitudes and behaviours may have changed and that financial growth will depend on being much more cognisant of ESG imperatives.