3 minute read 4 Mar 2021
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Five dynamics that can make a difference in driving a more inclusive recovery

By Jen Pratt

Principal, Government & Public Sector, Emerging NextWave Business Leader, Ernst & Young LLP

Focused on the government and public sector, which is a constant source of inspiration helping to solve complex challenges that drive outcomes impactful to people.

3 minute read 4 Mar 2021

Government and private sector are critical to the recovery from the economic and society tolls that COVID-19 has taken on businesses and individuals.

In brief:

  • This year promises to be as challenging as 2020, with the continued effects of COVID-19 still impacting industry sectors and individuals.
  • The Biden administration is working to address the economic fallout from COVID-19. But Washington, DC, is as divided as ever — reflecting the schism between Americans.
  • US businesses have plenty of levers at their disposal to help create a more inclusive, equitable recovery. The companies that act will strengthen stakeholder trust and create long-term value.

Americans breathed a sigh of relief when 2020 came to a close. But despite our collective high hopes for a better 2021, this year promises to present its own challenges.

We’ve already seen a continued surge in new COVID-19 cases, along with substantial increases in new jobless claims. The so-called “K-shaped recovery” — with some businesses and individuals thriving and others struggling — is very real and exacerbates existing inequities. While the effort to vaccinate against the disease will likely return some sense of normalcy later in 2021, it won’t undo the pandemic’s long-term impacts. Vast segments of the economy will require years of investment and support to recover fully.

Alongside these COVID-related developments, calls for meaningful social change continue to gain momentum and stridency while our political climate reflects a highly divided electorate.

President Joe Biden and his administration have an ambitious agenda, but even with the House of Representatives’ narrow Democratic control and Vice President Kamala Harris’ tie-breaking vote in a 50-50 Senate, making significant progress through legislation will be difficult.

In such a volatile, complex environment, we believe the time is right for businesses — across every industry — to rethink their strategies and operations and develop meaningful solutions to the most pressing problems of our time. Employees, customers and investors are eager for companies to take concrete actions toward societal improvement that go far beyond social media campaigns or one-off donations.

What the country needs now are bold companies that will lead publicly — implementing game-changing business strategies that support and elevate social advancement and help the country’s most vulnerable. 

Senior leaders should be asking, “How can we operate our business differently to make a meaningful impact on society that will, in turn, improve the overall business and social climate in our country?” 

The old saying “do well by doing good” has never been more relevant. It’s time to decide whether your company will take a disruptive leadership position that benefits the recovery today while delivering long-term value in the future… or simply continue with business as usual.

In our view, there are five transformational societal and business dynamics that organizations must navigate to help short-term recovery efforts as well as thrive in the years ahead:

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Dynamic 1

Elevating people through equitable health, education and housing

Elevating individuals and families can help accelerate the recovery, leading to long-term stability and value.

The pandemic has led to increased economic vulnerability for many. Thousands of businesses have closed, many for good. And some estimates are that as many as 40 million Americans lost their jobs. Millions are behind on rent or mortgage payments and other bills, with no hope of ever catching up.

The impact hasn’t been felt equally across US society. Knowledge workers in many industries have been unaffected, but front-line employees in industries such as travel and hospitality, food service, retail and construction have been hit hard, leading to disproportionate economic damage to women and communities of color.

Elevating individual and family wellness in health, housing and education can help accelerate the recovery, leading to long-term stability and value. The first step is completing the vaccination rollout, along with continued stimulus packages to provide short-term relief to those businesses, communities and individuals most impacted.

In parallel with government efforts, the business community will have to play a major role in the recovery, starting first with its employees and customers. 

Some questions to answer:

  • Do your employees have access to health care, including preventive care?
  • Do you understand the mental wellness of your workforce?
  • Do you have vulnerable employees who need temporary housing assistance?
  • Do your employees require training in maximizing their financial well-being, including savings and retirement?
  • Would access to affordable childcare make it easier for your employees to work?
  • Can your organization participate more actively in collaboration with government entities and the non-profit community to support your employees, their families and the communities in which you operate?

In summary, are there business decisions you can make to improve access to health, housing and education for customers or the communities where you do business?

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Dynamic 2

Creating an inclusive economy

How can your company help ensure that every American has equal and fair access to the resources they need to recover and thrive?

President Biden’s economic recovery plan includes a focus on financial inclusion — the idea that improving access to financial services, such as banking and credit, is critical to a more just and robust economy. Companies in the financial services industry have an important role to play.

It’s more than just access, however. Financial inclusion also means education and hands-on assistance to help ensure that products and services are affordable and appropriate for underserved populations and small businesses. It also can include community development funding and support of minority-owned financial institutions.

Being inclusive also means using customer data fairly and ensuring the responsible use of artificial intelligence.

And on a broader scale, financial inclusion includes macro initiatives such as support of American manufacturing, small business opportunity planning, investment in infrastructure, upskilling and reskilling workers, and addressing potential bankruptcies and foreclosures.

In many locales, improving broadband infrastructure and increasing digital access is critical to supporting a more inclusive economy.

Rebuilding hobbled industries allows us an opportunity to change the way things are done to respond to human needs and expectations. Working closely with communities and institutions to ensure that every American has equal and fair access to the resources they need to recover and thrive is critical. How can your company help?

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Dynamic 3

Sustainability as the norm

Measurable improvement in sustainability outcomes will benefit in increased stakeholder trust and a stronger competitive advantage.

Sustainability is a critical business outcome for many of the nation’s large companies. But there is always more that can be done. Market drivers, increasing global regulation and social trends mean that a company’s nonfinancial performance can directly impact the balance sheet and bottom-line value. For example, the investment community’s focus on Environmental, Social and Governance (ESG) matters is setting expectations that company disclosures should contain adequate, comparable performance measures across a range of sustainability topics. In addition, the social justice movement has shone a spotlight on private sector actions and commitments, driving real change in organizational culture and behavior.

Smart companies will continue to support an active sustainability agenda to meet changing stakeholder expectations and because they recognize doing so will deliver long-term value.

Some of the most valuable areas for leaders to explore include:

  • Value chain tracking of greenhouse gas emissions
  • Leveraging technology to support sustainability initiatives and performance to deliver confidence to stakeholders
  • Renewable energy procurement and electric vehicle fleet transformation
  • Creating business value through circular economy strategies
  • Enhancement of “smart buildings” and infrastructure design
  • Reduction in overall energy usage and emissions
  • Employee health and well-being as agents of change
  • Supply chain collaboration as a multiplier effect for sustainable change

The Biden administration has pledged to support these types of initiatives through a range of policy initiatives. Companies that unlock their employees’ ingenuity to make a measurable improvement in their sustainability outcomes will benefit from increased stakeholder trust and a stronger competitive advantage. Shifting from a compliance mindset to one of leadership, innovation and external transparency can deliver significant value.

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Dynamic 4

Global supply chain resilience and innovation

What is your company doing to eliminate vulnerabilities and unsafe dependencies in your supply chain?

The pandemic’s early days gave us an up-close view of how vulnerable our global supply chains can be. The pandemic has not necessarily created any new challenges for supply chains. Instead, what it has done is accelerated and magnified the problems that already existed.

For decades, companies have turned to overseas suppliers and “just in time” procurement processes to drive down costs. Our supply chains are lean and optimized for cost, with both geographic and vendor concentration. They focus on Tier 1 suppliers when many of the issues reside with Tier 2 and Tier 3 suppliers.

Now, we have non-tax factors — such as working from home — creating pressures on our tax-efficient supply chain structures. Simply stated, resilience is not inherent in today’s supply chain structures.

In the short term, these types of strategies work. But when unforeseen issues arise, they create conditions that can severely hamper companies’ abilities to serve customers. As a result, companies are transitioning their supply chains’ strategic architecture — adjusting their procurement operating models, rethinking their manufacturing and distribution footprints and adjusting the flow of goods across borders to take advantage of new incentives. In some industries, companies are developing domestic alternatives wherever possible. All are working to ensure that they have eliminated vulnerabilities and unsafe dependencies.

Onshoring products that deliver critical societal needs — such as pharma manufacturing — is clearly a priority for the new administration, as is supporting domestic suppliers (including commodity providers such as farmers and ranchers), which will strengthen our economy and protect against future disruptions.

There’s an additional benefit to a “Buy American” strategy: Bringing supply chains closer to home can significantly reduce your ESG risk.

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Dynamic 5

Tax issues

Companies should expect to continue to see tax used as a policy lever to help address economic and societal issues.

Tax often is used as a policy lever, and companies should expect to continue to see that lever used to help address economic and societal issues. In response to the pandemic, there has been a flood of stimulus measures and government support — and much of that aid has been tied to tax relief. To date, the US Congress has enacted five pandemic-related packages costing $3.9t. The Biden administration has proposed an additional $1.9t of spending in its “American Rescue Plan,” which includes additional stimulus measures, including tax measures such as an increased and expanded Earned Income Tax Credit and increased and expanded credits concerning children and childcare.

Beyond stimulus, the Biden administration’s policy agenda includes tax increases to pay for policy priorities. These priorities include climate change, health care, education, housing and infrastructure investment. Long-standing Democratic goals of making the wealthy and corporations pay their “fair share” are reflected in proposals to increase the top individual income tax, estate tax and corporate income tax rates, as well as impose a “minimum corporate tax” and increase US taxation of offshore corporate income. To help address income inequality, President Biden proposes extending, reviving or creating numerous tax incentives, including credits for first-time homebuyers and renters and for the care of children and the elderly.

President Biden has also proposed incentives to encourage US manufacturing through a 10% “Made in America” Tax Credit for investment in revitalizing factories and reshoring jobs. He has paired this with a 2.8% “offshoring” surtax on a US company’s overseas production profits from sales back to the US.

Companies need to evaluate these proposals and determine how their overall strategy and operations may be affected and which options they can put their support behind. 

Counting on corporate leadership

The Biden administration has moved quickly to implement actions centering on these five dynamics. But the legislative outlook remains uncertain. Regardless of what happens in Washington, DC, emerging market trends around elevating people, financial inclusion, sustainability and more are creating a strategic imperative for businesses to act now. As you consider how to move your organizations forward through the evolving recovery landscape, a new level of organizational transparency will be required to better connect with your employees, customers and the communities you serve. Finding ways to unlock your data’s power for improved insights and accelerate action will be vital in moving through the recovery. Putting humans squarely at the center of transformation will help address many of the inequities propelled by the pandemic. 

Recovery must mean more than just GDP growth or reduced unemployment numbers — it must deliver a better quality of life for those who need it most.

Your business can make a difference. The economy — and millions of Americans — are counting on it.

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Summary

By prioritizing the elevation of people, creation of an inclusive economy, sustainability, global supply chain resilience and innovation, government and private sector can change the game and propel recovery efforts.

About this article

By Jen Pratt

Principal, Government & Public Sector, Emerging NextWave Business Leader, Ernst & Young LLP

Focused on the government and public sector, which is a constant source of inspiration helping to solve complex challenges that drive outcomes impactful to people.