This article first appeared in the July/August issue of CA magazine: https://www.camagazine.co.uk/july2020#!cover
When James Barbour, ICAS Director, Policy Leadership, assesses the long-term implications of the Covid-19 pandemic, it’s with the clear caveat that the world is facing seismic challenges and we are entering uncharted territory
“I consider myself to be an optimist,” he says, “but we have never experienced anything quite like this and some sectors are already experiencing large-scale job losses.”
Barbour cautions that “a U-shaped recovery will be the best-case scenario. You must remember that thousands of companies have taken out government loans to sustain themselves through lockdown and beyond. While this is a welcome, indeed essential, measure, at some stage these loans will have to be repaid. Even if it solves short-term liquidity issues, it also comes with longer-term solvency issues, because they are loans that companies didn’t plan for.”
Barbour also notes actions that have been taken in other countries. “If you look at Germany, the state has announced it will increase its equity stake in Lufthansa to 25%,” he says. “This isn’t just about saving the airline. It’s the supply chain, the airport staff, the transport links to those airports.
“Similarly, the UK’s Future Fund could result in the government owning equity stakes in some fast-growing start-ups if the loans have to be converted. Whether it would be willing to take equity stakes in what could be seen as strategically important entities remains to be seen.”
“But the extent of the government’s business support packages also raises the broader question about how much will be left over to support infrastructure projects and to rebuild our economy.”
Getting up to speed
As we have recently seen with HS2 and Crossrail, grand infrastructure projects have a nasty habit of running substantially over time and over budget. Rather than the government completely focusing on more of the same, Barbour advances the case for instead rebuilding the economy by “improving connectivity through technology over connectivity through transport”.
In 2019, the UK was ranked 34th in the world for average broadband speeds, and a recent report from Ofcom revealed that 600,000 UK homes and businesses lack the minimum 10 Mbps speed needed for streaming videoconferencing apps such as Zoom. Now is the time to rectify that.
Barbour says: “The launch of the Space X rocket at the end of May should kickstart an enhanced satellite programme with many more companies sending nano-satellites into orbit that will deliver broadband from space. We have the opportunity to improve business infrastructure through technology that, in turn, will enable companies and employees to do their jobs more effectively and be more productive.”
Barbour’s understandable fear is that a second wave or new strain of the virus will be so damaging that long-term reforms designed to restore public trust in business – including the recommendations laid out in the Brydon, Competition and Markets Authority and Kingman reports into auditing – will be either kicked into the long grass or considered too expensive.
“There is a need to take forward some of the recommendations from these reports,” he says. “We wouldn’t want to see the Big Four firms broken up and we believe they are moving voluntarily towards operational separation. Given the financial pressures many businesses are now facing, we also have to be careful about introducing more regulations which could add to that burden. But we’re supportive of an enhanced internal control regime over financial reporting and, if we’re moving more quickly towards a tech-driven society, those controls will, if anything, become even more important. So, whereas there is a cost at the outset, we believe the benefits attached will be a positive, given the important role the controls will play.”
While technology holds many of the answers, it also presents problems – and the threats that existed pre-Covid haven’t simply gone away while our attention was turned elsewhere. “The risks posed by inadequate controls over cyber security remain among the biggest threats facing business,” says Barbour. “Additionally, we would envisage that the use of AI, although in its infancy at the moment, will continue to evolve and lead to greater efficiencies and effectiveness across society in the years to come, including in the corporate reporting ecosystem.
We have the opportunity to improve business infrastructure through technology that, in turn, will enable companies and employees to do their jobs more effectively and be more productive.
“Over time, that will evolve towards the use of autonomous AI. We must ensure from the outset that there is appropriate governance, accountability, explainability and transparency over its development and implementation. For AI to be trustworthy, the organisations involved in its development and use need to ensure that they have an appropriate culture where ethical leadership is embedded, and ethical values are practised. Ultimately, adherence to an appropriate ethical framework will be a key determinant as to whether AI results in positive outcomes for society.”
Following the often confused messaging around lockdown, both its implementation and its easing, one wonders to what extent trust in institutions has been eroded. Barbour, who is also responsible for the ICAS Ethics Board, believes that Covid-19 could accelerate the trend towards responsible capitalism.
“I’m hopeful that those who have behaved in the right manner during this crisis or have put social responsibility at the heart of their agenda are going to be the strong entities in the future,” he says.
“Of course, there will always be outliers. But you would also envisage that the public would expect to see businesses behaving ethically and sustainably. That was happening before Covid-19 struck, and that will continue to be the direction of travel going forward.”