COVID-19 has ushered in the age of the ‘intangible company’. Here are 4 ways it will change business

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This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Alison Taylor, Executive Director, Ethical Systems, Stern School of Business, New York University

• The recent switch to remote working consolidates a longer transition towards the ‘intangible company’

• Business leaders are obliged to pay more attention to managing external factors, as hierarchical control structures are dismantled

• This could have knock-down effects for employee rights and sustainability

The COVID-19 pandemic has effectively kicked off a new era in our working lives. Instead of assembling in offices, more fortunate members of the workforce gather virtually, via conferencing software. Our days, seemingly shortened by the freedom from commuting to and from offices, now include juggling personal obligations and catching up on workloads as we can, when we can. Conditions are unlikely to reset to “normal” when the pandemic has passed. This means that, since human cultural norms are established by observation and socialization, corporate culture is certain to become less tangible in this new, remote work environment. Welcome to the age of the intangible company.

While all this feels dramatic and sudden, it is merely the latest step in how corporate life has been growing less material. Leaders’ efforts to enforce hierarchy, make decisions and control corporate reputations were broadly challenged by the fraying of institutional boundaries. The once-reliable division between “internal” and “external” factors had blurred across a range of dimensions, leaving a far tighter, less predictable feedback loop between a company’s actions, impacts and reputation. Organizational boundaries around time, space, information, hierarchy and strategy have been all becoming more porous and contested. But the global emergency has decisively punctuated a long-term transformation in how companies establish their values and identities, regard their interests, and interact with society.

In February, The Economist reported that “61% of the market value of the S&P 500 sits in intangibles such as research and development, customers linked by network effects, brands and data. The link between the CEO authorizing investment and getting results is unpredictable and opaque.” To put this another way, financial and strategic success increasingly depends on addressing environmental and social risks and opportunities – what used to be called “externalities”.

Senior business leaders will now find a premium placed on their ability to balance competing interests, come to terms with hyper-transparency, and align stated values with organizational culture, all in the context of sharply reduced top-down control. Organizational leadership will markedly become more a matter of influencing diffuse networks than of exerting control over human and financial resources.

1. Physical distance shakes up corporate culture

Long before the pandemic, the 2020s were tagged the “remote work decade”. From 2005 to 2019, the population of non-self-employed people who could work from home increased by 115%. Nearly two-thirds of the US workforce performed at least some remote work in 2019, according to one estimate. Still, these did not tend to be key employees. As we look forward to post-pandemic relief, the remote workforce will include top executives as a matter of course.

Remote work also bids to play a positive role when the impact of Earth’s climate crisis on transport systems, infrastructure and human health rush to the fore in the pandemic’s wake. As CFOs assess the future of the office, many are calculating that they can preserve jobs and value by cutting real estate and travel costs – and even enable them to signal attention to curbing social and environmental impacts.

An important long-term imperative is that well-executed remote-work provisions offer opportunities to build a more inclusive workforce, one whose members have enhanced control over scheduling and the opportunity to handle the commitments of family life while facing fewer geographical constraints. Just when employers face sharper scrutiny over their lack of progress in advancing diversity metrics, the case for greater flexibility is gaining power.

Mandating physical presence in the office is unquestionably the easiest way to assimilate employees into a company’s culture. New workers come to understand what is expected of them by looking at how those around them behave, not by reading a company’s values statement. When leaders can no longer assume that their behaviour will be observed and mirrored, efforts to define culture need to be far more deliberate. Transparent decision-making and clear norm-setting will become exponentially more important.

Remote work places a relative premium on coordination, communication, and culture. There is a risk that managers who lack confidence in people management, or who are reluctant to give up the benefits of a command-and-control environment, will resort to using surveillance tools. We already see a ramp-up in the adoption of such tools, along with a reduction in privacy controls. Managers can easily gather data on everything from productivity to employees’ mental and physical health.

But companies that wish to build and sustain healthy and effective cultures should bear in mind that surveillance undermines trust and psychological safety; technology offers no substitute for the motivation stirred when employees feel some sense of control over their environment. The opportunity to build cultures with more engagement and flexibility has come – as has the risk that we will emerge from the pandemic to find ourselves in a panopticon that would waste the promise of agency and efficacy that remote work can offer.

2. Radical transparency is here

Hierarchy has historically regulated people’s access to critical information, as well as the power to act on it. Only senior executives have been privy to information on incentives, performance and sensitive organizational initiatives. General counsels have long deployed contractual provisions, including non-compete and non-disclosure agreements, to control the external narrative and to limit what competitors and customers can see. Such confidentiality provisions also shield authority figures from bottom-up scrutiny.

With legacy media institutions fragmented and polarized amid accelerating social-media adoption, companies are adapting to an information environment that is continually being transformed. Notwithstanding the plethora of new tools to track and monitor workers, suppliers and customers, the efficacy of top-down efforts to control information flows has collapsed. Growing public scepticism of business has rendered one-way communication less effective. Senior leadership’s effective power and control is fading and public accountability increasing. Maintaining a good reputation today starts with the presumption that everything a company says or does could become public knowledge.

These trends have been supercharged by the surge in employee activism. Workers are directly challenging business leaders to reconsider their companies’ commercial relationships and authority structures, sometimes taking concerns directly to the media. Technology companies such as Amazon and Google, which initially emphasized democratic access to information as a driver of motivation and cohesion, are now finding their disciplinary actions and aggressive crisis-management tactics open to widespread criticism – including from senior staff members – in the national press.

With “radical transparency” a new operational reality, corporate leaders can no longer reliably control their reputations. All large companies today face heightened scrutiny over share buybacks, healthcare provisions, treatment of employees, political spending, and access to public funds during the coronavirus crisis. Employee activism may fade for a time as unemployment spikes, but worker power in the 2020s is more about leveraging public concern than issuing formal union-style demands. As marketing and legal tools lose their efficacy, safeguarding corporate value has come to rest on leadership’s ability to build trust and equity among employees.

3. A reckoning for workers’ rights

Leaders’ waning ability to control the narrative is only one example of dramatic shifts underway in how status and power are deployed inside organizations. Both millennial and Gen-Z employees are far more inclined to challenge the authority once conferred by age and experience. Many openly question whether a company’s stated values are genuine. This has spurred an increase in hierarchical disputes about values and inclusion.

In many companies, an even more striking fault line persists between full-time employees, who are granted sick leave, vacation and pensions, and contract workers, who have few or no such privileges. (Gig workers are neither employees nor third parties, but are ambiguously positioned on the boundaries of organizations.) The creation of a lower-status tier of employees, often highly visible, can wield a toxic effect on organizational culture. White-collar employees are increasingly willing and able to oppose such corporate caste systems and to use their voices and relative influence to protect, even enhance, contractors’ rights.

Much of the growth in the gig economy was long viewed in terms of the benefits provided workers: flexibility, ownership, freedom, the joys of a “portfolio career”. These arguments look increasingly untenable during a public health crisis in which a lack of paid sick leave is forcing some to work, putting themselves and others at risk. Now the gig economy is framed as an effort by companies to evade responsibility for workers’ well-being. As Damon Silvers of the AFL-CIO and University College London wrote in March: A debate that “could be summarized as ‘the Uber model, good or bad?’ now seems like a relic of another age”.

In the short term, plummeting employment rates will do little to address this exploitation. Longer-term, it seems clear that basic protections for everyone on the payroll will become a widespread expectation. Successful companies will need to make commitments to workers that are more tangible and more direct; they will no longer be able to exercise power without assuming some reciprocal level of basic responsibility.

4. A new strategic imperative

A decisive rhetorical shift to “stakeholder capitalism” came less than a year ago, with sceptics duly noting that the Business Roundtable’s 2019 commitment to serving the needs of all stakeholders lacked practical substance. Nonetheless, shifts in rhetoric can change expectations, which then open the door to concrete changes. With the pandemic came media efforts at defining corporate “saints and sinners”, and Just Capital launched a corporate responsibility tracking tool.

Whether the pandemic ultimately elevates or undermines responsible business practice over the long run remains impossible to say. What does look certain is that time is running out on self-serving, selective presentations regarding performance in corporate responsibility. Considerable momentum has gathered behind initiatives to integrate and professionalize ESG frameworks. Media, investors and public are all sharply focused on such “social factors” as employee rights and the fair treatment of suppliers; these were formerly a lower priority for ESG investors, compared with more concrete, measurable efforts around emissions reductions and governance. The fragmentation and complexity of current sustainability efforts may be reframed in terms of simpler, more fundamental preconditions of responsible leadership, including respect for basic worker protections, and a new focus on lobbying, tax transparency and influence peddling. First, do no harm.

Some economically beleaguered corporations and investors seem to believe they face a choice between maintaining voluntary ESG spending or ensuring “long-term competitiveness”. But our intersecting crises in public health, climate and inequality are exposing the limitations that bedevil calculations of direct organizational self-interest. It is vital to consider broader environmental and social systems. As today’s companies become more physically diffuse, work is less time-bound, information less constrained, status and power more contested, and cooperation more important.

In his book Sapiens, historian Yuval Noah Harari notes that, “We have grown so used to [corporations] that we forget they exist only in our imagination.” As we sit at home, far from our offices and colleagues, we are reminded that if corporations cannot capture the imaginations of their workers, suppliers and customers, they cannot survive. The key leadership challenge of the 2020s will be to present a clear vision and moral narrative for organizations – one that recognizes our broad human interdependence and the threats that face our planet.