Podcast: Brain Food for General Counsel

How can business leaders help their companies prioritise coronavirus issues? And what can we learn from past crises to help make better decisions in this one?

Clare Francis of Pinsent Masons and former UK minister Douglas Alexander show the way to setting priorities in the early stages of the crisis, and identify what long term thinking companies can do now based on experiences of other destabilising events. 

Transcript

Matthew:

Hello and welcome to the very first programme in our series Brain Food for General Counsel. My name is Matthew Magee and I am a journalist here at Pinsent Masons and I will be here every month to give you some food for thought to help GCs to think about the big issues facing their organisations and how they can best help their companies grow and develop. 

Right now there is only one big issue on the minds of anyone involved in running a large organisation and that is the coronavirus. It is changing the shape of the world around us, shifting and evolving every day to present us with new challenges. Companies' first actions have been about staff welfare and about the immediate practicalities of keeping a business functional, but thoughts are beginning now to turn to the future, to the actions we can take now to give ourselves a better chance of good personal, social and economic outcomes on the other side of this. 

We are going to hear from Clare Francis of Pinsent Masons about how companies are dealing with the situation and how they setting priorities, and to get some initial thoughts on how to deal with issues such as force majeure, staff wellbeing and business continuity, but we also going to look further into the future and back into the past with Douglas Alexander, a former UK minister and UK chair of Unicef. We will hear about what it is like to be part of the response team to dramatic situations like this, what past crises can teach us about our response as well as what the world will look like on the other side of the pandemic. 

First Clare Francis outlines what the biggest concerns for business have been so far and how they can begin to deal with those issues.

Clare:

In terms of issues cropping up in relation to the coronavirus the main ones that we are seeing clients focused on at the outset are primarily in relation to their employees and making sure their wellbeing and that they have enough and sufficient employees to keep the business operating, and then secondly in relation to their supply chain, both their contracts and their rights under them but also within that wider supply chain to ensure the business continues to have the goods and services it needs to operate throughout this period.

Matthew:

And what actions are they taking on the supply chain side?

Clare:

From a supply chain perspective, there are two phases of actions really. First, is any defence action they may need to take in terms of thinking about whether they need to consider force majeure notices or any rights or actions they may take to preserve rights or indeed exercise rights under those relevant contracts and then secondly, there is a more proactive approach, we are seeing some clients take, in terms of talking to their supply chains on a more informal basis to understand where there may be risks or issues within that supply chain, that they should be sighted on and can take early proactive action to resolve before it becomes a problem. We have seen through many of these types of crisis that supply chain failure can be catastrophic for businesses, so really putting in place that monitoring and a central point of contact so they get a holistic view of what it looks like, is vitally important for businesses in order to avoid that failure down the track.

Matthew:

Can we just get a quick view on some of the biggest issues there are cropping up and what we are advising people about these? So a lot of people are thinking about whether this counts as a force majeure incident which can unwind some of their responsibilities contained in contracts. So does it?

Clare:

Under English Law we do not have an applied principle of force majeure into contracts. So it all depends on the drafting of the particular contract so there is not really a one size fits all approach. However having said that, now the World Health Organisation has formally declared coronavirus as a Pandemic. It is likely that it will fit/fall within the trigger event of a standard force majeure clause. We also consider will it fall under the trigger event of something that is beyond the reasonable control of a party given the breadth of this within the relevant countries around the world. So unless the force majeure clause is drafted very narrowly, so they only have this specific lists of trigger events, then it is highly likely it will get caught. However a critical thing to think about is what is the standard of proof within that clause, so in the English law we typically see hinders, prevents or delays performance and to prevent performance is a very high bar. You have to be physically or legally impossible to perform the contract which is a much higher standard than simply being hindered or delayed. So it is really important to consider those clauses and the actual impact that you seeing as a business rather than just to assume that because there is a global pandemic then the force majeure clause will automatically apply.

Matthew:

Lots of people can work from home, lots of people can't. So where do we stand on whether an employee should be paid even if they can not perform their duties?

Clare:

So the employee landscape is quite complex in the context of the coronavirus. Obviously there will be a large number of places where people are encouraging their staff or indeed mandating that their staff work from home which works really well in certain industries where employees are able to be agile and can work from home when they are not ill or suffering coronavirus themselves. This can also apply to those that are self isolating. 

However it is fair to say that are many roles and jobs around the UK where working from home is not possible and there it is quite complex, so we would suggest any business considering whether or not they need to pay their employees, does take legal advice but as a general rule where workers are required to stay home by their employer then they will not be on medical suspension but they would be entitled to be paid during the period they are asked to stay away at the employers request. Where an employee has been told or advised to self isolate and has a medical written notice from their GP or NHS111 then they would be entitled under the current legislation to receive statutory sick pay, that is a temporary measure that has been brought in just during the period of the coronavirus epidemic but it is one of the government measures to try and help ease that pain on businesses and employees jointly.

Matthew:

What about finance, loans, payments, so will people still be expected to pay loans and debts on time or are timetables being relaxed generally?

Clare:

So in terms of businesses' access to finance and loans and from a commercial perspective whether or not they still need to be paid or whether there will be payment holidays I think all of the banks and finance providers are working with their customers to try and work out ways of how they can help, it is within their interest to do so and to keep those business trading throughout this period. That will obviously be a variation so it is a customer negotiation as opposed to an automatic right in the vast majority of cases. We have also obviously seen the government say that it intends to provide some financial support to businesses which has been very welcome news, what we are eagerly waiting for now is to get the next phase of that in terms of how people can apply for that support and exactly when it will be available from and we await that news as we speak.

Matthew:

The implications of unfolding events are enormous and range across just about every part of just about every organisation, and many of the questions are strategic and legal. So how does a GC or head of legal begin to help the organisation to prioritise those? How do you know what to do first and when can you start thinking about the longer term?

Clare:

So there is a wide variety of issues and GCs will need to prioritise those issues for their company which will bespoke for them. One thing we have seen GCs turning to, to help with that prioritisation is their Brexit plans and what they looked at that stage. Many of the issues from coronavirus are very similar, where am I going to get my labour from? Do I have labour shortages? How is my supply chain affected and how can I move goods and services in an effective manner and actually looking at the Brexit plan, they have done some of that prioritisation and worked out where the biggest impact on their company may well be. 

Digging those out and thinking how can they apply on the coronavirus situation, how does the Brexit plans, how does business continuity plans help with that consideration, is a really good place to start but fundamentally what we are definitely seeing people prioritise is there employees first and foremost as they are the lifeblood of many companies, ensuring their employees are safe and well looked after and then also their supply chains and contracts because they also make sure that they will keep the wheels turning within the business. 

We have definitely seen businesses start to come out of crisis mode and start to take a look at a slightly longer term view and that is important ultimately. One of the objectives of all businesses throughout this is not only to keep staff safe but will be to keep the business going and come out the other side of this period however long it may be with a good sustainable healthy business on the other side of it. 

So we seeing businesses start to think about a variety of things in that context: will things they do now change their working practices for the future for the better? So for example they may have had to invest in technology in order to enable their staff to work from home more easily and that gives them a great opportunity to change the way they work on a more long term basis, even through this knee jerk reaction. We are also seeing businesses look at potential collaborations or opportunities to work with others within their sector or wider field in order to address some of this short term impact, which is helping them to spot opportunities for the longer term as well. 

Certainly where we have businesses that will have downturns or are going to be impacted in terms of the volume of work they need to deal with during this period then looking at how they can use that time to invest in the business and think about strategies and plans going forward is also going to be really valuable time spent for when we get through to the end of the period.

Matthew:

Lots of companies will be beginning to think about what their contracts say but that can only be one part of the picture. Bluntly, if every company enforces every one of its contractual rights now and in the coming months then we may end up with not much of an economy left. Clare says that even at this early stage companies are being pragmatic and commercial, understanding that there is a symbiotic relationship between any two companies doing business with each other. Her experience so far has been encouraging. 

Clare:

Certainly with different use of businesses take a pragmatic view to the situation it is not something that vast majority of contracts anticipate. Even if they refer to pandemic it was probably there and included without envisioning a pandemic necessarily of this scale or with the type of government intervention we have seen across the globe for this particular pandemic. 
It is quite unprecedented and we are seeing businesses work together in order to help resolve the issues they face in order to keep everyone going and to keep the various different businesses going throughout this, for example we have seen some businesses decide they could serve legal notices but actually they do not want to do so because there is a longer term relationship between them and their customer, for example, and they want to be seen to support that customer where they can at this period of time. And those softer considerations are vitally important at this stage, there is a longer term view here than just dealing with the emergency kneejerk reaction of the disruption to business as seen today.

Matthew:

Douglas Alexander was a UK Minister for five years and has firsthand experience in managing a global crisis, he was at former prime minister Gordon Brown's side co-ordinating a response to the 2008 financial crisis by the G20 group of the world's richest nations. He says even if the scale of coronavirus is unprecedented we can learn from past incidents. The first lesson is the vital importance of leadership. 

Douglas:

My sense from previous crisis is that in terms of crisis response by government, the signal matters more than the noise at the earlier stages of the crisis. We need and deserve leadership as we have heard from the chancellor Rishi Sunak saying we will do whatever it takes. The detail needs to be developed quickly and right now we are in a position where businesses are vulnerable to going under, workers are being laid off and fear stalks the land. So it is important to have effective communication confirming the commitment of the government to deploy whatever resources, human or financial that they have in the service of fighting this virus and its economic consequences. 

So we need leadership and then we need practical, immediate action on an unprecedented scale to ensure the money gets to where it is needed. In 2009, but for the commitment of the British government to stand behind the financial system, we would have seen British banks going under and people would not be able to get out cash from the wall. The fact is we are not facing a crisis in the financial economy today, we are facing a crisis in the real economy and that is why there is a real urgency to stabilise the system and minimise the long term damage for what will inevitably be a short and medium term shock. 

The character of this crisis is somewhat different from the global financial crisis that was, if you like, the financial system having a heart attack that had real economic consequences for the rest of us. This is actually a heart attack for the real economy that potentially has significant financial system consequences in the month and years ahead. And in that sense a principle challenge of the government in 2009 at the time of the financial crisis was to be the banker of last resort, and it feels to me that immediately the government is facing a new challenge in this crisis which is effectively to become the insurer of last resort. There is no other institution with deep enough pockets and with the commitment to the public interest of the government to be able to try and effectively underwrite and stand behind business that are in real jeopardy as the consequence of the very necessary steps that are being taken in regard to social distancing, Those business models just do not work and will not work for some time to come. The challenge from the government is to get money into the hands of businesses and get money into the hands of workers.

Matthew:

Douglas acknowledges that nobody around the UK cabinet table in 2008 understood the full ramifications of the financial collapse or of the actions taken to mitigate it. Politics since then has fragmented and national governments have become more nativist and more isolationist, reducing the power of the international community to act in unison in a crisis like this. He talks about living not in the age of the G8 or the G20 but the age of the G-zero. But this could change, he says, and the structure of society itself could look very different when we finally get through this crisis.

Douglas:

This Covid-19 virus is going to change not just the way we work but the way a lot of our society and economy is organised. I was in the British cabinet from 2005 until 2010 so was with Gordon Brown as he led the British government's response to the global financial crisis. I travelled with him as far as South America building consensus for international actions around the G20 meeting that was held in London in 2009. In retrospect I think most people feel that the international response at that time was effective in staving off what could have been the complete collapse of the financial system but I would say hand on heart as somebody who was in the cabinet at that time none of us I think fully appreciated the extent which the post crisis world would be fundamentally different from the pre crisis world and I have to say that is my sense in relation to the crisis that were in the earliest days of at this stage. 

Once we are through this crisis we will have to rebuild and my sense is that the expectations of the public, going through a crisis such as this, will be for a greater public expenditure and greater assurance because with devastating health crisis it is revealing the extent to which each of us, all of us, are reliant for example on our national health service. My sense is that at the same time there will have been actions taken for very good public policy reasons in the case of this crisis that will take many years to unwind and in that sense I think the only safe prediction is that the world will feel very different when we are through this crisis then it felt on the eve of this crisis.

Matthew:

These fundamental changes are exactly what business can begin to turn their minds to now. What will the world look like in 12 or 18 months' time. Claire Francis says that this is beginning to happen and the companies must now prepare for the medium and long term as well as the immediate future.

Clare:

So certainly in the last couple of weeks we have not seen businesses have much bandwidth to think about long term planning, it has been the short sharp shock of working out what they can do with their employees, how they can shore up supply chains. If they need to notify insurers etc. We are starting to see a change in that mindset now as businesses start to look ahead and think about what the economy will look like at the end of the coronavirus period, whenever that may be, and how they can plan and prepare for that. 

That is taking different guises for different types of business in different sectors. But certainly thinking about the impact in their sector whether that provides them with opportunities or real risks they need to hedge against is an area of activity we are now starting to see clients step into. And again it is not just about thinking about what the environment and the economy would be like after coronavirus, obviously we have Brexit coming down the track as well so businesses are attending to the fact of those two things together and work out what the new normal might look for them and how they can best prepare for that. One thing is certain there are significant changes and there will be significant challenges when we get to the end of this, and businesses that plan and prepare for that now will really get a step ahead in that regard.

Matthew:

Well thanks for listening to this very first Brain Food for General Counsel podcast. Don't forget to subscribe and to review this on your podcast platform. It was produced and presented by Matthew Magee for Pinsent Masons, the international professional services firm with law at its core.