Why reopening the economy is just the start of even more headaches for already struggling businesses – Financial Post

Saskatchewan was the first to pull the trigger on lifting the pandemic-induced economic shutdown, a move a week ago that brought equal degrees of hope and anxiety to individuals and businesses both within the province and around the country.

Its reopening is gradual, starting with medical services such as dentists being allowed to see patients, then golf courses will open, followed by provincial parks in June. Quebec followed suit, in much bolder fashion despite having the highest death toll in the country and a stubbornly high rate of new COVID-19 cases.

Quebec Premier Francois Legault spent much of Thursday defending his decision to reopen the province’s economy in phases starting May 4, fielding tough questions about the risks of reopening daycares, elementary schools, factories and retail stores amidst a curve that had barely flattened.

“Nothing is perfect, nothing in life is 100 per cent, but we calculate, with the help of public health, that it’s better for children to return to school,” he said.

The open protests to reopen fully continue nevertheless, with protestors ignoring social distancing protocols, even though many experts believe that until a COVID-19 vaccine is found and widely distributed — a process that might take 18 months or more — normalcy will not resume even if governments throw their economies wide open.

Until then, there will be a tug of war between the public’s health and the long-term damage to the economy of staying partly closed, with tricky questions surrounding when and how to open, and who is allowed outside and in what circumstances, without increasing the risk of over-running public health facilities with a surge of COVID-19 cases.

But it doesn’t get any easier for business owners once those decisions have been made since they are the ones who will have to figure out how to bring their employees back without jeopardizing their health and safety. That process will include redesigning workplaces, interacting with customers in different ways, increasing sanitation efforts and perhaps even paying people in different ways, all of which come with myriad headaches and extra costs at a time when many businesses are already on life-support benefits.

For example, retailers and restaurants, for the sake of their own survival, will have to somehow entice people to come out to shop and eat, despite the ever-present risk of contracting the virus. There are or will be provincial and maybe municipal guidelines to follow, but no amount of cleaning or spacing people out will convince everyone that it’s safe.

“To the degree that we have to weigh up moral, economic and health concerns … that is something we all have to collectively do. There are no single set of experts here,” said Steven Pearlstein, Robinson Professor of Public Affairs at George Mason University in Virginia.

“Governments will put out guidelines on reopening, saying here’s what you can do, here’s what you can’t do. That does not necessarily mean every company or consumer or business will follow. We all get to decide as consumers and workers and company executives how much and when and how we are going to do things. And we’ll only know if we struck the right balance in hindsight.”

Even in jurisdictions where government guidelines on reopening remain vague, major companies have started brainstorming new ways of working that incorporate physical distancing into their floor plans.

Darryl Wright, a human resources consultant at Ernst & Young LLP, said he has started seeing a number of companies bring in experts to redesign offices and configure them according to the requirements of landlords mandating physical distancing in indoor spaces.

“Some of the things that are being considered are one-way passages in office spaces so people don’t brush past each other, the number of people that should be allowed in a boardroom or how many people should even be in an office space at a given time,” Wright said. “We are basically trying to agree on what a base model of working might look like when we are allowed to reopen.”

That’s at least partly because employees will be “emboldened to push back on returning to work” until they feel it is safe to do so, according to a recent survey conducted by international architectural and design company Ware Malcomb.

It suggests companies take the temperature of individual employees or use fever scanning systems and introduce staggered work times and four-day work weeks, tactics that have already been adopted at some large banks in Hong Kong, a city-state that from the get-go employed effective methods of contract tracing and isolation to curb community spread of the virus.

For example, employees at the Hong Kong headquarters of French banking giant BNP Paribas can not enter the building without a mask. Everybody’s temperature is checked when walking into an office building or restaurant on the island.

Cynthia Milota, Ware Malcomb’s director of workplace strategy, suggests that office lunch and break times be scheduled or lengthened to “minimize occupant loads,” similar to how large high schools stagger their lunch periods.

The company has also produced modified workplace floor plans that vastly reduce the number of people in a given space or on a specific floor.

“Remove chairs or even monitors to discourage unoccupied workstation use,” Milota said. “Seating should remain assigned until the widespread threat of virus transmission has diminished.”

Some companies may figure that they need less space if their employees are going to stay at home for the long term, but Lowest Rates Inc., which runs a website that helps people find low insurance and mortgage rates and employs about 50 people, is accelerating a planned move to a larger physical office space.

“We’re going to have to move offices, because we’re taking this very seriously,” chief executive Justin Thouin said. “We never want to put the team in a position where they feel unsafe and uncomfortable, so we will be actively looking to move into a larger office where desks are wider apart and ventilation is better.”

He said his company has had a remarkably positive experience throughout the pandemic, which has enabled the company to afford a larger office space. Business is improving and he is looking to hire even more staff.

“We are actually using this opportunity to pick up talent that has been let go by other organizations,” Thouin said.

Even if governments and companies allow workers to return to their desks, working remotely might become the new normal, said Kareen Emery, director of innovation and consulting at The Foundry by Monster, an employer branding agency.

“I can’t name specific clients, but there are companies that are now saying as long as employees are productive, and work at the same efficiency level, they are going to keep them at home,” she said. “The thing is, even if you practice physical distancing at work, employees have to take public transit to commute in, and that’s going to be a problem. It’s a benefit to employees and to companies to continue keeping them at home.”

One such example is OpenText Corp., the Waterloo, Ont.-based software developer giant. In a recent earnings call, chief executive Mark Barrenechea said that half of the company’s headquarters will not open up even when allowed, implying that a greater number of employees will now work from home permanently.

“More than 95 per cent of OpenText employees have moved to remote work and have maintained productivity throughout,” he said.

EY’s Wright believes that companies in the post-virus, pre-vaccine world will oscillate between letting white-collar workers continue to work remotely and encouraging them to come back to reconstituted, open-plan workspaces with built-in physical distancing.

We cannot risk another outbreak that shuts us down all over again

Kevin Dove, KPMG Canada

“Remote working isn’t for everyone,” he said. “I know that some people want to come back to the office, but they need to be given the reassurance that it is safe to come back.”

Canadian Imperial Bank of Commerce’s back-to-work strategy will include alternate work-from-home days, though final plans for the two-thirds of its employees currently working remotely have yet to be fully confirmed.

“Our pace will be measured as appropriate,” a CIBC spokesperson said.

At KPMG Canada, allowing employees to return to their regular workplaces will to some extent hinge on the health-care system ramping up testing and instituting proper contact tracing, methods that Canada has largely lagged on, especially compared to some East Asian countries such as Singapore and South Korea.

“We have engaged with our KPMG partners in Asia and Europe who are sharing their experiences on returning post-COVID-19 … we cannot risk another outbreak that shuts us down all over again,” spokesperson Kevin Dove said.

Of course, working from home isn’t an option for many blue-collar workers and those who directly interact with customers, so redesigning workplaces, if possible, is only the start of their employers’ headaches.

“The financial struggle is going to be real,” said Leesa Berry, owner of Klute Hair Salon in Toronto. “We are not going to take in as many clients every day, because the space is too small. We are going to have to purchase a lot of disposable things. For instance, capes would have to be thrown out after each client uses it. We need tons of disposable masks, because we have to provide them to clients.”

Berry hasn’t had any revenue since her salon closed down in mid-March, and is operating on savings and a federal loan for small businesses, so she will not be able to renovate her salon to space out workstations.

“Our workstations will have to be six feet apart from each other, so we can’t use all of them obviously, and only one of our shampoo stations can be in operation at any given time,” she said.

But those issues become moot if customers won’t venture outside as long as the threat of infection remains.

Cafes and retail stores reopened in Germany last week, but foot traffic was so low that some shops began shutting down again, leading the head of the Berlin-Brandenburg Trade Association, Nils Busch-Petersen, to characterize this interim period until things become fully normal again as one that will be even worse than the shutdown.

“At least when shops were shut they were entitled to government aid,” he told the Financial Times. “Now they’re on their own.”

A similar scenario could very easily happen in Canada. An Angus Reid poll conducted in the third week of April showed that 43 per cent of Canadians said they wouldn’t return to regular routines until no new cases were reported in their region for two weeks in a row. Only one in 10 said they would resume their former lives immediately.

“We just don’t know where the psychology of customers is going to be as we are reopening,” said Janet De Silva, chief executive of the Toronto Board of Trade. “The business owners we talk to want to be back in business, but the public needs to be confident with the guidelines on recovery that are to come.”

Caution is the watchword. Take Starbucks Canada. It announced this week that it would resume operations at as many stores as possible by the end of May, but will only choose select stores for walk-in services, based on the health situation in those communities. Certain stores that remained open for delivery, curbside pick-up and drive-thru services will act as test cases for the remaining stores.

All employees and store owners, according to a statement issued by Starbucks, will be required to wear facial coverings and take their temperatures at the start of each shift.

There will also be provincial guidelines to follow. The Ontario government is recommending retailers control how many customers are in a store at one time, install barriers between cashiers and customers, introduce floor markings to show where people should stand and not accept paper money or coins — tactics many grocers are already doing.

Social distancing becomes even more difficult at factories, where workers toil side by side. Volkswagen AG provided an inkling of what manufacturers might have to do when it reopened the world’s biggest car factory In Germany on Monday.

Volkswagen made 100 changes to the way its plant operates, including spacing vehicles further apart to reduce employee interaction. Workers will have to wear masks where it’s not possible to keep them 1.5 metres apart and they are expected to avail themselves of hundreds of new hand-washing stations.

But that’s just the start. Employees are expected to check their own temperature before each shift, change into their work clothes at home rather than on site, and use their elbows to open doors. The tools they use will be disinfected after each shift and cannot be passed from one person to another.

Air conditioners are even set on high to circulate as much fresh air as possible. The company did not release a cost estimate of all these changes, but production is starting slowly to ramp up so the costs will be borne while revenues are reduced.

“Now it is up to line managers to make sure that all employees are fully informed about the prescribed measures before they start work,” Bernd Osterloh, chairman of the General and Group Works Councils of Volkswagen, said in a release. “All colleagues must know what to do to best protect themselves and others.”

Simultaneously considering economic and health concerns is why Toronto’s Recovery and Rebuild Strategy is being led by Saad Rafi, former CEO of the Pan Am Games, and Dr. David Mowat, Ontario’s former chief medical officer.

“What we have got right now is a recovery framework that will look at expected stages of recovery, how each sector has been impacted and how to support them through the fiscal challenge of opening up,” said De Silva who is working closely with the new office of recovery.

[embedded content]

That recovery will likely be slow. More than 55 per cent of economists polled by Reuters this week concluded that the pandemic would result in a U-shaped recovery, rather than an immediate V-shaped one, which should dampen anyone’s enthusiasm about the kind of economy we will have once most industries and sectors reopen.

“While the ‘restart playbook’ should be the immediate priority, governments must also identify and address sources of ‘systemic risk’ to the economy and potential ‘scarring’ that could impair economic recovery,” said a recent communique released by a C.D. Howe Institute working group on the post-COVID-19 environment.

The group suggested that prolonging the Canada Emergency Response Benefit program, for example, could have the adverse effect of discouraging workers to seek new work or return to the workforce, potentially deepening the economic crisis.

“I did have clients express these concerns about employees not wanting to return to work,” said Lai-King Hum, a labour and employment lawyer in Toronto representing both employers and employees. “But it was because they did not feel it was safe to do so.”

Hum said that from a legal standpoint, if an employer has adequately taken the right health and safety measures to protect employees, they have to return to work.

“But the issue under the current circumstances, I don’t think the employer will actually take action and fire the employee if he or she chooses not to,” she said. “It very well could be an anxiety issue that could be justified in these times.”

Companies will also have to consider reviewing and updating their employee agreements and HR policies, as well as navigate possibly tricky privacy concerns related to testing employees and collecting data.

“Proper policies and procedures, particularly with regard to employee consent and notifications, the types of data that will be collected, how the data is collected, and the purposes for which it will be used, etc., will need to be in place and communicated to employees in order to respect privacy rights and minimize associated risks,” warns a recent report by Borden Ladner Gervais LLP.

Pearlstein, the public affairs professor at George Mason, said mitigating a prolonged recession should start with measures to address the heart of this economic crisis: a cash squeeze.

“We have a liquidity problem,” he said. “Individuals have a limited amount of cash, and businesses have a limited amount of cash.”

We have a liquidity problem

Steven Pearlstein, public affairs professor, George Mason

Pearlstein suggests that one method large companies could adopt is to make sure lower-wage employees get paid most of what they would normally would, but defer part of higher-wage employees’ compensation.

“If you have an employee that makes $250,000, for example, there’s no need right now to provide that employee with that entire amount of cash,” he said. “You could say, ‘Hey I’m going to pay you now at an annual rate of $100,000,’ and give the employee an IOU in some form at a later date, in order to preserve jobs of low-wage employees.”

Pearlstein said his argument is not rooted in a sense of fairness and justice as much as it is just good business sense.

“If you start having a large number of companies or a large number of households go bankrupt, or if businesses start defaulting on their debt, which triggers all kinds of legal stuff, then you make the recession worse,” he said.

The issue, though, is which company is willing to take the plunge first and adopt such a radical compensation strategy.

“Again, this is a collective action issue. It would be good if everyone does it, but it is in no one person’s interest to do it himself or herself,” Pearlstein said.

“That’s the thing about how we’re going to navigate the coming years of reopening the economy. Government guidelines will be issued, but we will interpret them in ways that make sense to us as individuals, companies and regions. If you’re looking for a one-size fits all solution here, that would be the wrong way to go.”

Financial Post

• Email: vsubramaniam@nationalpost.com | Twitter: VanmalaS