Ian McConnell: This is why employers must do right thing at height of coronavirus crisis – and later

In a trading update published last Friday, aviation services company John Menzies revealed it had laid off more than 17,500 employees as it warned the impact of the Covid-19 coronavirus outbreak had “increased significantly” since its March 10 results announcement, extending across all of its operations in 34 countries.

Edinburgh-based John Menzies had, when it announced 2019 results last month, put its global workforce at more than 32,000.

In normal times, lay-offs on such a scale would dominate the headlines, possibly for days. However, amid the ongoing dramatic social and economic dislocation triggered by the absolutely necessary focus on minimising the death toll from the coronavirus pandemic, John Menzies’ workforce-reduction total of more than 17,500, while huge, was just another massive number in a soup of such colossal figures.

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That is not to underestimate the implications of such huge figures for those who have been working for John Menzies and myriad other companies, although thankfully government schemes in various countries are providing large degrees of support. Rather, such dramatic measures by companies have become the norm in these most unusual of times.

UK Government moves to support people’s incomes over coming months are, alone, expected to cost tens of billions of pounds.

Almost everywhere you look in the UK, companies in many different sectors are putting huge numbers of employees on furlough, utilising the giant Government scheme which sees the state cover 80 per cent of pay up to £2,500 a month.

A survey published yesterday by British Chambers of Commerce showed that, of UK businesses polled between March 25 and 27, 44% expected to put more than half of their workforce on furlough within seven days. Yesterday, trade union Unite welcomed moves by a number of significant employers at the sprawling Grangemouth oil and petrochemicals hub to furlough workers.

It was reported yesterday that British Airways would furlough around 30,000 staff, after reaching agreement with Unite.

The aviation sector has obviously been hammered by the effects of the coronavirus crisis, with borders closed and huge numbers of planes grounded.

In the UK, John Menzies has put about 3,250 of its workforce of approximately 6,500 on furlough.

Revealing the scale of its lay-offs worldwide, John Menzies said last Friday: “Reductions are being supported in some countries by governmental schemes and we hope that in the fullness of time a high number of these employees can return to the business.”

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And this gets us to the crux of the matter, from a corporate and broader economic perspective, in terms of the ultimate implications of the dramatic actions being taken by businesses now.

The hope, of course, is that, once the worst of the distressing Covid-19 coronavirus outbreak has passed, the longer-term impact on living standards can be mitigated by a relatively swift return to normal trading for businesses and their employees.

Some of the dramatic measures by big businesses this week do not look particularly problematic in terms of the future, and might even be beneficial, such as moves by the likes of Royal Bank of Scotland, Bank of Scotland owner Lloyds Banking Group and HSBC to abandon plans to pay dividends for now.

This is a sensible move, in the current extremely difficult and uncertain situation.

The focus for banks must be on supporting their customers at the moment. They are being assisted significantly by the UK Government to provide this support. There has in recent days been understandable controversy over indications that some bank lending offered might be far from ideal for many businesses, for example in terms of personal guarantees having been sought in some cases. This does not seem to be a fair risk for individuals to have to take on at this highly uncertain time. They should not have to put their personal assets on the line because of the coronavirus crisis. Thankfully there seems to have been significant progress, amid discussions between the Government and banks, in preventing such onerous conditions being attached to loans.

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There remains some hope of a sharp recovery – a V-shaped recession – but increasingly some companies’ plans look to be about cutting significantly on a longer-term perspective.

Oil giant BP, while saying this week that none of its employees would be laid off as a result of coronavirus-related cost cutting over the next three months, simultaneously unveiled plans for multi-billion -dollar spending cuts as it reacts to the plunge in oil prices that has occurred amid the coronavirus crisis.

BP made deep cuts in its North Sea operations during the oil and gas sector downturn triggered by the previous crude-price plunge that began in the second half of 2014 but it remains a key player on the UK Continental Shelf.

A raft of oil and gas companies have in recent days confirmed they will seek to make big savings on operating costs while cutting investment plans dramatically as they address the latest oil-price weakness.

The issue from an economic perspective is that such moves, by their nature, tend not to be short term.

BP said this week it expects to achieve around $2.5 billion of cash savings on operating costs annually by the end of 2021, compared with 2019. It has cut its planned capital spending this year by $4bn.

Last week, Royal Dutch Shell said it planned to cut underlying global operating costs by between $3bn and $4bn annually over the next 12 months. It revealed it would reduce its planned capital expenditure this year by at least $5bn.

Aberdeen oil services company Wood yesterday announced temporary pay reductions and major furlough measures but also revealed plans for job cuts “in certain areas reflecting the reduction in operational activity”.

There may be scope for oil producers and services companies to change tack from cutting mode if things take a swift turn for the better but this remains to be seen given major cost-reduction plans are already in train. It does not look, from the outside, as if there is much appetite for a “wait-and-see” approach.

You might have hoped, for the economic long-term good, that big oil companies with deep pockets might, while drawing up contingency plans, have adopted a more patient approach in these unprecedented times, albeit they might argue they have no option but to react swiftly.

Many big companies, across myriad sectors, have of course been quick to announce dramatic cost-cutting amid the coronavirus crisis.

Where this is essential for the survival of a business, and thus the long-term future of employees, this is understandable. Many businesses will have seen revenues disappear entirely or fall precipitously. The resilience of businesses will depend on their trading circumstances and on what reserves they have to draw upon, and many will have to rely on the Government furlough scheme.

Obviously, furlough should be used only when essential, but it is certainly preferable to permanent job losses.

If workforce reductions are temporary, with redundancies avoided and furloughed staff restored to full employment once the worst of the health crisis has passed and the associated restrictions have been unwound, this can help to enable a faster and sharper recovery in economic output and protect living standards.

Factory output figures from China this week offer a glimmer of hope that activity can rebound on the back of coronavirus-related lockdowns coming to an end.

However, fulfilment of any such potential will depend on companies doing the right thing by their employees at the height of the current crisis and also when the worst has passed and life hopefully returns to some kind of normality, with investment and expansion plans rekindled.

For different companies, the right thing in the short term will take various forms. Some will have no choice but to furlough workers. Banks must pull out the stops to help businesses survive beyond this short-term crisis, and assist individuals.

In the long term, the right thing will be similar for different businesses. Crucially it will involve retention of their employees for the long term, which after all is surely the whole point of the furlough scheme.

This is not a statement that signals naivety – businesses’ behaviour will of course vary as we have seen already. The key point is that, if ever there was a time for companies to do the right thing, it is now. And in coming months when the potentially even-bigger decisions arise.

If businesses do the right thing, this will help everyone by boosting the economy and protecting living standards.

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