The Covid-19 pandemic has seen governments around the world take unprecedented measures to prop up economies, keep financial markets functioning and prevent the instant unemployment of millions.

As the world reaches half a year with the virus – and more than four months since global lockdowns began – it is likely that these unparalleled interventions will have profound and long-standing implications for the social contracts between corporates, governments and citizens.

New division lines for inequality

The pandemic has highlighted that inequality is a far broader issue than can be captured by measures of wealth and income. While the professional classes have been able to work in relative comfort and safety at home, largely enjoying job security, those in health, social care and service led industries have taken significant personal risks working on the frontline of the health crisis or keeping essential services functioning, enhancing their exposure and likely contraction of the virus. Those employed in the hardest hit sectors such as the hospitality and retail industries have suffered from loss of income or employment altogether.

For many governments, the crisis will provide a new impetus to attempt to achieve a fairer distribution of society’s resources through taxes and benefits and, over the longer term, through investment in education, public health and other public services. Corporates also have an active role to play and will understand that providing a safe and pleasant work environment are vital to the long-term success of any business and that fair pay and benefits are required to attract, retain and motivate the best employees at all levels of an organisation.

See also: – How can CEOs improve diversity in ‘build back better’ plans?

An end to the gig economy?

Since the global financial crash, the ubiquity of casual labour and the size of the gig economy has grown exponentially. Coronavirus could however be set to reverse this trend.

The pandemic has highlighted just how precarious these models can be, leaving large swathes of the population vulnerable to sudden loss of income and without the same protections afforded to employees. 

Governments were already taking a dim view on companies with such business models but, after having to intervene to support the gig economy, it is likely governments will want to close such loopholes in workers’ rights, and ensure profits are not given such priority over the protection of employees. Ahead of the pandemic in January 2020, California passed legislation designed to compel ride sharing companies to classify their drivers as employees and we may see enhanced momentum for similar legislation elsewhere, which could present a significant challenge to business models which rely on these low cost and light touch employment practices.

Corporate behaviour takes centre stage

Dividends, buybacks, redundancies and executive pay are all issues which have faced increased scrutiny over the past decade, however this crisis has politicised them to a new level.

With corporates accepting unprecedented levels of financial support from the public purse, these organisations will be subject to a new level of public scrutiny. Beyond the group of companies which have received direct taxpayer support, all corporate managers find themselves in an environment where the idea that maximising shareholder value should be their sole focus is increasingly controversial.

Corporate governance best practice has long recognised the importance of strong alignment of interests between shareholders and other stakeholders, but the clear message from this crisis is that there remains much work to do to achieve this important aim.

The ‘G’ in ESG comes to the fore

Corporate governance is already at the forefront of most investors’ minds with the widespread adoption of ESG principles in recent years but is now set to play an increasingly equal role with its environmental and social counterparts following the crisis.

Firms that have benefitted from government support will face the highest degree of public accountability but all high-profile corporates will see their behaviour, particularly when it comes to the treatment of employees, placed under the microscope by governments and taxpayers.

Investors who understand the importance of strong corporate governance for the long term success and sustainability of a business will be at the forefront of driving new standards and expectations for companies, pushing the often overlooked ‘G’ in ESG to the fore for investors.