COVID19

Willing and able – Building a crisis resilient workforce

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Most crisis response planning assumes that people will turn up for work when they are needed, even during some of the most extreme events. But will this fundamental assumption really hold true? This is the question MWC, in association with King’s College London and Public Health England explored to suggest a model and recommendations for organizations to develop a more crisis resilient workforce.

 

Most existing crisis response plans focus on structures, protocols and processes of an organization’s response whilst leaving the human aspect of response to chance assuming that people will turn up for work even during the most extreme events.

But our research uncovered that in certain more severe scenarios, this assumption may not hold true and organizations need to find ways to improve the situation.

To do so they should consider the following points to build a crisis resilient workforce:

Human factors – understand how people may respond and why

Organizations should remove any assumptions about employees’ willingness to come to work in a time of crisis and recognize that risk perception is a key determinant of willingness. To palliate this issue organizations should make sure that people understand the importance of their role and adopt an inclusive approach when developing the crisis response plan to embed and address employees’ concerns.

Information and communication – tell them what they need to know

Organizations should ensure they educate their employees on the actual risk presented by different crisis. When a crisis does occur it becomes important to provide accurate and authoritative information about the situation. Organizations should consider what the authoritative sources of information might be and where or how they can be accessed and used as part of their planning considerations. Also, they should provide staff with recommendations and give clear reasons for those recommendations.

Organizational interventions – provide practical support

In order to increase employees’ willingness to come to work during a crisis organizations need to consider remote access availability, logistical support that could make it easier for employees to get into work as well as provide incentive such as psychological care or medicine to help them cope with the crisis.

 

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COVID-19: Managing supply chain risk and disruption

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Coronavirus highlights the need to transform traditional supply chain models

 

Could COVID-19 be the black swan event that finally forces many companies, and entire industries, to rethink and transform their global supply chain model? One fact is beyond doubt: It has already exposed the vulnerabilities of many organizations, especially those who have a high dependence on China to fulfill their need for raw materials or finished products.

China’s dominant role as the “world’s factory” means that any major disruption puts global supply chains at risk. Highlighting this is the fact that more than 200 of the Fortune Global 500 firms have a presence in Wuhan, the highly industrialized province where the outbreak originated, and which has been hardest hit. Companies whose supply chain is reliant on Tier 1 (direct) or Tier 2 (secondary) suppliers in China are likely to experience significant disruption, even if, according to the most optimistic reports, conditions approach normalcy in China by April.

How can organizations respond to the immediate change?

As the COVID-19 threat spreads, here are measures companies can take to protect their supply chain operations:

For companies that operate or have business relationships in China and other impacted countries, steps may include:
• Educate employees on COVID-19 symptoms and prevention
• Reinforce screening protocols
• Prepare for increased absenteeism
• Restrict non-essential travel and promote flexible working arrangements
• Align IT systems and support to evolving work requirements
• Prepare succession plans for key executive positions
• Focus on cash flow

For companies that produce, distribute, or source from suppliers in China and other impacted countries, steps may include:
• Enhance focus on workforce/labor planning
• Focus on Tier 1 supplier risk
• Illuminate the extended supply network
• Understand and activate alternate sources of supply
• Update inventory policy and planning parameters
• Enhance inbound materials visibility
• Prepare for plant closures
• Focus on production scheduling agility
• Evaluate alternative outbound logistics options and secure capacity
• Conduct global scenario planning

For companies that sell products or commodities to China and other impacted countries, steps may include:
• Understand the demand impact specific to your business
• Confirm short-term demand-supply synchronization strategy
• Prepare for potential channel shifts
• Evaluate alternative inbound logistics options
• Enhance allocated available to promise capability
• Open channels of communication with key customers
• Prepare for the rebound
• Conduct global scenario planning

Looking ahead: the imperative for a new supply chain model

A decades-long focus on supply chain optimization to minimize costs, reduce inventories, and drive up asset utilization has removed buffers and flexibility to absorb disruptions─and COVID-19 illustrates that many companies are not fully aware of the vulnerability of their supply chain relationships to global shocks.

Fortunately, new supply chain technologies are emerging that dramatically improve visibility across the end-to-end supply chain, and support companies’ ability to resist such shocks. The traditional linear supply chain model is transforming into digital supply networks (DSNs), where functional silos are broken down and organizations become connected to their complete supply network to enable end-to-end visibility, collaboration, agility, and optimization.

Leveraging advanced technologies such as the Internet of Things, artificial intelligence, robotics, and 5G, DSNs are designed to anticipate and meet future challenges. Whether it is a “black swan” event like COVID-19, trade war, act of war or terrorism, regulatory change, labor dispute, sudden spikes in demand, or supplier bankruptcy, organizations that deploy DSNs will be ready to deal with the unexpected.

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The coronavirus and its consequences

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Legal impact on supply and production relationships

 

The (legal) impact of the coronavirus

Starting first from the Wuhan region, the coronavirus epidemic is in its spreading already now exceeding the 2002/2003 SARS-crisis. The consequences are dramatic. The Chinese government’s quarantine-related counter-measures have caused significant restrictions to public life in large parts of the country. In light of this, the epidemic’s economic consequences are increasingly getting into focus. The crisis affects a huge number of China-based companies, which either had to cease or move their production. European companies producing in China or purchasing goods from there see themselves confronted with supply chain disruptions.

Moreover, there are plenty legal implications arising from the epidemic such as the handling of affected employment relationships, insurance coverage of epidemic-related damages or consequences in the field of travel law. However, given the enormous volumes the Chinese-European trade has meanwhile reached, it is of highest relevance how epidemic-related disruptions may affect the legal side of existing supply and production-related relationships. Keywords being often repeated in this context are the terms “Acts of God” and “Force Majeure-clauses”. Taking a closer look could be beneficial.

What does “Force Majeure”  mean?

Quite often, contracts such as e.g. supply agreements include “Force Majeure“-clauses or provisions regarding “Vis Major” or – in the Anglo-American context (namely under Common Law or US law) – clauses with respect to “acts of god”. In general, respective clauses aim at governing the consequences of cases of default in performance being related to circumstances or events, which are beyond the control of the contracting parties. The term “Force Majeure” – at least under German law – is not defined by statutory law. Typically, respective clauses provide for an abstract definition of the term being further illustrated by a number of non-exhaustive examples (e.g. natural disasters as earthquakes or flood as well as events like terrorist attacks, armed conflicts or strikes). In standard cases, legal consequence of a “Force Majeure”-event is the (at least) temporary suspension of the contracting being affected by the respective event under exclusion of damage liability obligations vis-à-vis the other party. From a formal standpoint, it is often stipulated that the party being affected by a “Force Majeure”-event shall be subject to respective notification obligations towards the other contracting party. In some cases, “Force Majeure”-clauses provide for extraordinary termination rights in favor of either one or both parties. It is furthermore important to consider that “Force Majeure”-clauses regularly also provide for obligations and requirements, which must be observed by the other contracting party not directly being affected by the respective “Force Majeure”-event. Typically, the party not being directly affected by the event (in most cases: the recipient) shall be obliged to limit its own damages using its best reasonable efforts.

“2019-nCoV” as “Force Majeure”?

By way of a detailed analysis of the specific contract clause, it has to be determined in the individual case whether the new coronavirus (in science known under the preliminary denomination “2019-nCoV”) meets the applicable definition of a relevant “Force Majeure”-event. Although commonly used standard clauses seem to imply the occurrence of a “Force Majeure”-event, it is to be checked with utmost care, which law and legal understanding shall apply in connection with the respective agreement. Depending on which law shall apply in case of an agreement, this can be of material influence on the interpretation of the respective clause and can lead to rather contrary results. It is also advisable to consider conflict of laws-related requirements in connection of a related legal assessment. For the avoidance of unintendedly non-compliant conduct, a thorough review of the specific clause is essential.

With respect to agreements being subject to the laws of China, the PRC’s Supreme Court ordered in connection with the 2002/2003 SARS-epidemic that defaults either directly relating to the epidemic or to the government’s related counter-measures, would be considered as “Force Majeure”-constellations within the understanding of the legal definition of the term “Force Majeure” under Chinese civil law.

Also with respect to the current crisis, this legal assessment seems to be applied: It is now possible to obtain, upon application, so-called “Force Majeure-certificates” from CCPIT (China Council for the Promotion of International Trade) which can be utilized as proof in court proceedings vis-à-vis contracting partners. This could turn out as rather useful for companies having production plants in place in the affected regions of China and now not being able to comply with their supply obligations due to epidemic-related production disruptions, consequently, facing damage claims from the contracting partners.

Besides, there are efforts being undertaken in China to cover the consequences of the current crisis by way of special regulation. For instance, for the financial services sector, Chinese authorities are planning the implementation of sector-specific regulations.

However, what if there is no “Force Majeure”-clause included in the respective agreement? In case the agreement is subject to German law, then statutory provisions covering the respective default constellation (such as e.g. the German civil law concepts of the temporary impossibility (vorübergehende Unmöglichkeit) or frustration of contract (Störung der Geschäftsgrundlage)) apply. Also in such scenario, a thorough legal assessment of the individual case is required in order to determine which possible options either for an adjustment or termination of the respective agreement are the most suitable, especially from an economic standpoint.

Conclusion: What next?

The present coronavirus-epidemic has – from a medical point of view – still not reached its peak. Also from an economic perspective, the full picture of the epidemic’s consequences (particularly for China’s internationally closely interwoven supply and production relationships) is not foreseeable yet.

Parties being affected by epidemic-related supply or production disruptions can benefit from a precise assessment of the underlying contractual framework. Possible “Force Majeure”-clauses should be reviewed with particular care. Even though standardized versions of respective clauses are quite often being used, generalizing statements cannot be made. Considering which law applies in respect of the specific agreement, it is to be clarified in light of the wording of the respective “Force Majeure”-clause whether the current crisis meets the contractual definition of a “Force Majeure”-event and, if so, what the legal consequences deriving from this fact are. In case no “Force Majeure”-clause was provided for, the general statutory regulations under the respectively governing law would apply. In addition, it shall be carefully considered which options are available to achieve an economic reasonable result. Either party to an agreement should evaluate and comply with the legal frame for its own conduct (“Is my conduct in compliance with the agreement?”).

For companies producing in PRC (being affected by epidemic-related production defaults) it is advisable to check whether the obtainment of a “Force Majeure-certificate” from CCPIT would be useful. This could be the case if existing supply relationships with recipients are either subject to Chinese law or provide for a China-based place of jurisdiction. Our Chinese colleagues would be more than happy to support you with the obtainment of a “Force Majeure-certificate”.

In any case, pursuing a pro-active approach in connection with the handling of the economic consequences of the coronavirus epidemic will be the better choice. To use a medical terminology: Only a careful and thorough anamnesis of the possible legal risks as well as of the potential options will reduce the risk of being unexpectedly confronted with the negative diagnosis of a court.

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Practical workforce strategies that put your people first

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In moments of uncertainty and concern, it’s not only about what leaders of organizations do but equally how they do it that matters.

COVID-19 is taking the world by surprise, causing a great deal of uncertainty and raising issues that require thoughtful, people-first responses. This newly identified coronavirus was first seen in Wuhan in central China in late December 2019. As we enter March 2020, the virus now has a global reach on all continents except Antarctica. As the virus spreads, communities, ecosystems, and supply chains are being impacted far beyond China.

In January 2020, ahead of the Lunar New Year and as health concerns were still growing, MWC conducted a survey in China of human capital policies and practices. The survey drew over 1,000 responses from enterprises operating in China, including a cross-section of private, foreign, and state-owned enterprises as well as not-for-profit organizations.

The survey shows that from the beginning of the COVID-19 outbreak, the immediate focus of employers has been on ensuring the health and safety of their employees:

  • Ninety percent of the employers believe it is an urgent requirement to provide their employees with remote and flexible work option.
  • Energy, resources, and industrial companies encounter the biggest constraints in offering flexible working and remote solutions, and have focused on providing epidemic protection—they have been ensuring sanitation, personal protective equipment, and safety of the workplace environment.
  • More than half of government and public service entities are focusing on addressing employees’ psychological stress.

Authorities internationally are taking decisive action to respond to this emerging public health threat, which has caused the business community to consider the adequacy of its own preparedness measures.

It’s important to remember we have faced crises like this in the past and will face them again in the future. We need to be prepared, rational, and even altruistic in response. If there is disruption, there will also be recovery, so how we act in a time of crisis can also inform our long-term impact.

Responding to the immediate challenge: a framework to view the impact on your people.

 

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