Interview with Dr Robyn Klingler-Vidra
Expert in Political Economy, Senior Lecturer in Political Economy in the Department of International Development at King’s College London. Her research focus is on innovation, entrepreneurship, venture capital and the social impact of business. She is the author of The Venture Capital State: The Silicon Valley Model in East Asia (published by Cornell University Press in 2018). Dr Klingler-Vidra is also a contributing writer for The Economist Intelligence Unit.
Marta Kozielska (MK), UK Consultant for Social Impact Alliance for Central & Eastern Europe: What is the biggest threat resulting from COVID-19 for businesses right now?
Dr Robyn Klingler-Vidra (RKV): The COVID-19 pandemic, and the lockdowns imposed to ‘flatten the curve’ of the disease’s spread, poses two big threats. In the short term, its cash flow. Many businesses have seen their customer base and spend evaporate overnight. But the businesses still have rent to pay, staff on the books, and inventory that needs to be used (and in some cases, inventory that will soon expire). This big short-term risk, then, is liquidity.
Because of a number of decisive government actions, this risk has been – for now – ameliorated as governments help to pay workers and offer lines of credit. The big threat, though, comes after the government help runs out. That threat is one of solvency; businesses’ ability to pay their long-term fixed expenses. As societies enter a “new normal”, business will pick up some, but it remains unlikely that it will be enough to cover expenses that were predicated on what was normal until February 2020. So, the biggest threat is long-term: businesses need to come out of this pandemic with expenses that match what they can reasonably produce in the new normal.
MK: Besides the negatives, what lessons can businesses draw from COVID-19, and what opportunities are there to tap into? If any.
RKV: My research focuses on high-growth startups and the provision of venture capital. In this area, for example, though there has been a slowdown in venture capital investments in the first quarter of 2020, there has been an uptick in deals in areas set to grow in the new normal. These include healthcare, augmented reality and virtual reality (AR/VR), and education technology. There is excitement about the opportunities available in these sectors, as the pandemic is set to accelerate trends already underway (such as MOOCs in education) and drive a spike in demand for products and services that facilitate virtual interactions.
MK: How can leaders build resilience in their business in times of disruption?
RKV: Across early stage businesses in particular, the idea of the “cockroach” comes to the fore. The term cockroach is popular in venture capital lexicon, referring to a startup that can survive anything, due to its adaptability and low-cost structure. Businesses that are able to operate in the cockroach mode are able to survive through the worst of the COVID-19 slowdown, and in so doing, the hope is that they are in a stronger position to grow when economic activity returns.
Rather than striving to be a unicorn (startup that achieves a private market valuation of $1 billion), leaders should harness the cockroach mentality: survive by adapting the product/service and having relatively low expenses.
MK: Should businesses take care of their supply chain partners, mostly small and medium-sized suppliers, to ensure the long-term stability of their business ecosystem and to be ready to restore business operations after the pandemic? Can businesses afford it?
RKV: In an ideal world, yes, credit should be extended throughout supply chains. But as your question suggests, large and small businesses are both struggling in the pandemic, so it’s not necessarily the case that large businesses can ‘take care’ of small-and-medium-sized enterprises (SMEs) in their supply chain. In recognition of this challenge, government actions in North America, Europe and Asia have offered credit lines to startups and SMEs.
Ultimately, in the pandemic the state is proving to be the important ‘lender of last resort’ in a way that not all businesses can.
MK: With ‘stakeholder capitalism’ becoming more than just a buzzword, and as many businesses are now compelled to a build their community response, do you think businesses will go back to a shareholder value-oriented operations?
RKV: The COVID-19 crisis offers a potential ‘critical juncture.’ A critical juncture is an event – a crisis, or it could be a war, or another jarring event – which is such a shock that it causes people to rethink the value of the dominant paradigm. Sustainability, corporate responsibility, and ‘making impact’ were all on the rise prior to the crisis. Since the Global Financial Crisis in 2008, businesses were more inclined towards making ‘profit with purpose’. But, many say that purpose has been at the periphery of business activity, rather than at the core (one of my PhD students is doing brilliant research on this). If COVID-19 is truly a critical juncture – which it seems to be – then the shift towards more purposeful business would take root in the core of business operations.
MK: Building on question 5, how does this pandemic give businesses an opportunity to perhaps rethink their social purpose? Will it, in your opinion, change their approach to CSR (Corporate Social Responsibility)?
RKV: Yes, absolutely. The challenge, though, is that businesses will need to see a boost in revenue as we come out of the pandemic. While profit with purpose could be the intention, the realities of needing to pay staff, rent and more could hamstring businesses’ ability to be as purposeful as they would like to be.
MK: With a decreasing amount of private capital available to social purposes other than health care, how do we manage funds for other pressing social matters – elderly, education now and in the post-pandemic era?
RKV: Some of these social arenas are already seeing an increase in interest from financiers, such as venture capitalists. In this sense, market fundamentals help to reallocate money to growth areas such as education, as investors see an opportunity for massive expansion in the use of technology-enabled education. But there are other societal issues that may not see sufficient funding, such as aging, as private capital holders focus – in the short term, at least – on the big growth areas.
It’s here that government levers can be useful in offering incentives for particular societal challenges.
Tax incentives help to de-risk investments, and even to offset investors tax liabilities overall, and as a result, potentially sparking a big rise in the number of people investing, and the capital allocated.
MK: Do you think that tax benefits become an increasingly important tool to donors?
RKV: Tax incentives have played a hugely important role in encouraging investment in early-stage, high-growth businesses. Tax schemes like the UK’s Seed Enterprise Investment Scheme (SEIS) have marshalled in significant capital for British startups in their earliest stage of development.
Similar tax schemes, designed to support social-oriented enterprises, could have a significant impact on increasing the pool of capital available.
To catalyse the take-up – and impact – of such tax schemes, governments can attach time boundaries. For example, many countries have used tax holidays and periods in which ‘infant industry’ firms can benefit from a low or no tax status. To accelerate the use of tax incentives, governments can specify such time boundaries. In addition to instigating take-up, the availability of a tax incentive for a certain time period also lessens the likelihood of companies becoming dependent on such support.
MK: How would you define social impact in short?
RKV: In a 2016 LSE working paper co-authored with Mark Florman, I define social impact as follows “the economic, social and environmental consequences of business activity, both positive and negative, independently of the intentionality of the activity.”
MK: How do you measure it? Should impact be measured differently in times of crisis vs normal day to day life?
RKV: Social impact should be measured by those who are impacted, rather than by the businesses or investors who believe they are making a certain (positive) impact. It’s essential that the measurement of social impact allows for positive and negative outcomes, rather than viewing social impact as only the positive consequences, the CSR and the philanthropy. To know the social impact of the mosquito nets that a company provides for a team somewhere in their supply chain, we need to work harder to ask those in that community how they are impacted. For more on my thoughts on the term ‘social impact’, and how to measure it, see a recent piece I wrote for The Economist Intelligence Unit’s Perspectives entitled “Social impact: what does it mean, and how should we measure it?”
The magnitude of the impact of business – be it positive or negative – is likely to be greater in hard times.
By democratizing the measurement of impact, so that those who are impacted are the ones who are assessing the direction and extent of the affects, we could gain real-time insight into impact. My suggestion here (which we are working on at King’s College London) is to develop a platform where wider society – so local community members, suppliers, customers, investors and employees – are able to provide their feedback and scoring of companies’ impact on them. To do this well, we need to have scale, so that businesses provide their inputs, as to which activities they are doing across the 17 UN Sustainable Development Goals. Then, this variety of actors who are affected by the businesses’ activities would be able to engage in direct dialogues about why and how strategies are carried out, to offer their perspective on how certain activities are affecting them, and more. This kind of platform would allow for a more productive measurement of – and response to – social impact, as it would capture the variety of perspectives in real-time. In hard times, such as the COVID-19 pandemic, it would offer businesses, governments, NGOs and wider-society an ability to see the direction and extent of social impact in real time.
MK: Thank you.