The issue of corporate shutdowns during the time of the COVID-19 pandemic is still hotly debated. One study by The University of Kansas School of Business concerns itself with a different aspect: the political climate. Turns out, the politics of corporations and their CEOs have a greater impact on a company’s response to a public health issue than its finances.
Politics Matter More than Revenue.
The pandemic had many consequences, including forcing many companies to close their offices. This is what motivated KU Assistant Finance Professor Shradha Bindal with her paper “Corporate Shutdowns in the Time of COVID-19,” along with her colleagues Felix Meschke and Kissan Joseph. To arrive at this conclusion, they had to challenge existing beliefs and prove that during crises, in this case the COVID-19 pandemic, ideologies shouldered much more importance than resources and even executive payments. “Our paper underscores the role regulatory factors and politics play in times of crisis,” stated Bindal, drawing attention to the heavy focus on politics over business during a public health crisis.
Navigating Uncertainty: A Multidimensional Balancing Challenge
“The pandemic posed an unparalleled set of challenges that required companies to balance financial sustainability, workforce wellbeing, and adherence to government mandates.”” This excerpt illustrates the paper’s arguments. Bindal’s team decided to focus on what components of a firm or its leadership drove response behaviors to a global-level crisis, motivated by the uncertainty all around us. Undoubtedly, this example from the mobile dataset sheds light on corporate responses to the pandemic. The methodology was particularly fascinating because most firms did not publicly disclose shutdown dates, and the authors relied on mobile data to establish that very productive activities stopped occurring. As such, attendance (which is indicative of pre-work activities) at the office was likely closely aligned with the firm’s response, and as such, would be objective in nature.
Results were astounding—instead of cash-rich firms deciding to shut down operations more rapidly, as Bindal hypothesized. It was also surprising to see hospitals responding slower despite having fewer resources on demand. There was something Bindal emphasized later: “We expected that firms with lots of cash would shut down faster. We also expected CEOs to shut down faster if their pay was not tied closely to company stock. We wondered about overconfident CEOs: “Do they navigate the crisis more swiftly than others’?” The data, however, pointed to a different conclusion.
The economic blast resulting from COVID-19 came with unprecedented political and civic unrest. “We were surprised that the main takeaway was how political ideology shaped corporate responses,” Bindal said. The excessive corporate powers strongly tried to conquer and censor information that could hurt their reputation. However, losing control of information could severely damage their trust and damage relationships.
The analysis showed distinct differences in shutdown timing based on political affiliation. For example, Democratic-leaning firms situated in “blue states” with Democratic government organizations had an average shutdown of 4.39 days prior to state-issued shelter-in-place mandates. In opposition, Republican-leaning firms in these blue states geographically slowed their closures, averaging 3.68 days prior to shutdowns. Moreover, the political relationship between firms and their CEOs turned out to be equally as important. Democratic-leaning firms headed by Democratic-leaning CEOs shut down an average of 1.5 days more than others. What appears trivial accounts for a large portion of the sample’s shutdown time of 5.38 days.
Understanding the Polarization: Welfare vs. Liberty
The political divide in the United States is alarming, and different ideologies have their different preferences for policies during crises. “We still don’t know if shutting down faster was the right approach. The firms that shut down faster did not perform better or worse,” Bindal speculated. “Democrats may have preferred collective welfare, and Republicans focused on individual liberty.” This, she argued, is linked to the theory of moral foundations whereby the dichotomy of values deeply rooted in fundamental belief systems governed corporate decision-making, which is sociologically observable within constituents of trust and desperation. “This is purely speculative, but in volatile situations where predicting possible outcomes is nearly impossible, we assume CEOs operate under an overarching belief framework,” she further posited.
A Personal Connection: The Human Cost of Crisis
Bindal’s interest in this research was partly triggered by her story. “My father runs a small hotel back in India. And during COVID, he had to shut it down since the Indian government had strictly enforced a curfew. But he kept all his employees on payroll and was worried about how they were going to feed their families,” remarked. This story illustrates the range of complex considerations from a personal standpoint that business leaders had to think about during the pandemic, in which there were decisions about closures and the profound impact on the lives and livelihoods of their employees.
Ideology as a Guiding Force in Crisis
The study from the University of Kansas raises an astonishing and stimulating observation regarding the behavior of companies during the COVID-19 pandemic. It marks the gap in corporate shutdown timelines to politically motivated corporate philosophy, demonstrating how non-economic elements play a pivotal role in modifying fundamental decisions during desperate times. Such a conclusion forces the conventional understanding of corporate behavior to change and hints that in uncertainty, a leader chose to operate from his beliefs rather than financials, ops, or rational detailed analysis.
