As an investment management firm headquartered in New York City, ClearBridge is experiencing the COVID-19 pandemic on a very personal level. We are enormously appreciative of the outstanding dedication our employees have demonstrated to our clients and each other under very difficult circumstances.
Companies throughout the economy are confronting an unprecedented crisis, often under very stressful personal circumstances. We are very impressed by the great work many companies are doing to manage their businesses in a thoughtful and compassionate manner that considers all stakeholders. In times of crisis, we believe it is especially important for management to reflect on their collective responsibilities to employees, customers, investors and the broader community in which they operate. We are all expected to find the fine line defining quality near-term performance while maintaining or enhancing the opportunity for superior long-term success.
There are times, however, when short-term, non-financial priorities need to be addressed for the good of all. Today, COVID-19 is this country’s common cause, and we are very encouraged to see that many in the private sector have stepped up to the challenge. We urge any company that has the capability to produce products that are in need to strongly weigh the benefits of the broader good against what may be a less-than-desirable financial return. Companies are remembered for how they respond to a crisis. Those that do the right thing for all stakeholders will improve their reputation and brand equity while those that fall short will do themselves no favors in the long term.
We outline below our general expectations of company managements as they address the needs of their various stakeholder groups during the COVID-19 crisis. We will be having active discussions with managements as the crisis continues to unfold and fully expect that we will not agree with every decision that is made. Furthermore, we recognize that each business is different and stands to be uniquely impacted according to the nature of its products, inputs and capital structure and many management teams will face difficult choices in the coming months. The following observations, therefore, are not intended to be prescriptive, per se, but rather a series of guidelines that help define what we think is fair and proper and will benefit all stakeholders over the long term.
- Employee well-being includes both physical and financial safety, so a best response to the spread of COVID-19 will consider health expert guidelines on workplace safety vis-à-vis preventing transmission of the virus. This will involve, as applicable, cleaning, social distancing practices, or rotating shifts for businesses either able to, or required to, operate while COVID-19 remains a threat.
- It also includes paid sick leave and strategies to retain employees. We take a long-term view of retention and encourage steps to help employees stay on through the current crisis. This will help companies grow more quickly once the crisis has passed.
- We understand the stress and strain these times place on senior management teams. There are few things more frightening than a seemingly almost impossible-to-avoid contagion and we respect that circumstances may be far more personal than are publicly known.
- Nevertheless, in times of duress, management is expected to provide leadership and guidance and recognize there is a shared outcome for all levels of the company. This will require an unprecedented focus on transparency and an unwavering dedication to communicate with all layers of their respective organizations.
- Boards of Directors need to appreciate that executive compensation is not just a matter of dollars and cents during these troubled times. Stakeholders all look to those numbers as an example of understanding, empathy and an acceptance of shared financial responsibility.
Customers, Suppliers and Communities
- We think this period offers companies a unique opportunity to distinguish themselves, be it by increasing production of now vitally essential products, redeploying production capability to support health care workers and their patients and dedicating incremental dollars to develop rapid testing, novel vaccines and palliative and curative therapeutics. These private sector efforts are essential to the success of the broader effort.
- For companies that provide essential services such as drug stores, and food distributors and retailers, it is crucial now to take extra steps to ensure they continue to deliver important services to customers. An immediate creative example we have seen are supermarkets organizing safer early access for seniors to shop for necessary goods.
- In other cases, we urge companies to understand customer and supplier challenges and work collaboratively to get through this crisis. For some businesses this might involve offering forbearance so far as possible on contracts. Showing some lenience in contract terms is appropriate now to ensure business sustainability and ultimately an opportunity to build strong long-term customer relationships. Customer loyalty can be enhanced — or ruined — in times like these. For other businesses, we recognize this is not possible.
- Some companies are going above and beyond to respond directly to the threat of COVID-19, though some of these investments may not be immediately economic. Hygiene and sanitation companies are working overtime to provide necessary products even if it will create capacity they will not need in six or 12 months.
- We are sending the message to our companies that in a time of stress it is important to still take a long-term view. Shareholders, and we hope bondholders as well, will look beyond the current tumult and reward management teams that make the good decisions for all stakeholders.
ClearBridge remains convinced that, in these difficult times, advancing basic issues of sustainability — in particular, taking care of all stakeholders — will support the most positive long-term outcomes. As we manage through this crisis, we are keeping our focus on preserving and growing our client’s wealth by investing in high-quality companies and maintaining this long-term perspective.