From debt forgiveness to quantum

2021’s three unmissable trends

Empathy is the word that most marks 2020, a year in which companies worried about their employees’ mental health; the #MeToo movement forged ahead; #BlackLivesMatter took off, and Covid-19 lead to the rediscovery of community.

Empathy will continue to have an impact in 2021 by being present in two upcoming trends: debt forgiveness and supply chain responsibility. As for the third fundamental trend, quantum cybersecurity, its eruption onto the corporate scene as an applicable and commercial technology will ignite a bonfire of innovation.

Boards would do well to anticipate how these key factors will impact their companies in 2021 and ensuing years, even as the pandemic continues to upend business and politics.

TREND ONE: DEBT FORGIVENESS

Covid-19’s devastating economic effects will continue to disproportionally hit the less skilled. Many of them are BAME and the owners of small and medium sized businesses (SMEs), whose access to credit depends on government guarantees.

Debt for SMEs ties into discussions about inequality in society. These will ‘’continue to rise in volume and importance,” notes Alderman and Professor Michael Mainelli of the Zyen Group, who advocates a proper discussion by the financial services sector on the role of credit in the economy.

In the UK, for instance, the £43.5bn Bounce Back Loans Scheme consists of easily accessed, loans of up to £50,000 with no interest the first year and a constant 2.5% over the next decade, all available through banks but guaranteed by the government. They constitute most of the government’s business debt schemes.

Pumping funds out to help small businesses stay afloat was a forward-thinking policy akin to the furlough scheme to ensure businesses kept employees on the payroll. Other countries came up with similar programmes.

The alternative was, and is, massive unemployment – predominantly amongst those who lack savings in the hospitality and retail trade. The Bank of England (BoE) has admitted there is a chance the unemployment rate could rise to 10% mid-2021.

Most pandemic-associated loans are unrecoverable due to lack of ability to repay, or fraud. The government itself had already estimated losses of 25% to 75% when it launched the scheme in the spring of 2020.

Talk of a ‘bad bank’ to park loans, swapping the debt for equity or a tax obligation, restructuring or creating preference shares – some solutions put forward by TheCityUK’s admirable report on recapitalisation of business post the pandemic – should only be completed for large businesses.

None of the debt manipulation schemes make sense for SMEs, creating a layer of complication and obligation for (mainly) struggling and understaffed businesses. On a societal level, they would be perceived as clearly unfair and create social tensions. If the government does not act voluntarily to cancel the debts, there could well be a rising backlash through social media and public demonstrations.

(Fascinatingly, the Bible speaks of the forgiveness of all debts every 50 years, the jubilee year, note Alexander Adamou and Ole Peters in a Royal Statistical Society paper, resulting in a radical reduction in inequality).

Let the government and the banks admit the Emperor has no clothes and write off the debt for small businesses. The US financial sector didn’t pussy foot around after the financial crisis. As a result, it recovered faster than the European financial sector which kept unrecoverable loans on its balance sheet, a drag on new lending and growth. Although TheCityUK’s suggestions push much of the debt off-balance sheet, it would remain a burden on small business.

TREND TWO: SUPPLY CHAIN RESPONSIBILity

There is a slight whiff of manufacturing to the phrase ‘supply chain.’ But the network between professional and financial services companies and their suppliers of services is just as much a supply chain, and one that will gain added prominence this year and in years to come, mainly in two areas: people and planet.

How you treat those not directly employed by the firm is going to become as important as how you treat your own workers. The outsourcing model of the last few decades will be under threat, having delivered value to shareholders in parallel to subtracting rights from workers.

Worst-hit by the pandemic, the low-skilled are moving into the spotlight of social justice. Interestingly, hedge fund Chanos is shorting gig economy companies such as food delivery platform Grubhub, betting that there is going to be a greater political focus on low-wage, precarious workers.

In the UK, there is a designated NED on the board with responsibility for the workforce, a recent advance in corporate governance – and not enough directors are aware that the duties extend to the outsourced workers in the supply chain.

Meanwhile, a new taskforce led by the City of London Corporation aims to reduce the number of senior City roles held by people from privileged backgrounds. This was a Treasury and business department social mobility initiative. Governments are going to become more involved in the supply chain of people, just as much as they are in that of products.

On the planetary front, 2020 was the year where the Covid-19 pandemic brought home the cost of ignoring the environment. Shareholder activism is rising. Mining giant Rio Tinto changed course on its Australian imbroglio on the back of it. Prescient Unilever announced the decision to put its climate action plans to shareholders every few years. Before too long, institutional shareholders like BlackRock and Schroders will insist all companies do so.

TREND THREE: QUANTUM CYBERSECURITY

Cybersecurity is the central challenge of our digital age, tweeted Microsoft CEO Satya Nadella in 2019, a challenge amplified by the move to home working in the pandemic. The IMF calls it “the new threat to financial stability.”

Cyberattacks as a foreign policy tool are growing in importance and capability, highlighted by the recent Russian hack of the Orion software which is widely used by US government and companies like Microsoft. Without going into too much detail, the enemy is still within the computer systems of an unknown number of those attacked. Meanwhile, cybercrime is predicted to inflict damages of $6 trillion globally in 2021.

Kamala Harris was ahead of her time when in 2011 as Attorney General of California she began work on setting up the state’s Cyber Crime Center.

Years later as a US Senator, she served on both the Homeland Security and Intelligence Committees, giving her unparalleled access to threat intelligence (one of only two Senators) and put forward a bill to invest in quantum computing. In 2018 the National Quantum Initiative Act became law, providing $1.25bn in funding between 2019-23 for the industry.

Kamala Harris is set to be one of the most active vice-presidents in US history and she is committed to quantum.

Cybersecurity based on existing quantum computing to protect security systems, data, networks and communications will be 2021’s great technological innovation. Quantum is no longer a decade away, as has so often been the case, it is here now.*

CONCLUSION

Developing themes for the future in an unparalleled, disrupted world to help guide CEOs and Chairs is arduous work. For the record, Robinson Hambro crows with pleasurable self-satisfaction at having called the retreat of globalisation in a 2015 presentation to the International Advisory Board of a bank. In a pre-Trump, pre-Brexit world that was no mean feat. Nor was our 2017 forecast on the four tornados of change that would slam into Big Tech and social media.

We aren’t always right – calling the end for President Putin in 2014 when he can now stay in power legally until 2036 was a tad premature – but on debt forgiveness, supply chain responsibility and quantum cybersecurity, Robinson Hambro is confident these trends are here to stay.

 *I will dedicate a full column to quantum next month. Its importance to boards and companies cannot be overestimated.