The COVID-19 pandemic for the first time made workplace flexibility a key determinant of companies’ ability to respond to a crisis, on a par with financial and investment flexibility.
That’s the takeaway from research by Duke PhD student John W. Barry, Cornell’s Murillo Campello, Duke’s John R. Graham, and Chicago Booth’s Yueran Ma. While businesses with financial flexibility were best equipped to weather the 2008–09 financial crisis, the researchers find that in the pandemic, companies whose employees could work remotely are coming through with the best prospects.
“High workplace-flexibility firms foresee continuation of remote work, stronger employment recovery, and shifting away from traditional capital investment, whereas low workplace-flexibility firms will rely more on automation to replace labor,” they write. “The COVID-19 shock appears to accelerate automation adoption” particularly in sectors with low workplace flexibility, raising “the prospect of a ‘robot-led recovery’ in these industries.”
The researchers surveyed 520 CFOs representing a cross section of American businesses from February through April 2020, asking their outlook about revenue, employment, and capital spending. They conducted follow-up soundings in June, September, and December. The study defines financial flexibility as a company’s access to internal funds and external financing, investment flexibility as the power to adjust the timing of capital expenditures, and workplace flexibility as the ability for employees to work remotely.
As in 2008, when CFOs were surveyed by Campello, Graham, and Duke’s Campbell R. Harvey, CFOs with more financial flexibility said they expected higher employment and capital expenditure growth in 2020. But they also reported that workplace flexibility has a new importance. In the 2008–09 financial crisis, workplace flexibility didn’t play a role in a company’s outlook, while this time, executives at businesses with greater workplace flexibility projected significantly higher employment growth than those with less. Companies in the top quartile of workplace flexibility predicted 3–4 percentage points more employment growth than companies in the bottom quartile.
Companies with low workplace flexibility expected less rosy conditions and planned to delay capital expenditures if they had the investment flexibility to do so.