The first in a two-part series, we sit down with Natasha Lebel, former DesignTO Board Chair and co-founder of Lebel & Bouliane, to chat about the measures the Canadian government has been taking in response to the pandemic, and what it means for individuals and business owners.
The pandemic caused by COVID-19 has forced the Canadian government to enact physical distancing protocols to protect public health. However, this will also cause one of the most significant disruptions to the economy since the 2008 recession. The Prime Minister has announced an economic response plan, including several financial measures to protect the economy and Canadians. Can you frame for us why he has made these decisions, and how they affect individuals and small businesses?
We live (thankfully) in a time of shared global knowledge, which allows us to tackle this health problem from multiple viewpoints and understand its cascading effects on the economy. This is a relatively new ability: it’s born from big data, it’s born from a culture of information sharing, and it’s born from new interdisciplinary thinking.
Through its response plan, the Canadian government is crafting an economic “ventilator” for industries or businesses forced into stasis for the greater good. These businesses are an integral part of our economic ecology, and the permanent disappearance of these businesses, or permanent structural changes to our affected industries, would damage this ecology and the Canadian economy.
In our society, our economy (and its associated policies and underlying cultural values) is the basis of our welfare and the measure of our success on a global scale. This is why certain political measures, such as closing the border, were taken with reticence and great diplomatic care, as we see trade as the most important strand of Canada’s economic DNA.
For employees, the response is fairly straightforward. By offering blanket EI, the Canadian government hopes that citizens can stay home, afford necessities and return to their employment when social restrictions allow.
For small businesses, such as independent restaurants, service providers, proprietorships, etc., the measures are similar. Business owners and contractors, who would not typically qualify for EI now have access to a stipend that would see them through the physical isolation without digging (too deep) into their nest egg (if they have one), or without toppling the current socio-economic structure of paying rent, buying groceries, and meeting basic financial obligations. The government has made loans available to small- and medium-sized businesses to provide bridge financing to service their existing debts or make good on expenses. After all, making good on debt is keeping trust. Trust is the basic value of successful economics.
The issue of rent is an important one: mortgage deferral was the first measure put in place. The basis of our successful and expansionist economy uses debt (especially mortgage debt) to create wealth, which is reinvested into new projects, which in turn create jobs. In many instances, this new debt is made viable only by the security of its rents.
The lessons learned from the mortgage collapse in the US in 2007 should be fairly clear: while renters need to be protected through this crisis, the long term effects of mass foreclosures would be crippling to the economy
The lessons learned from the mortgage collapse in the US in 2007 should be fairly clear: while renters need to be protected through this crisis, the long term effects of mass foreclosures would be crippling to the economy, it would devalue real estate and stop development. This an important notion to understand as designers: devaluation of an asset is value destruction with long-term, cascading, economic impact.
Detroit is an extreme example with its mass housing foreclosures and abandonment due to mortgage defaults. This is what the Canadian government seeks to avoid with these short-term measures. Outside of considering their own financial situation, individuals should consider this economic context when deciding whether or not they will pay their rent, contribute to their rent, or not pay.
In the case of programmes available to medium-sized businesses, all the measures offered by the government (described above and below) will be considered by managers and owners. However, for non-consumer-facing businesses, it is their B2B (business-to-business) relationships that will determine whether they can continue to maintain their cashflow or need to make major cuts to their expenditures. These will include a variety of strategic and industry-appropriate measures. It’s important to note that companies will do better in the long-term by furloughing employees rather than laying them off completely. Lay-offs cause long-term value destruction (e.g. loss of organizational knowledge) for businesses.
In the case of large businesses and major sectors—e.g. energy, banks, manufacturing, agriculture, etc.—these are greater issues that need to be addressed on a sector-by-sector basis. The Canadian government has substantially lowered interest rates, and is investing heavily in corporate and municipal bonds, as well as treasury bonds and mortgage-backed securities, in an effort to stabilize the foundation of Canada’s currency and economy, which in turn creates greater security in the economy at a macro scale.
Here is the long and short of it:
- COVID-19 is the cause of an unprecedented recession;
- the length of the recession will be determined by the duration of the pandemic and the permanent structural damage inflicted to labour forces and economic sectors, and;
- Canadian citizens will determine (by their conformance to isolation policies) how long the pandemic will last in Canada; however, through economic and social policies, the Canadian government is stepping up to its key societal role: to protect the economy and Canadian social values. It is in this light that the Canadian government is taking on great national debt on behalf of and with the approval of its citizens. Clearly, we all have responsibilities in dealing with this crisis.
Based on the Prime Minister’s rationale for creating the measures mentioned above, why would a business decide to lay off or furlough its employees?
This is a complex question, but the high-level thinking of any business leader should be: what do I need to do to protect my business? For instance, an architectural office of 15 people can have an overhead of up to $100,000/month. Let’s say they typically make $125,000/month of net revenue. If revenues are down 50%, and you have working capital (available cash in the business) of $150,000, how long can this business survive without layoffs? Does it make sense to pay $100,000 of salaries per month and deplete your working capital? Should the business exhaust its cash or lay-off?
Any business that exhausts its cash to keep employees who are not contributing to bottom-line revenue will not survive a recession. Best to be on EI (or CERB) and return to employment when restrictions are lifted, than to destroy the business by depleting its working capital. This is why savvy employers often lay off immediately after an event, even if there continues to be some revenue. In the case of certain disruption, this is the safest approach for both employers and employees.
What are your thoughts on the federal wage subsidy programs?
The federal wage subsidies are an extraordinary effort by the government to maintain the structural integrity of Canadian businesses. The 10% wage subsidy is compensation for those businesses who will see softer revenue numbers; however, the 75% subsidy can be seen as a true government partnership with harder hit businesses who would face few other options than to lay off employees in the face of major cuts to their revenue.
One can only imagine the staggering number of businesses that might not resume their activities should they have lost key staff or entire pools of staff during this pandemic. For an organization to be sustainable, it cannot operate in a negative cash situation. The wage subsidies (TWS and CEWS)—along with the interest-free small business emergency loan (CEBA)—are intended to bridge these businesses through the toughest period of our social isolation, and keep businesses in the black.
I believe that the current climate in the US will encourage greater economic sovereignty in Canada.
Taking in all the information above, it is possible to imagine that at this time in history, in the face of COVID, we are one of the best prepared and best protected economies in the world. We can only hope that our social and our economic measures will dovetail effectively for a timely return to our economic activities.
It can be challenging to have a positive attitude right now, but from a business perspective, what positives can come from a recession?
From a larger economic perspective, I believe that the current climate in the US will encourage greater economic sovereignty in Canada. This is a political mindset that took root during and after the 9/11 attacks in the US; our economic policies proved prudent in 2007 when US mortgage-backed securities collapsed; and our social policies are now a source of great comfort and relative success as our independent response to COVID-19, coupled with universal health care, has produced significantly different outcomes in Canada than in the US.
From a business perspective, great businesses are businesses that can weather a recession, and vice versa. There is a plethora of literature available from a variety of economists, social theorists and business leaders on the subject. You will have time to read, so please do.
On a personal note, Gen Xers have a first hand and very painful memory of the late 80s and early 90s recession that permanently altered the course of our careers. Gen Xers were made more resilient by this experience, as it will be for this generation of young designers. There was a very dark side to this experience, but the bright side—for myself and many others—was a sense of self that was not derived from status or income.
Practice your hive thinking. There are two generations that think intrinsically as a hive, one that does not, and one in between. Hive thinking will be the key to leveraging our interdependence and nurturing our economy: not hoarding subsidies, not hoarding work, not hoarding cash, but rather creating work for others, sharing information and collaborating meaningfully.
The cost of this learning is very high and paid for in lives; we should make the most of it.
We should also reflect on how this will change our society. Some of us will be made more resilient in the face of adversity, some will have become better problem-solvers, some will have developed greater empathy and love for others, and some will have redefined their values. Undoubtedly, many leaders will rise to the occasion. This will leave an indelible mark on history and hopefully change it for the better.
The cost of this learning is very high and paid for in lives; we should make the most of it.
About Natasha Lebel
Natasha is a graduate of the University of Waterloo’s School of Architecture, and holds a joint Executive MBA from Northwestern University’s Kellogg School of Management and York University’s Schulich School of Business.
During her 20+ years with a design practice, Natasha was deeply involved in the health and beauty industry—owning her first brand in 2001 and launching her first research and development firm in 2005. She became one of North America’s first executives in the health and beauty consumer packaged goods industry to hold a strategic innovation role as VP Innovation and Marketing at KDC-One, where she led multiple international joint ventures, and helped build several leading North American beauty brands for such companies as Procter & Gamble, Johnson & Johnson and Bath & Body Works. She retired from this post in 2013, and continues to be involved in the development of consumer products, both as a brand owner and consultant.
In 2010, Natasha co-founded Lebel & Bouliane with Luc Bouliane, after 10 years of collaboration with Luc on a multitude of design projects. She brings a tremendous amount of experience in the disciplines of strategic creativity, business design, social design and change management. Her work involves a blend of strategic planning and business (re)design, followed by mapping and execution. Her work has focused on businesses and institutions with a vision for excellence and thought-leadership.
Natasha is deeply involved in Toronto’s design community. She is the former Chair of DesignTO’s Board of Directors, and has lectured for over 15 years at the University of Waterloo, University of Toronto and OCAD U. An accomplished designer, Natasha is involved in establishing the design strategy and language of every project at Lebel & Bouliane.