COVID erodes trust in business relationships, an essential ingredient to success – Crain’s Chicago Business

Long-term effects of COVID-19 on society and the economy are only starting to take shape, leaving many questions about the future. Among those questions is how the pandemic will affect trust, the essential lubricant of business.

Business is built on relationships, and relationships are built on trust. Relationships between buyers and sellers, borrowers and lenders, employers and employees, are all based on the mutual belief that the other party can be relied upon to meet a certain set of expectations. Trust weakens when those expectations aren’t met, and shatters when either party feels betrayed or taken advantage of.

We’ve seen a lot of that in recent months, as COVID-19 tests longstanding business ties. Very few of these relationships contemplated the possibility, let alone the business impact, of a worldwide contagion that sickened millions and induced an economic coma. Now that impact is turning routine transactions into focal points of bitter fights over who should bear the brunt of unprecedented health risks and financial damage.

Across the economy, disputes are spilling over into courtrooms, picket lines and social media. These controversies show how COVID-19 has upended established norms and practices that kept commerce functioning smoothly for decades.

It’s hard to find an industry unaffected by hostilities. From high-end commercial real estate to warehousing, hospitals and fast food, longtime partners are at odds.

As my colleague Danny Ecker reported last week, white-shoe law firm Jenner & Block is fighting landlord Heitman over rental payments at Jenner’s glitzy downtown offices. Heitman sued Jenner alleging nonpayment of nearly $4 million in rent. The firm shot back with a counterclaim, arguing a lease provision exempts it from paying rent on space it isn’t able to use because of the pandemic. Upping the ante, Jenner alleges Heitman owes it more than $840,000 for overpayment of rent.

Time was, relations between big law firms and their landlords rarely made news. Expect more embarrassingly public disputes as COVID-19 vaporizes old assumptions.

Commercial insurance is another staid industry suddenly convulsing with conflict. Coverage disputes are common enough but rarely reach the scale that we’re seeing. A big battle has broken out between insurers and their clients over business-interruption insurance. Companies forced to close down by state orders barring nonessential business activity want to collect under business-interruption policies. Insurers argue the policies don’t cover closures caused by a pandemic. Litigants in various court cases include Chicago-based insurer CNA and famed local hangout Billy Goat. Insurers face billions in potential payouts, while for many small companies, survival may depend on getting the insurance payout.

In fast food, relations between franchisors and franchisees face new strain. McDonald’s restaurant owners, for example, complain the company hasn’t done enough to help them absorb the financial blow from state orders that closed their dining rooms.

The coronavirus also pits employers against employees over workplace safety concerns. Workers in some Chicago-area McDonald’s sued the company, alleging it failed to adequately protect them from infection. Amazon warehouse workers have filed lawsuits making similar claims.

Hospitals have seen walkouts by workers demanding better protections. Some 700 unionized nurses went on strike Saturday at Amita Health St. Joseph Medical Center in Joliet, seeking, among other things, higher staffing levels and preservation of an illness bank of time off.

Some of these disputes exacerbate long-standing tensions, while others open fresh wounds in relationships. Each will leave scars and trigger long-term repercussions.

On the labor front, employees are losing trust in employers’ basic commitment to their safety. That’s strengthening the hand of unions, particularly in health care.

A broader risk is that declining trust could undermine efficiency and innovation as business relationships grow more adversarial. Parties may approach each other warily, taking extra precautions and demanding more preconditions before committing to a transaction. Collaboration–a critical element of innovation–will decline if companies become less willing to share information.

These effects would be so much sand in the gears of a world economy struggling up a steep path to recovery. With less trust, the world will do less business.

Rebuilding trust should be a top priority for any business hoping to emerge from the pandemic as strong or stronger than it was before COVID-19. But it will take more than platitudes about commitment to customers and employees. Actions win more trust than words. Seemingly small steps taken today can preserve important relationships for the long term; steps like waiving a rental payment, springing for more protective gear, resisting the temptation to jack up prices on hard-to-get items. Companies that forgo some profit today will build a valuable reservoir of trust for the future.

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