Strategies for Uncertain Times: Management and Legal Perspectives for the Specialty Chemical Industry
As with virtually every sector, the COVID-19 pandemic heavily impacted the chemical industry—from corporate transactions to supply chains to privacy concerns related to employees working remotely. A team of Womble Bond Dickinson attorneys addressed these issues in-depth at a Dec. 8 Society of Chemical Manufacturers and Affiliates (SOCMA) webinar.
Attorneys Tara Cho (privacy/data security), Caitlin MacDowell (corporate/M&A), Peter Snaith (UK manufacturing) and Theresa Sprain (employment law) spoke in the hour-long presentation. SOCMA President & CEO Jennifer Abril moderated the discussion and Womble Bond Dickinson Baltimore Office Managing Partner Barry Herman provided introductory remarks.
Overall Health of the Chemicals Market
MacDowell and Snaith agreed that many chemical companies have weathered the pandemic storm well, particularly companies that manufacture in-demand chemical products (pharmaceuticals, hygiene, medical products, food products.)
“Bankruptcies have not been as intense as expected given the economy’s rapid decline. This is partially due to initial government stimulus measures and financing extensions,” Macdowell said. “It remains to be seen how things will play out in this area as Congress considers additional stimulus measures and the existing measures come to an end.”
Likewise, Snaith said government support has helped UK chemical businesses, including a recent extension of furlough benefits through March 2021.
“Many UK manufacturers have coped well. We expect to see more M&A in due course when the stronger companies acquire otherwise good businesses which simply don’t have access to enough working capital,” he said.
Finally, MacDowell and Snaith said the COVID-19 vaccine has generated optimism throughout the industry and may hold off an increase in bankruptcies.
Lasting Impacts of COVID-19 on the Workplace
While the vaccine has raised hopes of a return to normalcy in 2021, the pandemic accelerated workplace changes that may be permanent—particularly the work-from-home trend.
However, Cho said employers need to be aware of certain privacy and data security issues in the work-from-home environment. For example, employers may unknowingly violate employee privacy if they collect information from personal computers used in the home. Employers also must take care in how they collect and store employee health information, including temperature checks and COVID-19 screenings.
“There also has been a tremendous uptick in cyber-attacks and fraud since the start of the pandemic,” she said. “Almost everything has gone online, including businesses that never did so before and may not understand the risks involved.”
In addition to the privacy concerns, Sprain said there are a number of employment concerns directly related to the pandemic.
CDC guidance for employees exposed to the virus (either at work or at home) is evolving, and there may be further changes with a new administration, and may include more federal direction on approaches.
An immediate issue for employers is the question of requiring the COVID-19 vaccine. Sprain said factors to consider as employers evaluate such a requirement include the widespread availability of the vaccine to all employees, industry standards, and accommodations for individuals who cannot receive the vaccine due to medical or religious exemptions.
Sprain also said that as case numbers have spiked in recent weeks, many employers have once again scaled back on employee travel.
Mergers & Acquisitions in the Pandemic Era
The bad news is that at the start of the pandemic, deal volume decreased slightly compared to 2019 and the average size of deals decreased significantly compared to the previous year. But the good news is that the deal market is recovering quickly.
“In particular, chemical companies may use cross-border deals as a way to realign their footprint and supply chain in each of the major countries in which they operate and may look to take advantage of distressed opportunities created by the COVID-19 pandemic,” MacDowell said.
But one thing moving forward is that COVID-19 response has become a major component of the due diligence process. Company leaders are carefully reviewing compliance with CDC and other COVID-related guidance, disaster planning, and Company’s ability to pivot in light of COVID-19, including ability and success of remote work plans, customer and supply chain health and stimulus measures when considering corporate transactions.
Supply Chains & Contracts
The pandemic certainly has stressed supply chains at times—as anyone who has encountered empty shelves at the grocery store can attest. MacDowell said companies should assess their supply chain risks to determine potential weaknesses, and fortify contracts to help mitigate that risk.
“Manufacturers are focusing on increased transparency in the supply chain through increased reporting obligations from critical suppliers,” she said.
It remains to be seen if suppliers can leverage force majeure clauses in light of COVID-19 disruptions. MacDowell said the best approach is to move away from spot contracts toward longer-term, more trusted supplier agreements.
Also, click here to listen to an episode of Womble Bond Dickinson’s In-House Roundhouse podcast focusing on “The Specialty Chemicals Industry's Role In Sustainability”.