Boards and COVID-19: Navigating Unchartered Waters

"You cannot control the wind, but you can adjust your sails."

When reflected upon at some time in the future, the pandemic of 2020 will surely be seen as changing the world. This is not a casual statement and may in fact be an understatement. Nevertheless, we continue to forge ahead during this time of unprecedented challenge. Currently, the future and new normal may be uncertain, but what we do know is that life continues and businesses accordingly so.

For companies and beyond the CEO, the board of directors has an essential role to play in the navigation of COVID-19 and its aftermath. The performance of the board can have a huge impact and pave the way for the future of the organization. To do so successfully and add value, boards should focus and attend to the following:

1-Live in the Immediate but Continue Planning

During crises, it is important to act, be decisive, stay strong and hopefully follow a well-crafted plan.

In 2019, Deloitte reported on a study that found that nearly 60% of more than 500 crisis management experts believe that organizations face more crises today than they did 10 years ago (1). As such, it is critically important to have a crisis plan that will provide a structured and immediate response for unknown plights and predicaments facing your organization.

Concurrent to this, it is also essential to continue focusing on strategy and the future of the organization. While navigating through the impact of COVID-19, boards must maintain their long-term perspective and resolve how strategy is impacted and what needs to be altered as a result. Companies must be prepared for the future and boards must make sure of this.

2-Support the CEO

Many a CEO has said that it is lonely at the top. Fundamentally, and particularly during this time of unprecedented challenge, it is incumbent on the board to support the CEO. This means being a role model for leading during crisis as well as being thoughtful, available, and decisive. What this does not mean is unequivocal support. Board directors must be generous with their time and wisdom while at the same time assessing the CEO’s performance with objective and discerning standards.

As they are supporting the CEO and assessing his or her performance the board should be prepared for CEO succession as well. This can be because of inadequacy or even exposure to the virus unfortunately. Regardless of the cause, the board must be familiar with bench strength and able to reconstitute as necessary.

3-Finances

The financial impact of COVID-19 is varied and company dependent. However, boards should concern themselves with cash flow resiliency. They should ensure that management is pulling on every lever possible to maximize cash flow. Boards must also be aware of how management is revisiting business forecasts and whether company prospects need to be permanently changed and the consequent impact on valuation.

4-Focus on Messaging and Communication

When there are business disruptions and other calamities, people can be prone to misinformation, rumor, and hearsay. We tend to add details when they are lacking and misperceive when under stress. As such boards must be extremely mindful of three types of communication:

(1) Between the board and management. There is always a dilution of information that reaches the board as a result its very structure. During the COVID-19 pandemic the channels of communication but be open and flowing both ways. Boards must be kept abreast of new challenges and problems and management must avail themselves of the board’s expertise and experience.

(2) Between board and shareholders. While shareholder communication is not directly under the purview of the board, during this crisis they should make certain that shareholders are in fact communicated with, clearly and regularly.

(3) Between management and employees. The board may be called upon to weigh in on employee communication during this challenging time. Employee well-being is of critical importance and mismanagement of this can have far-reaching consequences. McKinsey reported on a recent survey of long-term investors:

“Look after employees first, followed by customers and suppliers. It will pay off in the long run, as each group will certainly remember how you treated them during this difficult time. The profits and dividends will come later if you make the right decisions and moves now.” (2)

5-Anticipate an Activist

Activist Investors look for undervalued companies. COVID-19 has created many such opportunities. Although there are a variety of strategies employed by activists to create transformation, leadership and board change is a commonplace lever. In fact, CNBC recently reported that in the second quarter of this year 50% of all campaigns by shareholder activists have involved attacks against boards or management teams, compared to a consistent 33% in the first quarter of 2020 and the whole of 2019.(3) As such, it is incumbent on boards to maintain their activist scenario planning.

Undoubtedly some of the aforementioned are simply basic elements of good governance irrespective of the environment. However, during this pandemic, plans and people are tested and companies that come out of COVID-19 with a renewed and improved focus will be rewarded by the marketplace. Engaged, high performing boards should not be a reaction to a crisis but rather standard operating procedure.

1 https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/risk/deloitte-uk-risk-global-on-the-boards-agenda-crisis-management.pdf

2  https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/navigating-covid-19-advice-from-long-term-investors

3 https://www.cnbc.com/2020/06/09/in-the-age-of-coronavirus-activist-shareholders-are-going-after-company-bosses.html