COVID-19 is testing every part of a corporation and its business continuity planning. And the very top of the organization — namely, the board of directors — is no exception.
What are the board’s responsibilities during this crisis? It’s a question that directors should understand clearly and quickly — because after the pandemic ends, investors sifting through the significant financial losses will start asking the inevitable question: “Where was the board?”
In these unprecedented times, many of us have been seeking and reading advice from experts to ensure we are considering new potential risk areas that we need to be managing in our organizations. I went looking for guidance for board members and found very little. What I did find was surprising as it said something like this. “Leave management alone. They are busy trying to manage through this. Remember your role is oversight, not management.” While I understand the role of oversight versus management, I don’t believe that stepping back until this is over will be acceptable when the “Monday morning quarterbacking” begins.
After the pandemic ends, investors sifting through the significant financial losses will start asking the inevitable question: “Where was the board?”
Let’s first remember that the board represents shareholder interests. Its principal responsibility is to assure management is executing a smart, viable strategy for the business; and that shareholders are kept informed of material risks and events affecting the business. Oversight of risk management and business continuity is a key role of every board. When we apply this understanding to COVID-19 and the specific challenges it is posing to corporations, a host of policy, operational and ethical questions emerge.
First: Questions About People
COVID-19 threatens a company by threatening its people. So first, boards need to understand how the company is monitoring, and addressing, those risks to its people. For example…
What will the board do if the CEO or other key executives get sick? This isn’t a hypothetical scenario. One Wall Street bank didn’t disclose that its CEO had COVID-19 until the executive had already recovered. The CFO of another Wall Street firm died of the virus.
Boards need to understand and prepare for executive succession plans when something as serious and far-reaching as the COVID-19 crisis happens and determine what the company will or won’t disclose to the public about key executives’ health.
How will the board itself perform its duties? Boards need their own plans for convening remotely (such as by videoconference) and to do so in a secure fashion. They also need succession plans in case a committee chair can’t fulfill the duties, or a committee can’t meet its quorum requirements. The board should even have emergency recruitment procedures in case it needs to find new board members quickly.
How is the company supporting the health of the workforce? Every organization will need policies and procedures to assure the health of its workforce as much as possible. That could encompass anything from work-from-home orders, to temperature checks, to sick leave policies for ill employees (or their family members) and contractors.
Whatever the decisions, the board needs to ensure that the policies are adequate for the risks the company faces, and that the procedures to implement those policies actually work and are applied consistently. We’ve already seen food processors close plants because of outbreaks, as well as worker protests over unsafe conditions. This is uncharted territory for most businesses. Board oversight is crucial.
How will the company determine and manage difficult people decisions during the recession? It has been made clear in many forums that the way organizations manage the impact of this pandemic on employees will be noted for a long time. And labor and employment laws are still in force so these decisions must consider all factors including reputational ones.
Second: Questions About Business Continuity
Boards will need to oversee the organization’s plans for long-term survival. Given all the economic uncertainty that COVID-19 poses, that won’t be easy. Along these lines, boards will need to consider questions such as:
How is COVID-19 affecting the company’s customers and suppliers? Your own business might be adept at working from home or implementing health precautions, but that won’t mean much if your suppliers or customers aren’t.
Boards will need to consider various scenarios about how COVID-19 affects the company’s whole business ecosystem — from supplier to end-customer. They’ll need to understand how changes in that ecosystem could affect the company’s own financial position, and what management will do in response.
What is the plan to return to “normal” operations? As COVID-19 eventually recedes, companies will need a plan first to revive normal operations, and ultimately to restore any lost market position. The board should assure that those plans are reasonable and attainable, given any changes forced upon their industry (see previous question about customers and suppliers, above).
What opportunities might arise from COVID-19, and how could the company seize them? It’s also possible to find growth or new markets, even amid today’s turmoil. Competitors might be weak and ripe for acquisition; demand for online transactions might open the door to new customer segments or new products. Directors should be open to those opportunities, and expect management to consider such opportunities, too.
How can the directors themselves be of help? We are seeing so many companies stepping up and changing their entire business to support front line workers and medical research. Directors might be able to assist the business with short-term needs such as helping to source critical supplies. These times are when directors’ connections could be invaluable to the company, and directors shouldn’t be afraid or unwilling to step up with tactical assistance.
Finally, Other "Practical" Issues
Now more than ever, the board can’t forget its duty to oversee prevention of employee misconduct. Insider trading, cooking the books, and other securities fraud will happen during the COVID-19 crisis and in fact these risks are higher now. For some executive teams or employees fearing economic ruin, the possibility of malfeasance increases significantly. Right now, boards must be more diligent than ever when it comes to workplace culture and employee behavior by asking questions such as:
- What are our current misconduct risks?
- Are we pressuring employees to meet totally unrealistic targets?
- How are we watching for misconduct and intervening early enough to stop or prevent it?
- Are there gaps in our business continuity or crisis management plans? How can this be rectified after this crisis is over?
- What else is happening that we haven’t considered?
Those questions should lead to discussions with management about business continuity preparedness, risk assessments, anti-corruption policies and procedures, and information coming in through the internal reporting system. As long as the COVID-19 crisis lasts and beyond, these conversations will be more important than ever.