Ten Actions for Boards in Overseeing the COVID-19 Response
As the scope of the effects of the Novel Coronavirus (COVID-19) comes into focus, corporate boards have a vital role in overseeing the response of their companies to this public health crisis and its wide-ranging economic effects. Below is a list of ten actions boards should take to successfully guide their companies’ COVID-19 response.
- Define the board’s role in crisis response.
With a preliminary understanding of the scope of the current public health crisis and its effects on the economy and the company, develop an understanding between the board and management of their respective roles in responding to the crisis. Plan for increased board and management interaction. Update the roles of the board (including its committees) and management as the situation evolves. Boards should be working with management and being a part of the response, not the crisis.
- Set a tone regarding health, safety and integrity.
In conjunction with management, set a tone through communications and policies designed to protect the well-being of employees and other stakeholders. Monitor management’s efforts to protect the personal health and safety of the company’s employees and other stakeholders–and the company’s reputation. Emphasize the importance of integrity and ethics in the response, placing health first, and communicate honestly internally and externally to protect business relationships. Oversee management’s goal-setting to avoid pressure to cut corners to meet unreasonable expectations.
- Double down on oversight and risk management.
Determine the primary financial, operational and strategic impacts of the public health crisis. With management, assess potential impacts to the company’s supply chain and its operations. Pressure test management’s assumptions about the potential financial, strategic and operational risks. Maintain a focus on oversight of compliance and regulatory risks where applicable. What new risks are created by the response, such as an increased cybersecurity risk from moving rapidly to additional remote operation?
- Weigh the short- and long-term effects of crisis response.
In reviewing management’s crisis response plan, evaluate the balance between short-term and long-term response planning. For example, how has management weighed the long-term cost of layoffs and other changes to the workforce versus the short-term benefits of cost reduction? Which metrics should be used to determine the balance between short- and long-term planning?
- Evaluate management’s internal communications strategy.
Has management provided sufficient information to employees so that employees reasonably understand the effects of the crisis on the business and the company’s response? Employees will have greater fear and anxiety about the outbreak if they feel they are left uninformed. Ensure that systems are in place to communicate with all groups of employees, given different levels of access to business communications when away from company facilities.
- Review the approach to external communications.
Tailor existing crisis communication plans to COVID-19. Assist management in striking a balance between transparency and speculation regarding risk exposure and potential effects. At what level of certainty should risks be communicated? Assist management in communicating with key shareholders and responding to activists.
- Oversee public reporting and compliance.
Boards of publicly traded companies should be involved disclosures regarding COVID-19 matters. Consider whether previously issued earnings guidance should be withdrawn or reduced. Should risk factors be updated to address operations and supply chain disruptions, credit and liquidity risks, and general risks regarding macroeconomic uncertainty? Verify that MD&A disclosures are properly tailored to the impact of COVID-19 on the company’s business. Analyze with management whether the systems currently will allow for timely completion of reporting obligations or whether the company will rely on conditional filing relief. With the heightened importance of compliance with Regulation FD and insider trading restrictions in this rapidly-changing environment, ensure that management is properly managing the trading window and disclosure of communications with stakeholders.
- Be alert to opportunities.
Consider with management where opportunities exist or are likely to emerge from the current situation. Are there business relationships that can be created or strengthened? Can the company learn from the reaction of its competitors and business partners to the crisis? Can the company capitalize on reduced valuations for M&A targets?
- Plan to address executive compensation.
Compensation committees should plan to meet with management to discuss executive compensation. Given the company’s public profile, its industry and the effect on rank and file employees, should changes be made to executive compensation to demonstrate that management is sharing the burden? Consider updating peer benchmarks in the changed environment. Can setting performance metrics be delayed or, if already set, should they be re-evaluated?
- Prepare for what comes next.
When the acute stage of the crisis has passed, evaluate the response by the board, management and the company generally. Which personnel emerged in the response and can be identified for advancement? Review with management which effects of COVID-19 on the business, the supply chain and the customer base are expected to continue. Are there changes to the business that should be maintained following conclusion of the crisis?