What should boards do in such a time of crisis? Photo / 123RF
What should boards do in such a time of crisis? Photo / 123RF
Some say that corporate boards have value only when companies are in crisis. If that's true, the pandemic presents a moment for corporate boards to step up like no other.
Management teams and their boards are juggling an array of concerns right now, from the health of their workforces tovolatile equity markets to shuttered debt markets. Furthermore, many economists and policymakers now portend a deep global recession. So, what should boards do in such a time of crisis?
Based on my decadelong experience on the boards of global corporations, I've compiled 10 questions to help guide boards at this time. Half of them pertain to operations — basically, keeping the company's lights on — and half relate to the company's financial state.
How can you ensure the health and safety of your workforce?
The board's most pressing concern amid the Covid-19 crisis should be the workforce's health and safety. Make sure employees have access to reliable information about the virus. Through detailed metrics and analysis, most boards have regular oversight of company safety considerations, including worker injuries or fatalities. This information should give board members real-time visibility on the pandemic's impact on full-time and subcontracted employees' health and safety. If the company offers health insurance, boards can consider whether modifications or adjustments should be made so employees can care for themselves and their families.
The board should have already determined who would step in as an interim CEO in the event of an emergency. Because the current crisis poses the risk that not the only the CEO but also the nominated replacement and other senior members of the executive team could fall ill and be unavailable to fulfill their duties for several weeks, boards may want to nominate additional possible caretaker CEOs.
What is the company's ability to cover near-term expenses?
Every company has to examine its liquidity position. For companies facing a liquidity crunch, the goal is to access capital in a cost-effective way, such as revolving credit, newly negotiated loans or accessing publicly traded debt markets. These companies also have to confront a jump in the cost of borrowing and the threat of credit-rating downgrades. For companies with stronger balance sheets, management and the board must consider whether to take advantage of the historically low interest environment by borrowing cheaply, tapping credit lines or leveraging the balance sheet to longer maturities.
What trade-offs do you have to make regarding payroll?
Will it be necessary to lay off or furlough staff as customer demand and the company's top-line revenue fall precipitously? How do those decisions affect your people as well as the company's long-term plans? Are there other strategies to consider before turning to layoffs? Companies across the US are already making these hard calls, as evidenced by US jobless claims having reached a record 22 million by mid-April.
Do you need to adjust your supply chains?
Global supply chains have been materially disrupted by aggressive policy responses to Covid-19. While the true impact of these disruptions will become clear only as companies report their earnings over time, the fact that both critical equipment and items of convenience are imported from China and Europe — from which trade is curtailed — suggests we could see shortages. According to one survey, nearly 75% of US businesses have experienced supply-chain disruption. This will force corporations to contrast the cost and efficiency benefits offered by globalised supply chains against more robust — but likely more expensive — domestic supply chains. The board must also weigh the risk that the domestic supply chain (often supported by smaller companies) is itself hampered by workers becoming sick or needing to self-isolate.
Are you prepared to work remotely for an extended period?
Government orders for people to stay home have accelerated the board-level discussion regarding remote workforces and generated urgent questions, including: What are our policies for how to manage a remote team? How should we think about workforce productivity? How can we best mitigate cyber-risk and data-privacy breaches? How will we accommodate people balancing child care or elder care responsibilities while they work? And how do we oversee health concerns, including the mental well-being of all employees?
How do you maintain your company culture?
Boards must be alert to the need to keep the company culture strong amid heightened uncertainty. A strong culture, backed by empathetic leadership, is part of what's necessary to ensure that the company remains on solid ground. By actively managing the behaviours that are part of your company culture, you can help employees feel more committed.
How are you interacting with the financial markets?
Some boards have already approved cuts in dividends, share buybacks and capital expenditures, and undoubtedly other companies will follow suit. Wall Street analysts and investors have adjusted many corporate-earnings forecasts downward. Boards know that providing clarity to the market — and broader stakeholders — on a company's next steps gives their company an advantage over ones that are slow to articulate a response.
How strong is your underlying business model?
Board members must assess the company's long-term prospects and its ability to pay its debts and have cash to pay for future needs. Financial capital market disruptions and the collapse in stock market values mean boards must also be attuned to buyout opportunities — as a basis for consolidation, market-share gain or driving the company strategy over the long term. But stock market gyrations should also remind boards and companies to beware activist investors (who may look to make a quick return) and the broader risk that the company they oversee could itself be bought.
The human toll of Covid-19 has forced companies to redeploy factors of production and valuable company assets, often at cost or even free. For example, in the US, UK and Germany, some hotels have been repurposed as makeshift hospitals. Amid these pressures, boards, together with senior leadership, must think both long term and short term. Most of all, boards should help form a realistic view on whether a downdraft in the company share price — and indeed the economy in its entirety — is a temporary blip or reflects a permanent trend or industry change. This will help determine immediate action as well as a vision for what to do when shutdown orders are rescinded and it's time for a company to restart under more normal circumstances.
By most indications, the next several quarters, if not years, will be tough for boards, senior leaders and the companies they run. For now, these questions can serve as a guide as they navigate the current circumstances.
