There are several conversations going on around the world about the possible challenges that Board members would face as a result of nCovid-19. I think it is time for me to join this conversation as a board member.
It is already clear that the COVID-19 pandemic will have grim economic consequences, and collective thought is being applied to what policies can better ensure societies’ resilience and their quick and dynamic recovery once the crisis is over.
Many companies must certainly have to address many challenges: keeping their workforce and customers safe, ensuring business continuity, follow-up on contractual obligations and possibly coping with cash-flow and liquidity glitches, inter alia.
Navigating the COVID-19 crisis by Board members requires careful consideration of extensive issues. A good response is likely to be rooted in a deep understanding of the role of the board— knowing when to step in and when not to, and how and when to engage in external activities—such as communicating with stakeholders, regulators,etc.
The board acts as the ultimate stewardship body of the company, both guiding and supporting management in decisions around the fight for survival but also ensuring the company positions itself to emerge from the crisis stronger and more resilient. What is essential is board discipline, a cool head, detachment and good judgment under the guidance and leadership of the Chair.
Corporate boards have to exercise responsible oversight by understanding the risks facing the company and the impact of the pandemic on a day-to-day basis and strategic decision-making. Company boards and management have to identify and manage these rapidly mutable risks–travel restrictions, social distancing quarantines, and other measures will often hinder a physical meeting of the board or shareholders. Not to speak of the fact that some directors or shareholders might become infected by the COVID-19.
Be that as it may, Board members have a responsibility to oversee the business and affairs of the organization, which requires that directors make a good faith effort to put in place a reasonable board-level system of monitoring and reporting.
With respect to oversight responsibilities and as a matter of good corporate governance, some specific active steps for boards to consider in response to COVID-19 should include the following:
• Augmenting the company’s existing reporting and information systems that are used by the board to provide oversight. Such a system would help ensure that the board is able to receive relevant information in a timely manner to monitor COVID-19 issues and their potential risks to and effects on the company. Once a system is implemented, a board should be active in its monitoring of significant issues so that it stays informed of material business risks and red flags ;
• Establishing a committee. A possible tool available to a board to address its monitoring and oversight responsibilities is to form a committee that could be tasked with evaluating and, if necessary, adopting any available preventative and ameliorative measures on the company’s operations and affairs. Timely and sufficiently detailed minutes and resolutions should document the proceedings of the committee and provide evidence of the activities conducted, matters considered and decisions made by the committee;
• Enhancing communications with top management. The board should consider amplified and sustained open dialogue with top management on both the business risks and the workplace health and safety issues posed by the pandemic. Boards and management should review both legal and regulatory developments regarding the disease, review the company’s risk-mitigation policies and protocols and adjust such protocols as necessary to conform to regulatory settings. Boards should be clear in their instructions to management as to its expectations with respect to management’s responsibility to report to the board regarding COVID-19 matters;
• Confirming the feasibility of the company’s disaster plan and BCP. The disaster plan and the BCP should address matters such as employee availability, functionality of IT systems, cybersecurity, communication protocols and legal/regulatory compliance. Due to the unique nature of the pandemic, the board, as part of its continuing monitoring and oversight responsibilities, should continue discussing any implementation issues with management and evaluating whether any modifications to the disaster plan and BCP are necessary to deal with new issues as they arise;
• Evaluating potential disruptions to operations and business relationships. This evaluation may include ensuring that management is appropriately considering the impact of the pandemic on key customers, suppliers, financing sources and service providers and review of key contracts to identify any potential issues relating to force majeure, triggers for defaults and termination rights and related contract terms. This must also cover the adequacy of the company’s insurance coverage and whether proper steps are being taken to preserve any potential claims;
• Reviewing board and management succession plans. Boards should consider implementing a detailed emergency succession plan that takes into account the unavailability of directors, officers and key officers of the company. The board should consider establishing a COVID-19 transition team that serves as the leading body to carry out necessary changes in company leadership;
• Reassessing long-term corporate strategy should involve cultivating new alliances, developing more innovation and technology, exploring lower cost financing structures, developing new employee benefit plans and evaluating real estate needs;
• In the current unprecedented circumstances, with many people suddenly confined to their homes, another practical issue comes up and relates to how to collect signatures for written resolutions, minutes of meetings per conference calls, powers of attorney and other documents? Not everyone will have a full (functioning) home office with state-of-the art printer and scanner, or some might find out they have no idea on how to change that empty ink cartridge (if they have a new one all together). Electronic signatures can be a good alternative to wet ink signatures. The choice of a particular type of signature depends on the intended use and the required security level. It is therefore important to verify whether the type of signature fits the purpose; and
• Conference and Video calls should be given detailed thought: There are, of course, many situations in which written resolutions are not an option: one or more directors might oppose or be unavailable to sign, there might be need to thoroughly discuss difficult decisions, etc. In such situations, remote board meetings by conference or video calls can offer a good alternative for a physical meeting, provided that the technology used allows the directors to properly deliberate, meaning they should be able to interact and discuss live and simultaneously. There are already several good solutions in the market.
The board should consider the feasibility of implementing the above steps under different scenarios given the possibility of fewer resources being available, increased health and safety regulations, supply chain issues, availability of financing sources and customer situations.