The collective experience and wisdom of board members is critical in shaping how their organizations respond.
The COVID-19 pandemic continues to threaten the health of millions of people around the world. The prospect of a 2020 global recession looms large, and with few exceptions, businesses face unprecedented disruption to their operations. Lockdowns across nearly half of the world are skewing demand, interrupting supply chains, and forcing employers to urgently revisit their workforce management plans. The very existence of many companies hinges upon the ability of their leadership teams to remain calm, focused and purpose-driven.
Now, more than ever, boards need to lead by example.
First, boards must support and guide senior executives with their immediate tactical response to the crisis. Second, they must ensure their businesses build enterprise resilience, not just to the ongoing impact of the pandemic, but to secondary risks, such as cyberattacks, workforce issues and competitive threats. Third, they must ultimately look to the future and the transformative, long-term challenges and opportunities that will inevitably ensue.
In short, it is critical to consider the now, the next and the beyond. To offer some immediate perspective, we’re tapping the results of a global survey of 500 board directors we conducted before the COVID-19 outbreak. Based on their responses to questions around crisis response, here are 10 considerations for how boards can assist their management teams now:
1. Act as a sounding board to discuss crisis response measures
How companies respond to COVID-19 will live long in the memory of customers, employees, suppliers and other stakeholders. Boards need to be proactively discussing response plans with senior management, working together to ensure crisis management decisions reflect the purpose, values and culture of the business while addressing immediate short-term demands.
2. Fortify crisis management teams
Before the pandemic, just 21% of boards believed their organization was very well-prepared to respond to an adverse risk event vis a vis planning, communication, recovery, and resilience. Clearly now more than ever, boards must ensure crisis management teams are fit for purpose, and that scenario planning testing is conducted with far greater frequency.
3. Communicate regularly to ensure employee health and well-being
With many employees anxious about their health and financial security, it’s imperative that leadership provide clear and decisive communication on a regular basis. While this may not emanate from board directors themselves, they should ensure that senior management are reflecting the leadership values of the organization.
4. Reassess risk interdependencies and mitigation measures
Boards should ensure teams assess the interdependencies between COVID-19 and other risks, including third-party risks. For example, the increased use of technology to facilitate remote collaborative working may increase cyber vulnerability. And the outbreak may create intense pressure in targeted areas of the supply chain.
5. Ensure supply chain liquidity
COVID-19 is putting tremendous strain on supply chains. It is vital boards ensure that senior executives proactively manage relationships with key suppliers while approving and tracking necessary but unusually high costs to shore up the supply chain.
6. Simulate crisis management
Before COVID-19, only 19% of businesses very frequently performed simulation exercises, stress testing and scenario analyses. Going forward organizations must review, adjust and regularly conduct and test crisis management plan simulations to adapt to the new environment. For example, their response to a major cyber-attack today will likely have shifted from just months prior. Likewise, they should in parallel conduct financial stress tests and scenario analyses to reflect the current financial and economic climate.
7. Ensure continuation of board reporting
Just 12% of boards were confident prior to the pandemic in management’s reporting of how evolving risks were impacting organizational performance. This presents a huge opportunity for businesses to rethink their management reporting needs to better address early warning signals.
8. Continue to meet, virtually
Communication between board members and between the board and senior executives should increase, not decrease during this time. Boards should consider establishing regular whole of board or sub-committee calls and whether a standing board of directors call or communication plan is useful to keep directors informed. Of course, depending on national government guidance, we are likely to see more board and shareholder meetings held virtually.
9. Mitigate and communicate the financial impact
Boards should explore all options to immediately mitigate the impact of sharp revenue declines. This may include adjusting pricing, seeking additional financing, and restructuring debt. They should also work with management to ensure government stimulus programs are accessed and optimized. To cement investor trust, boards, and audit committees in particular should ensure that the estimated impact of COVID-19 on revenue and other financial projections are based on sound assumptions and communicated clearly to investors.
10. Be alive to the threat of activist investors
Boards must keep an eye on the threat posed by activist investors, who may seek to take advantage of market panic and subsequent lower equity valuations.
- Have you established direct and clear lines of communication between the board and senior management to discuss COVID-19 response initiatives?
- Is your crisis management team adequately resourced and equipped?
- Have you adequately mapped how COVID-19 might overlap and potentially aggravate other risks?
- Is your management team regularly communicating with major suppliers?
- Has your organization recalibrated its crisis response plans and re-run stress testing to factor in new variables?
- Are management actively exploring all measures to mitigate revenue decreases?
- Are you working with management to carefully consider how the financial and operational impact of the outbreak is communicated to investors?
In years to come, most board directors will look back at this period as the time when they were most challenged – when their leadership was tested like never before. But now is the time for action, not reflection. Once the business has navigated the immediate crisis, boards can start looking to the future.