Confronting COVID-19: Actions Boards Should Take
Amid the fear, uncertainty, and disruption created by the Coronavirus Disease 2019 (COVID-19), boards can make critical contributions to help their organizations withstand and recover from this escalating crisis. Their collective experience with past crises and ability to take a long-term view can offer management very helpful perspectives during this time. Here we outline five key actions that boards should consider taking now.
Editor’s Note: The content of this article reflects NACD’s guidance as of March 3, 2020.
For a full list of resources, visit NACD’s Resource Center on Responding to the COVID-19 Crisis.
1. Assess company exposure and potential financial, operational, and strategic impacts.
Markets are already being impacted by COVID-19. From Apple’s announcement that it may fail to meet its quarterly earnings target to the sharpest drop in S&P 500 market value seen since the 2008 financial crisis, the scale of economic impact is growing.
When evaluating an unanticipated risk like the emergence of a global health crisis, the board and management should assess potential impacts to the company’s global supply chain and its operations. Pressure testing management’s assumptions about the potential financial, strategic, and operational implications is critical for successfully riding a wave of economic turbulence. For more information, see The Conference Board’s resource, Coronavirus Crisis: Assessing Economic Impacts, and this article in the Harvard Business Review on leading the business through the crisis.
Key Questions to Ask:
Do we have sufficient visibility into our extended, global supply chain to understand where our business is vulnerable to disruption? What alternative sourcing strategies are we considering?
Have we identified and do we understand the sources of disruptions caused by COVID-19 that are most likely to impact our business? What are the second- and third-order effects that could impact our business continuity?
How are we dealing with fast-changing information about this crisis, and how can we ensure that we use the right sources of information to keep effectively adapting our understanding of and response to this crisis?
Do we have the right crisis team in place in terms of skill sets and functional knowledge areas, and have they been given the right level of decision-making authority?
NACD has prepared a list of questions to ask management to ensure the company is prepared to respond. Read them here.
2. Define crisis-response roles and responsibilities for the board and management.
Any crisis creates a moment of truth for an organization. Sometimes it is existential. But not all boards are prepared. NACD’s 2018–2019 NACD Public Company Governance Survey data show that only a small minority of boards—8 percent—had participated in crisis-simulation exercises with management. In addition, fewer than 25 percent of directors had recently discussed the board’s crisis roles and responsibilities with management. As boards start to get more proactively involved to help mitigate the impact of COVID-19 on their businesses, they should hold candid conversations with senior management to establish clear expectations about their respective roles and responsibilities in a crisis. This will help to reduce the risk of any unhealthy board-management dynamics and improve response time when the crisis dangerously escalates.
NACD and McKinsey & Co. offer insights on establishing constructive board-management relationships in Building Board-Management Dynamics to Withstand a Crisis.
Key Questions to Ask:
Is there a common understanding among management, the board, and board committees about their respective roles and responsibilities during a crisis?
Are the identification and treatment of disruptive risks a standing agenda item either at the committee level or for the full board?
Do we have effective, open, and clear communication with management about their crisis preparedness?
3. Ensure effective management reporting to the board during times of crisis.
Appropriate protocols should be developed regarding the information that directors are expected to receive once a crisis hits. Boards should ensure that they receive relevant and timely updates to understand how the business is being affected. In order to keep track of official information provided on the virus, see this advisory from the Centers for Disease Control and Prevention, prepared specifically for businesses.
Key Questions to Ask:
Has our management team established key indicators that will offer continuous understanding about operational impacts, the effectiveness of our efforts to mitigate our risk, and how the business is recovering?
Have we established protocols and ground rules to ensure that the proper cadence and frequency for information flows to the board during this crisis?
4. Evaluate management’s internal communications strategy.
Providing information to employees without encouraging panic is key in keeping the company moving smoothly during any crisis, but especially during a health crisis. Boards should advise management to communicate clearly about the impacts to the business of the crisis. For guidance on best practices for communicating to employees about COVID-19, read this article by the Society for Human Resource Management.
Are all relevant audiences being considered when communicating internally about the crisis? Are we communicating clearly and promptly and have we set up a communications hub where employees can find all relevant information?
Have we developed the right protocols for internal communications and decision making at all levels of the organization? How can we keep fear from paralyzing our workforce and reducing our productivity?
5. Address the challenge of providing external stakeholders with accurate information as the crisis is evolving.
Effective external communications are critical in the face of a crisis. Having an external communication strategy in advance will help to prevent any damaging message failures during a crisis. Boards should make sure that management strikes the right balance between being transparent to external stakeholders—including investors—about any possible impact, and ensuring that the information is accurate. This becomes a real challenge in deciding what to disclose to investors about the risk exposure and in determining what is material, because the impact of the risk could quickly change if the virus disrupts more markets and regions.
For directors of companies with consumer brands, these ideas from PR Week may help, while this piece in the Wall Street Journal offers perspectives on effective risk disclosures.
Key Questions to Ask:
When deciding what and how much to disclose during and after crisis situations, how can we effectively balance the need for transparency with potential exposure to litigation risk? Do we need to report short-, mid-, and long-term risks immediately? What information would trigger adjustments to our quarterly guidance?
What questions should the board ask the general counsel and outside counsel when considering potential disclosures? How should the audit committee work with our auditors to ensure that financial reporting and auditing processes are as robust as possible in light of rapidly changing conditions?
When engaging with external stakeholders like our suppliers, our communities, and local government, how can we offer support and contribute to the broader response?
Reaa Chadha is a former senior research analyst at NACD.
Friso van der Oord is senior vice president of content at NACD.