The Importance of Board Oversight During the Pandemic
The COVID-19 pandemic and its impact on companies and corporations highlights how vital the oversight of the board of directors is during periods of crisis. During crises, boards need to think about both the short-term risks and the long-term ones, and any opportunities the crisis presents, of which there may be many. This article lays out the board’s responsibilities and duties during a crisis like this one, and ways that the board can address the oversight duty and mitigate risks during the pandemic.
The Board’s Oversight Duties
Proper oversight requires both familiarity and knowledge with a company’s plans, workings, and risk tolerance. It also requires diligent gathering of information that relates to situations that may come up. When an unprecedented event like the coronavirus outbreak occurs, the board has to consider the various impacts on corporate prospects and operations: these include analyzing contracts and relationships, managing and protecting its human resources, analyzing capital access/liquidity, reviewing both the long-term and short-term revenue impact, and keeping a strong conversation going with the any and all regulators.
Strong Communication with All Management Personnel
Since the board’s main information source is the management team(s) that operates at the front of the crisis, boards must maintain communication plans with all management teams. Management has to spend a lot of time dealing with issues related to the crisis, so a schedule and an agreed-upon communication plan will assist the board in fulfilling all the duties it has, while keeping distractions of the management to a minimum. This communication will lean heavily on technology (to keep in line with social distance requirements): these can include emails, portals, and conference calls. No matter what methods you pick, boards need to maintain communication and engagement with the management.
Make Use of Board Committees
Even though full boards want to be a part of the decision-making and information-gathering, some matters may best be discussed in proper board committees. For example, an audit committee needs to address controls and review public financial disclosures, while the compensation committee must address any issues with compensation based on equity. In the other hand, the special committee should support efficient and effective compensation oversight. Sometimes the board will want to make special committees to handle certain unique and challenging issues that come up. To give an example, finance committees can work on capital source issues, liquidity issues, and the suggestions of various options such as cancelling/deferring dividends.
Focus Energies on Liquidity and Planning Capital
During an unprecedented crisis like the coronavirus pandemic, company plans for initiatives and expenditures and capital use become major issues that require immediate attention from the board. Boards must know the organization’s liquidity sources (including debts to the public, credit lines, covenants that might be impacted by the crisis’ financial impact). Thus, boards must require an analysis of capital decision implications and mitigate communication of all these decisions. This analysis must account for any special opportunities the crisis creates for companies to acquire new assets
Get Knowledge from Experts
During times of crisis, boards and their committees should take advantage of experts’ opinions on the things that matter most. During the coronavirus pandemic, boards might contact legal and financial advisors for advice on matters within their respective expertise. The directors must analyze the input they receive based on what they know about their organization’s business and their own personal business knowledge and experience.
Prepare a Response for Possible Acquisition Overtures
During times of economic calm, some investors try and get positions within companies they think are vulnerable and lobby now (and/or in the future) for a reorganization, sale, or board seats. Companies must be prepared for this by discussing their organization’s strategic plan for the long term; this is in addition to short-term plans for events like the coronavirus crisis. Boards must keep communication strong with company shareholders and discuss with them (in line with Regulation FD constraints) what the company’s position is regarding present uncertainties, and both short-term and long-term strategies.
The coronavirus pandemic will put heavy demands on companies’ board of directors. This is also true of any other big challenges companies will face now or in the future. If directors are able to meet responsibilities by actively reviewing the available knowledge and information, taking part in committee and board meetings, having a strong relationship with the management, talking to experts as needed, and acting in the company’s and stakeholders’ best interests, they’ll be adequately protected from all oversight second-guessing of these challenging decisions they’re faced with.
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