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
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.
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
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
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:
there a common understanding among management, the board, and board committees
about their respective roles and responsibilities during a crisis?
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.
Questions to Ask:
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?
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.
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?
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.
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
- When engaging with external stakeholders like
our suppliers, our communities, and local government, how can we offer support
and contribute to the broader response?
Many thanks for your thoughtful suggestion, Maura.
Since this piece was published, NACD assembled a Resource Center dedicated to COVID-19 response. You can access it here.
We will also add a link to the center into this post.
There are vetted resources for information outside of the CDC from a variety of trusted advisors, and on a breadth of related topics. Hoping this is helpful.