March 3, 2020
March 3, 2020
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. We plan to update it regularly as this crisis evolves.
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.
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.
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.
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.
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.
COVID-19. Uncertainty. Fear. Recession. Fiduciary Duties.
It’s essential that directors know what to focus on and when.
NACD: Tools and resources to help guide you in unpredictable times.