Topics:   Corporate Governance,Risk Management

Topics:   Corporate Governance,Risk Management

June 2, 2020

GNDI Members Reveal COVID-19 Governance Insights

June 2, 2020

New Zealand has been praised for its fast, sweeping, and empathetic response to COVID-19, led by Prime Minister Jacinda Ardern. In early April, after only two weeks of lockdown, New Zealand began to see daily drops in its case numbers. At the end of the month, as the government claimed that community transmission was no longer occurring, the country downgraded its lockdown level from four—the highest—to three, paving the way for schools to reopen and restaurants to sell takeout meals. On May 13, they downgraded to level two. While New Zealand’s handling of the crisis is viewed as exemplary, the effort there illustrates but one way that responses to the pandemic are playing out around the world.

To learn how directors the world over are responding to the pandemic, NACD Directorship conducted interviews with executives of member organizations of the Global Network of Director Institutes (GNDI), chaired by NACD CEO Peter R. Gleason, and other independent, director-focused associations in Brazil, Europe, Hong Kong, New Zealand, Singapore, and South Africa. NACD is a founding member of GNDI, which was created in 2012 and now encompasses 22 organizations.

Stakeholders First

On May 21, South Africa was on a level-four of a five-level countrywide lockdown, with about 18,000 diagnosed cases of COVID-19 and this number continuing to grow daily. The country presents a particularly interesting case study on the side of stakeholder capitalism. The Institute of Directors in South Africa (IoDSA), founded in 1960 and claiming more than 9,000 members, is the owner and author of the King Report on Corporate Governance, first issued in 1994 and last updated in 2016, to which all Johannesburg Stock Exchange-listed companies in South Africa must adhere. The most recent King IV Report upholds that the “governing body should oversee and monitor, on an ongoing basis, how the consequences of the organisation’s activities and outputs affect its status as a responsible corporate citizen” with regards to society and the environment, among other key areas.

“Many corporations started acting early enough that the impact hasn’t yet been as severe on our organizations,” said Parmi Natesan, CEO of IoDSA. “We’re much more conscious of the social context and impact of business. From that perspective, it was easy for South African directors to put the health and safety of workers and other stakeholders first.”

In France, stakeholder governance and the impact of the coronavirus—almost 144,000 confirmed cases and more than 28,000 deaths as of this writing on May 21, and with the country’s eastern half experiencing far more illness—are very different from South Africa. French workers have been formally recognized as key stakeholders and consulted by their management since 1945. But over the past decade, the country has mandated formal representation of employees on the boards of all large listed and nonlisted companies, including state-owned businesses, with the nomination of at least one board member with equal duties and powers as any other director when a company employs more than 1,000 people in France or 5,000 people globally.

“Employees have always been vocal. Now it’s about being integrated,” said Michel de Fabiani, chair of the policy committee for the European Confederation of Directors’ Associations (ecoDa), which comprises 21 member organizations and 50,000 directors. “We really want board members to represent the whole enterprise. Now there is a noble move toward recognizing employee representation as key. We will need to take a position around our social leadership in a much more precise sense.”

Governments Unite

Felicity Caird, general manager of the IoD’s Governance Leadership Centre, believes that New Zealanders have been well served by strong communication from the top down, including regular briefings from government officials. Ardern has given a televised briefing alongside the country’s director-general of health, Ashley Bloomfield, a nonpolitical appointment, daily since March 21.

The country at large, the “team of five million,” as Ardern calls it, has benefited from this leadership while she has provided a model of assured, empathetic communication for business leaders to emulate, Caird said. “A crisis like this really brings out the good in our country. We’re small. We don’t have leaders giving conflicting information with other leaders,” Caird pointed out. “The word that sits across it all is ‘unite.’ I think we’ve done that in the approach we’ve taken as a country.”

Meanwhile, in Hong Kong, the government recently pushed through a HK$137.5 billion relief package to help businesses with cash flow. But the relief package may not be enough to stem business losses that occurred prior to the pandemic. Ka-Yin Li, an NACD Board Leadership Fellow and a council member for the Hong Kong Institute of Directors, founded in 1997, pointed out that for his city, businesses have been suffering since before COVID-19 began its lethal spread.

“In Hong Kong, it’s not just the pandemic—it’s the six months before January 2020,” Li said. “We suffered from weeks and weeks of protests, then came the virus. Tourists have not been coming and locals are staying home. It’s a double whammy. A good number of mom-and-pops and neighborhood stores will go away.” Indeed, for many small business owner-directors, “it is the tough choice between a difficult decision to stay open and the sad option to shut the doors for good,” he added.

Forward March

The disruption of supply chains, trade, and glob­al tourism means that many consumers and com­panies are looking closer to home to meet business and personal needs. For some in Europe, however, looking to the European Union (EU) for leadership has proven disappointing. Bloc-wide health care has never been offered, said Jan Wesseldijk, chair of ecoDa, and there have been flurries of criticism about why the EU hasn’t taken more initiative on this matter. One result is that the vision of some becomes even more nearsighted.

“You fall back to the nation-state, whereas in earlier days we were talking about the end of the nation-state,” Wesseldijk said. “But these nation-states still need to work together.”

“The world is already interconnected,” Pedro Melo, CEO of the nearly 25-year-old Instituto Brasileiro de Governança Corporativa, told NACD Directorship. “Boards will debate even more [going forward]: How much of this geopolitical interconnection affects the business in a positive or negative way? How can boards be more responsive to those interconnections and their risks, and how their sectors could be affected by them?”

So, how do organizations move forward in an interconnected world? Is there room to focus on long-term planning and resilience amid the day-to-day challenges that the pandemic presents?

Steve Stine, founder and CEO of Inside Asia Advisors and program director for the Conference Board’s Asia Corporate Leadership Council of Singapore, is concerned about the business and economic rebound of Singaporean companies. “They’re not understanding what they could do as a board to accelerate change,” he said. “I don’t see that happening, but I don’t know that it’s not.”

“I would advocate that boards start to formulate what could and should be done,” Stine stated. “Boards must reconstitute themselves and the nature of their meetings, and reform action plans to allow them to be more active and responsive” in order to engage more effectively on strategic issues.

To read the full story, see the May/June 2020 issue of NACD Directorship magazine, out soon.


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