Topics: Risk Management
Topics: Risk Management
September 11, 2020
September 11, 2020
As some parts of the United States move through the phases of reopening, the data present a troubling picture with rising infection rates afflicting states ranging from Georgia and Florida on the East Coast to Texas, Arizona, and California across the country. Throughout the pandemic, political leaders and policy makers have presented vague, and even conflicting, guidance. Guidelines and regulations for businesses have shifted frequently and in some instances have actually been absent. This exacerbates one of the phenomena that business most abhors—uncertainty.
Over the course of two weeks, NACD, along with its partners Farient Advisors; Heidrick & Struggles; KPMG; PwC; Sidley Austin; and Weil, Gotshal & Manges, convened the four Fortune 500 Committee Chair Advisory Councils—audit, compensation, nominating and governance, and risk oversight—for a series of virtual meeting discussions on the current strategies and board oversight of restarting businesses. The following are key points for reopening that developed from these conversations.
As companies begin to phase into restarting, leadership will matter—at both the enterprise and local levels. Employees and the public alike are closely monitoring how company leadership has responded to the COVID-19 pandemic in its early days, their communications throughout the pandemic, and their restarting decisions.
Several delegates shared that the leadership behaviors of local and regional managers resulted in a significantly different experience for employees. In one instance, the leadership of a manufacturing plant held an “open house” for employees and their families to experience how the plant would adjust to incorporate health and safety precautions given COVID-19. That plant saw high rates of engagement and return to work by employees. Plants in the same company that took a more laid-back approach saw higher rates of absenteeism and less engagement. As one Advisory Council delegate stated, “It comes down to leadership. That has been the fundamental difference in how well the reopening went at our distribution centers and stores. Leadership is more important than any business operation when it comes to successfully restarting.”
Making the right decision in the current environment—what with conflicting guidance from all levels of the government, the developing science around COVID-19, and customers and employees alike voicing a broad range of opinions about what’s best to do—will require even stronger leadership from boards and management, both at the executive and local levels. Robust discussions about what is right for the company, its employees, and its customers is a critical step in formulating the right restarting strategy.
One critical challenge that companies will face is the enforcement of corporate health and safety policies. In the early stages of reopening, consumers and employees are going to make decisions based on the written policies of corporations, policies that range from stores requiring masks to airlines offering social distancing during boarding and inflight. And (as has been demonstrated in the past) if a company doesn’t walk the talk, social media will quickly inform consumers. Advisory Council delegates shared first-hand examples of the disconnect between policies and their experiences as customers. The failure of employees to enforce corporate policy or in some instances to adhere to policies themselves raised the question of how to best empower and motivate employees to apply corporate guidance.
In some cases, boards might possibly have even approved those corporate policies, or at the very least been briefed on the company’s restart precautions. Delegates pondered what responsibility boards have to audit the execution against those policies, and what risks the company faces when failing to adhere to them. Michael Beaty, a principal with KPMG Healthcare, observed that “most companies have been focusing on managing the at-home work environment, and there is exhaustion in the system. Sustaining this focus on change, through the pivot to reopen, will place additional strain on already-stressed employees.”
The capital costs related to restarting—including costs such as redesigning office space, products, experiences, and factory lines—are not insignificant. Companies are also having to look at how to manage contact tracing in the work environment, with some companies considering apps or other technology such as Bluetooth wrist bands that track movements and contacts throughout the day. Add on to that costs for personal protective equipment, hand sanitizer, and related infrastructure—possibly to include testing facilities and hiring additional medical staff to provide onsite support. Finally, testing itself will come at a cost.
Various states have different approaches to paying for tests. The Families First Coronavirus Response Act, signed into law on March 18, 2020, covers the costs of most tests for the duration of the pandemic emergency when deemed medically appropriate by the health-care provider administering the test. However, exempted from that coverage are routine tests performed by employers that are required for screening purposes—the type of tests that are being discussed to encourage a safe restarting of the economy.
The cost of a COVID-19 test varies by test type and location. Early surveys of providers have suggested that costs for tests will generally fall within the range of $100–$200 per test, with some providers charging as much as $850. “As you reopen, you have to consider what the best type of test will be… and how the test will be done for your company,” one Advisory Council delegate pointed out. Without an effective vaccine or additional legislative action, the cost of testing each employee daily for even small organizations could quickly and easily run into the range of millions of dollars per year. For the average Fortune 500 company, testing employees daily could easily cost billions of dollars.
Balancing these new expenses against the need to ensure the health and safety of employees and customers will be critical in restarting safely and remaining open. For additional aspects of the health and safety implications and what boards should consider, see Board Considerations for Reopening Business.
In one session, a five-stage risk framework by KPMG was presented and discussed. The framework outlined key elements of a plan for restarting, and included the following steps:
As one Advisory Council delegate noted, however, “The approach to risk with respect to restarting is, in many ways, how we have approached safety. It’s both a systemic risk and an individual risk. What is different with COVID-19, and what makes the current environment so challenging for boards, is the lack of some key, basic information and balancing that against the very real needs of the business.”
Indeed, there are many things about COVID-19 that we have yet to learn. The size of the United States and the dynamics of the federal and state systems add to the complexity of the challenge. Delegates were reticent to begin traveling again, and when asked about returning to in-person board meetings, their reaction was tepid. The vaccine, while showing quick and positive progress, will take time to fully vet and distribute. This will be followed by time for the vaccine to be taken by an effective portion of the population.
“Reopening is a bit of a misnomer. The US is nowhere near ready, as the federal system of government and the size and diversity of the country has resulted in an uneven distribution of and response to the virus,” Troy Brennan, executive vice president and chief medical officer of CVS Health, noted during the meeting. “That said, this is a federal problem that requires a coordinated national response. It is very difficult to predict what is going to happen, and categorical statements should be met with skepticism.”
Nonetheless, across all the discussions, the principal advice was the same: Wear a mask, wash hands, and maintain distance between individuals.
Note: These meetings were held using a modified version of the Chatham House Rule, under which participants’ quotes are not attributed to those individuals or their organizations, with the exception of cohosts.
The full Advisory Council brief, “Restarting Business During COVID-19,” can be found here.
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