Covid places board under spotlight
IT is without doubt that the Covid-19 pandemic has turned the world upside- down and disrupted all areas of human life, including businesses. Due to unprecedented business disruption caused by the pandemic, the role of the board of directors in every company has changed dramatically. During these peculiar times, robust corporate governance is more important than ever.
This article considers how Covid-19 has shifted the role of boards, as well as details practical steps to be taken by boards during this pandemic, to serve the company competently and resourcefully.
The Covid-19 pandemic has ushered in a VUCA environment preceded by volatility, uncertainty, complexity and ambiguity. VUCA is a term coined by the US Army in the 1990s to describe a Post-Cold War world which is volatile, uncertain, complex and ambiguous. The same term has also been adopted in the business world. The board has a vital role to play in addressing the challenges of a VUCA environment.
In addressing the challenges of a volatile, uncertain, complex and ambiguous environment presented by Covid-19, the board should do the following:
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Counter volatility with vision
The board must accept and embrace change by developing a clear, shared vision of the future.
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Counter uncertainty with understanding The board must take time to understand the ‘new normal’ and develop new ways of thinking and responding to uncertainty.
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Counter complexity with clarity
The board must communicate clearly with all stakeholders and clearly express the direction the company is taking in the ‘new normal’.
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Counter ambiguity with agility
The board should be able to adapt swiftly and move with agility in the ‘new normal’.
Additionally, directors must be cognisant of the fact that decisions made during the pandemic must be guided by different principles to those utilised before the pandemic. Specifically, boards need to exhibit exceptional leadership skills and decision-making abilities guided by principles of preservation of lives and jobs, while ensuring continuity of the business and profit making through use of innovative methods. In addition to the foregoing, the board should:
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Prioritise the health and safety of employees, customers and suppliers
The Covid-19 pandemic has claimed millions of lives. Therefore, the health and safety of employees, customers and suppliers must be the top priority for every board. Therefore, the board must monitor management’s efforts to support containment of Covid-19 like ensuring that employees in the workplace wear masks at all times, having employees report to work on alternate days to reduce the numbers and to ensure social distancing in the workplace, ensuring that employees have hand sanitisers and are protected when travelling to and from work.
This should be on the agenda of every board meeting and must be emphasised and communicated internally within the organisation as well as outside to other stakeholders. Clear communication to all stakeholders will address any ambiguity in a VUCA environment. It is advisable for boards to develop or revise their crisis management measures and develop new policies for workplace safety and efficient operations.
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Finance of the business.
The Covid-19 pandemic has had a negative impact on most business operations and this has resulted in many businesses being unable to operate. The board must ensure that they assess and evaluate the financial resources of the company to ensure that they have short- and long-term financial measures to curb the impacts on the finances of the business.
Boards may consider seeking additional financing and restructuring existing debt to accommodate loss of income during this period; this can be done by either equity injection or new debt being provided.
Boards ought to be creative at this time and engage experts to provide bespoke financing solutions to alleviate the financial pressure invariably faced by many businesses during this time. Companies may consider sale of debt claims and income streams to raise much needed finance; alternatively, sale and lease backs to raise short term finance.
For companies in financial distress, the boards ought to consider commencing corporate rescue proceedings as a way to resuscitate the ailing companies.
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Effective communication.
With the dawn of “working from home”, an effective communication strategy with employees, customers, vendors and the entire supply chain is crucial.The role of the board during this and any crises is to be available and up to date on the status of all the issues affecting the company.
The board must also be well versed with the constantly changing legal requirements pertaining to lockdowns and curfews.
While survival is on the forefront of businesses agenda during this period, the board must also consider and plan for resumption of business activities as the lockdowns ease and communicate such plans internally to all material stakeholders.
It is imperative for board members to independently be up to date on key topics so that they can bring additional insight to management's discussion of problems and solutions.
To ensure that communication lines are open and efficient, boards should establish a Covid-19 Crisis Committee tasked with urgent daily decisions arising from or caused by the pandemic. Succinct framework for this committee should be drawn up giving the committee leeway in decision-making and programme implementation.
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Evaluating the business itself
The board should, together with management, review the operations of the business and the principal risks to the organisation and assess and monitor management’s efforts to identify, prioritise and manage them.Directors should consider whether business continuity plans are in place.
The board also needs to be honest about the financial viability of the company; where the business is financially distressed, the board needs to be frank and seek appropriate recourse to address this. The board, in performing its duties must be cognisant of their statutory duties including but not limited to the duty of care to act in good faith and in the company’s best interest; the duty to not carry on company business recklessly or with gross negligence and the duty of loyalty and to communicate with management on material issues affecting the company.
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Long-term strategy- business after the Covid-19 pandemic
The pandemic will eventually come to an end and business will resume to their full capacity as before. It is important for boards to consider how to best position the organisation for success after the pandemic through adoption of appropriate business strategies.
The board also needs to ensure that decisions made to address the short-term needs of the organisation do not come at the expense of the organisation’s relationships with its stakeholders.
In conclusion directors have a critical role to play in ensuring that they lead their companies through the Covid-19 pandemic and must therefore continuously oversee their companies’ responses to the rapidly evolving situation. Boards must be proactive in order to respond to the new and ever-changing risks and challenges — from employees' health and safety to site closures, supply chain disruptions and decreased or increased demand for many goods and services.
Moyo, Mafongoya and Sabao are registered legal practitioners. They have co-authored a handbook entitled ‘The Directors’ Handbook in Zimbabwe’ and are also the co-founders and legal bloggers of ‘Lex Amicus’. (https://lexamicuszw.wordpress.com/). — boardroomtalk@icd. co.zw