COVID-19 and the Need for Courageous Corporate Boards
A life-threatening pandemic. A global economic crisis. Thus far, 2020 has pushed companies to defend themselves with all available resources, including their Boards of Directors.
Being a Director is Easy ... Until it Isn't
Someone once said, "anyone can serve on a Board of Directors when everything is going well, but when the shit hits the fan is precisely when a company needs its Board the most." Risk and crisis management are arguably two of the primary areas of responsibility for corporate Boards, even rising above long-term planning, strategic vision, and executive and financial oversight. Times of extreme crisis require individual Directors to become actively engaged, fully immersed, and, most important, willing to make difficult decisions and take painful action.
When the COVID-19 pandemic spread across the world, it created a health and safety concern that had to be dealt with by virtually every company on a scale that had not been experienced in over a century. Even worse--from a business perspective--it also triggered an economic crisis that has wreaked havoc on companies' finances, employees, customers, partners, and supply chains. Many will not survive the downturn, and those that do will have to re-invent themselves to thrive in a new world dynamic.
Only a few months into this turmoil, it is already abundantly clear that Boards of Directors will also have to change significantly in perhaps unexpected ways.
"From Part-Time to Full-Time" - most Boards do not normally expect much out of their Directors beyond quarterly meetings and occasional discussions, but that will likely change drastically as companies rely more heavily on their Boards. This may exacerbate a pre-existing issue of "over-Boarding" and force Directors to severely limit the number of Boards on which they serve.
"From Shareholders to Stakeholders" - although legally Directors bear a fiduciary duty only to the company's shareholders, it is increasingly clear that the best way to serve those owners is to also consider the needs of employees, customers, partners, vendors, and even the local communities and general public. Toward this end, Boards will have to widen the scope of their responsibilities.
"From Short-Term Profit to Long-Term Sustainability" - while shareholders are generally concerned with deriving financial profit from their ownership interests (especially in public companies driven by quarterly results), taking a longer-term view may ultimately benefit them much better. For example, issues like liquidity and employee retention may add more value than near-term profitability.
"From Control to Support" - since one of the most powerful tools at a Board's disposal is the ability to hire and fire the CEO, traditionally Directors have taken the approach of trying to "control" the management team. However, the modern business landscape is increasingly dynamic, and this fluidity requires a new approach focused more on providing "support" to the operational team.
New (?) Issues
"Remote Corporate Governance" - the days of in-person quarterly Board meetings may be coming to a sudden end. Instead, Directors will be expected to fulfill their duties via a number of digital remote working technologies, including email, instant messaging, video/voice conferencing, and document sharing tools. Directors who are not comfortable and proficient in this type of environment will find themselves at a severe disadvantage.
"Diversification of Perspectives & Competencies" - traditionally Boards have generally been comprised of retired CEOs and CFOs, usually older white males. However, in order for their Boards to add value going forward, companies will need the composition to change dramatically by including a diversity of genders, races, and ages, as well as technical and industry expertise. The challenge will be finding exceptionally talented people who also understand corporate governance and are willing to serve as Directors.
"Self-Regulation & Accountability" - while shareholders and regulators (and in some cases the general public) generally hold Directors accountable for their actions as individuals and as collective Boards, it is actually the Directors themselves who are in the best position to self-police their own efforts. This will take a level of commitment, engagement, and courage that traditionally has been lacking inside most companies' boardrooms.
"Focus on CSR, ESG, HR, Empathy, and Compassion" - perhaps because of the traditional focus on protecting shareholder value through near-term profitability, most of the "soft" aspects of a business' operations have usually been ignored by Boards. However, the only way that a company will survive and thrive long-term in today's modern global economy is to strike a delicate balance between its financial imperatives and its interactions with the people inside, around, and outside its sphere of influence.
The next 12-24 months will mark watershed moments in the growth of the global economy, and companies that adapt the best will emerge as market leaders. This level of change must begin with the company's Board of Directors.
Directors - take your fiduciary responsibilities seriously and engage more actively with your companies, even if remotely.
CEOs - leverage your Board more than ever; you need all the help you can get.
Shareholders - times of crisis require you to trust your Board to do their jobs and also to hold them accountable if they don't.