As the fallout from COVID-19 continues, there are a few very practical things directors can do that can improve the company’s survivability—and sustainability—as we emerge from this crisis. Here are five tips to consider:
1. Recognize that management is likely working 24/7. During a crisis, every director wants to help and contribute. But it’s probably safe to assume that management is already working pretty close to 24/7. So if directors have an idea, best to raise it through a board or committee meeting, or run it through the filter of the lead independent director or committee chair. If it’s more efficient and effective, hold weekly calls with the CEO and other members of senior management rather than having directors sending individual emails to management. It can also be useful for the CEO to send weekly updates.
2. Be mindful of the permanent record. There is likely going to be a lot of scrutiny and second-guessing of board decisions once this pandemic ends. Especially in light of the Delaware Supreme Court’s decision in the Blue Bell case, boards should ensure that management has appropriate processes in place to ensure the company is abiding by all government directives—and that the board is appropriately monitoring that. To help preserve legal privilege, a best practice is also to have all communications with the board reviewed by the General Counsel, and to have the General Counsel attend all board and committee meetings during this period.
3. Consider all “stakeholders”. Directors have long known that whatever actions they take will be scrutinized by investors—including activist investors—and the plaintiffs’ bar. But everyone—employees, customers, regulators, the press, and a growing number of non-profit watchdogs—will be evaluating how the board acted during this time.
Directors need to have the courage and independent judgment to do what they believe is in the best interest of the corporation. But when making decisions, it’s useful to consider how those actions will be viewed by these other constituencies and society at large. For example, if they’re making a decision on director or executive compensation, consider how that will be viewed more broadly.
4. Remember the long-term. When you’re in survival mode, it’s difficult to focus on anything else. But just as directors must be attuned to multiple constituencies, they should also consider the longer-term implications of their decisions and those of management.
Keeping record of current steps being taken is also key. While it’s difficult to imagine a company having the capacity to conduct a comprehensive review and overhaul of the long-term strategic plan, financing and capital allocation plans, governance and risk management policies, compensation and benefits programs, supply chain policies, etc., boards should be sure that management is keeping track of the lessons learned in each of those areas so that, as time permits, adjustments can be made.
5. Be understanding – even forgiving. Finally, even as boards face intense scrutiny, directors should try to be as understanding as possible about the challenges being faced by management, their fellow directors, or themselves. Under the frayed nerves of social distancing and health and economic uncertainty, the normal machinery of board and committee meetings may not run as smoothly as they’ve come to expect. Directors may sometimes not phrase things as politely or thoughtfully as they usually do.
Likewise, management may fail to address an issue flagged by the board with the typical expediency. Directors should follow up on it—because that helps to establish a good record—but assume (unless proven otherwise) that it’s a good faith error. Directors and their colleagues in management may be facing challenges in their professional or personal lives, so now is a time for a little extra understanding, compassion and patience.
Even before COVID-19, boards faced ever-increasing demands. This crisis is placing extraordinary responsibility on corporate leaders, and many of the pressures will likely persist even as we emerge from the worst of this unprecedented crisis. But taking these five steps, each director can help their company survive and emerge from this crisis in sound condition.
