As infections and deaths from the coronavirus continue to spread around the globe, it might be time for corporate boards to assess the impact a prolonged fight to contain the illness will have on their business.
Businesses like Starbucks, Apple, and Walmart have felt an immediate impact from the coronavirus because they have many stores in China where the outbreak has infected thousands and caused more than 1,000 deaths. Sales for any company that does major business in China will be down significantly due to store closures and consumers being quarantined or simply too scared to venture out to shop. Car makers and semiconductor companies that rely on China to purchase many of their products can also expect to see a slowdown in sales. Airlines have already lost portions of their revenues derived from travel to China and the Far East as countries across the globe issue travel warnings and customers delay trips abroad. And as these situations and others unfold, there will be ripple effects that will likely impact boardrooms in every industry.
It will be important for boards to attack this problem by anticipating how the spread of the coronavirus will affect its stakeholders and then communicate how the company plans to deal with those issues. Companies will want to get out in front of any potential shortages that could anger customers and any bad news that could spook investors. Boards will want to remember that this is an emergency situation that could last for months, so any plans to deal with the impacts of the coronavirus must be able to change at any moment. Here are just a few things boards might consider:
For suppliers: The board should determine to what degree its suppliers will be disrupted by a prolonged coronavirus outbreak. Are suppliers being truthful about their ability to deal with any disruptions and can the company provide support to help them meet their commitments? Is management locating and negotiating with alternative suppliers in different countries in case the need arises?
For employees: It’s important that employees are told as soon as possible by management, preferably by the CEO, how the spread of the virus might impact the company. For companies with stores in China, the board should discuss planned store closures and worker safety measures. Worker safety measures and store closures in areas not yet affected by the virus should also be developed. The board may also need to determine what will be done if a large segment of the workforce falls victim to the outbreak.
For customers: The board must make sure that communication with customers is clear and helpful. Any disruptions of service or products should be explained and apologized for. If possible, an alternative source of the product or service should be offered; for example, if Starbucks closed stores, consumers can still get its coffee from the company website. If the company is contracted to provide a product or service that is vital to its customers’ business, then the board may have to determine how it will defend itself against possible lawsuits if the company cannot meet customer orders or experiences significant delays.
For shareholders: Shareholders will want to know how much of a financial impact the virus may have on company revenues. It will be critical for the board to communicate the company’s assessment of the potential impact of the coronavirus and how it is working in other areas to offset any potential negative fallout. Adjusting revenue projections for the year would likely be in order. Highlighting efforts to develop new lines of business might help alleviate some concerns. (If business in China is disrupted, it may be an opportunity to pursue business in another market.) Above all, communicating a plan that shows how the company will weather any disruptions from the coronavirus outbreak will be key.
How a board handles an emergency situation like this can either shore up, or ultimately lose, the confidence of shareholders.
