How Can the Board Support Management During the COVID-19 Pandemic (Part 2 of 3)
This is the second article of a three part series on “How Can the Board Support Management During the Covid-19 Pandemic”. The previous article (1/3) covered the role definition of Management and the Board. Also, it discussed several relevant questions on working remotely, cyber security and governance priorities.
This article (2/3) will propose key strategic questions for the Board to discuss with Management on the following six topics:
Business Model
Customer experience
Supply Chain
Learning/ benchmarking/ innovation
Environmental, Social and Governance (ESG)
Internal Controls and financial reporting
1. Business Model:
Question: What does the new competitive market opportunity look like going forward, and what are the strategic and business model implications?
Firms will likely have to adjust to the pandemic’s impact on market demand for their products and services. Organizations that can digitize their offerings have will have to do so rapidly in order to compete. Businesses dependent on gatherings of people will need to revisit their business model. Furthermore, potential health regulations have to be considered.
Given the level of uncertainty it may be useful to break planning periods down into smaller time frames so that Management can evaluate the market as it evolves, align operations against the new realities, and pivot accordingly. Most companies should also re-assess their liquidity and capital structure needs.
2. Customer Experience:
Question: How should Management assess the customer experience and adjust the product and service offerings accordingly to sustain and increase top-line growth?
As consumer needs and habits are constantly changing and the market is rapidly evolving it may be critical for companies to pivot and transform to effectively compete and win in the new marketplace. Does Management have a clear view of how the company will optimize the customer experience? Does the organization have the right people and skills in place to rapidly adapt? How is the company set up to reward a nimble and innovative culture?
3. Supply Chain:
Question: What changes have to be made to the current supply chain to minimize disruptions and ensure greater reliability?
The risk of supply chain disruption has become a recurring topic in many boardrooms. Failure to address this imminent risk opens up directors and executives alike to harsh criticism, given the effects of the pandemic.
Companies should devote more discussion time to disruption risk scenarios as they evaluate the elements of quality, cost, and time. As they do so, variables such as changing customer preferences and new regulations requiring domestic or regional suppliers have to be factored in as well.
4. Learning / benchmarking / innovation:
Question: What has the organization learned during the pandemic disruption? What can be learned when benchmarking competitors and emerging technologies? How should the company incorporate such learning?
Relevant innovations, new sources of revenue, useful technologies, as well as flatter organizational structures, have enabled increased connectivity with customers, employees, suppliers, and partners. Companies should learn from digital leaders who have done very well during the pandemic. Benchmark and learn from digitally advanced competitors who manage costs through highly automated and easily scalable processes.
Take advantage of the opportunities created by the uncertainty and volatility to accelerate innovation. Resist the temptation to have the organization fall back to the way it was. Leverage the innovative solutions, cost reductions, and process improvements that Management has achieved to become the catalyst for the company’s “new normal”.
5. Environmental, Social and Governance (ESG):
Question: How are evolving market expectations affecting the company’s environmental, social, and governance (ESG) strategy?
Directors should be well aware of the expectations by institutional investors and asset managers regarding the importance of ESG matters in addition to acceptable financial performance. Boards can expect continued stakeholder focus on relevant ESG metrics.
The rise of stakeholder capitalism over shareholder capitalism is real, is here to stay and ties back to the critical fact that a firm needs social license to operate—not just a business license. Things that governments used to do, such as act to protect the environment, provide healthcare for the vulnerable, or combat homelessness and racism, now need to be part of enterprises’ ESG priorities.
Successful boards may have the resolve to proactively intervene to ensure that progress is made toward meaningful and clear ESG metrics. If this is not a priority, some firms may not be able to retain their best employees, attract top directors, or maintain their ability to finance the business.
6. Internal Controls and financial reporting:
Question: How does the company ensure robust internal controls over financial reporting as a result of the changes occurring in the business during COVID-19?
Severe economic downturns have historically led to financial reporting misstatements even in the well-managed companies. Layoffs, furloughs, changes in processes and workflows, transitioning to a remote workplace, and initiatives to focus on the customer can create opportunities for internal control deficiencies and even fraud.
The audit committee should implement increased oversight and vigilance given the unusual issues around asset impairments, special government funding programs, going concerns, and new risk factors, in addition to any critical audit matters raised by the external auditors.
For further ideas on how the Board can further support Management during Covid-19 please refer to articles 1/3 and 3/3 of this three part series.
Also, please refer to the NACD references and publications below:
Refer to articles on Covid-19; strategy; crisis communication and crisis management; cyber security and risk management
Refer to articles by Jim DeLoach; Don Lowry; David Brown; Barton Edgerton; NACD - Adaptive Governance during COVID-19: A practical guide, et al.