How boards are adjusting to the COVID-19 crisis and beyond

Directors say their focus is on supporting management and assessing longer-term issues.

Perth-based director Diane Smith-Gander AO FAICD, has moved to Sydney time so she can take early-morning calls. That means going to bed at 8pm and waking at 3am on some days for videoconferences with east coast colleagues.

Smith-Gander immediately changed her schedule during the COVID-19 crisis so her diary could accommodate more meetings – some at unusual times and with directors working from home here and overseas.

“One of my east coast boards said they would delay their 6am meeting to accommodate my time zone, but it was easier for me to fit into their schedule,” says Smith-Gander. “Waking up very early to take conference calls is a minor sacrifice in the scheme of things.”

Working from home if possible and strictly observing public health advice is vital for all Australians, and particularly so for directors. As the COVID-19 crisis threatens organisations across industry and drives some into insolvency, board continuity is critical.

The role of Australia’s governance community has never been as important. Timely, responsive and at times bold board decision-making will be required to help management steer organisations through the crisis, protecting stakeholders and the community.

Boards will have to make decisions during a period of great uncertainty and volatility – one that has no precedent. As directors focus on the unfolding crisis, they will need an eye on the future to understand what their organisation will look like in coming months and years.

Understandably, as the COVID-19 outbreaks takes lives and livelihoods, few directors want to talk about opportunities. But it is incumbent on for-profit boards to ask if their organisation can benefit from industry volatility in months ahead; for example, increasing market share, acquiring a weakened competitor or a permanent workforce restructure.

Succession planning, too, takes on new meaning. It is possible that some directors will contract the virus this year, requiring a temporary board replacement. A chairperson, for example, could step in as Executive Chair if the organisation’s CEO is infected.

Smith-Gander is taking no chances with her health or those around her. An avid skier, she returned from the United States in early March before mandatory self-isolation rules were imposed. She cancelled meetings, worked from home and has had no symptoms.

Like other directors, Smith-Gander has adjusted quickly to her new routine. Across Australia’s governance community, virtual board meetings, digital communication and working from home have become the norm. Meetings have been shortened to make video or teleconferencing easier.

There is no board travel, site visits, expert presentations, board dinners, industry seminars, education courses or catch-ups with governance peers, in person. That frees up time to help directors cope with increased workloads, but there are other challenges.

Like many, Smith-Gander is noticing the effects of self-isolation. She is a non-executive director of Wesfarmers and AGL Energy, National Chair of the Committee for Economic Development of Australia (CEDA) and is known for her mentoring and gender-diversity work.

“Boards are social systems,” she says. “If directors are doing their role, they are out and about talking to stakeholders across their various board roles and being part of the business and governance community. Suddenly, directors are working on their own from home and communicating almost entirely online. I have realised how much extra time is involved with board work through work travel, board dinners or catch-ups with management.”

Smith-Gander says directors must focus on the task at hand: ensuring their organisation survives and is well positioned when the crisis abates. She believes boards, generally, should narrow their focus to three main issues.

The first is key-person risk. “The biggest threat any organisation faces now is losing key capability,” she says. “Boards must be satisfied that everybody in the company, from the Chair to a trainee, has the right mindset to protect themselves and others. This is no time for management to try to ‘soldier on’ or for high achievers to think they are bulletproof. Boards and management must set the example by working from home, following health protocols and encouraging others to do the same.”

Strategy is the second issue, says Smith-Gander. “Short term, boards need to know what the organisation’s cash flows and debt position looks like under various modelling and have plans in place for different scenarios. As important is understanding what the organisation’s growth trajectory looks like when we get through the crisis. Boards should ask: will the company’s business model be sustainable for a post-COVID-19 world and what opportunities will emerge?”

Disclosure is the third issue. Smith-Gander says listed-company boards must ensure their organisation continues to meet its disclosure obligations in the crisis. “With business conditions changing so rapidly, knowing which information could be material and thus needs to be disclosed, can be challenging. Boards must ensure the market is fully informed at all times.”

Maintaining focus

Dr Vanessa Guthrie says there is a risk that boards pivot too much to crisis-management during COVID-19. As business uncertainty increases, the temptation is for directors to blur lines with management or neglect other governance issues.

“It is natural that directors want to pitch in during a crisis,” says Guthrie. “I’ve always regarded directorship as a 24/7 role and like most directors I am having more meetings and communication during COVID-19. But you have to be careful not to overstep your role”

Guthrie is a non-executive director of Santos, Adelaide Brighton, Tronox Holdings PLC and Australian Broadcasting Corporation, and a former Chair of the Minerals Council of Australia. Based in Perth, Guthrie has also had early-morning or late-night calls for her local and international boards.

Guthrie says it is vital in any crisis that the Chair and CEO are in frequent contact and for the Chair to update directors regularly. “What you do not want is directors bombarding management with unnecessary information requests at a time when the executive team is under immense pressure. The board should ensure it has the right processes to get the information from management it needs.”

Guthrie believes boards must let management get on with day-to-day issues and focus on what’s ahead. “Boards should support management to control issues that confront them today, while looking at the organisation’s pathways as it emerges from the crisis and beyond,” she says. “Boards must keep asking, ‘what’s next for the organisation under different scenarios?’ That long-term thinking is valuable with management so focused on current issues.”

She says directors must stay abreast of what is unfolding in the economy, capital markets and supply chains – and form their own view of current and future impacts. “In particular, directors need to consider their organisation’s strategy and its effectiveness in a post-COVID-19 world.”

Ensuring there is enough time for issues beyond the crisis is vital, says Guthrie. “The risk is some boards drop too many things and get swamped by COVID-19 discussions. Boards obviously have to free-up significant time for COVID-19 decisions, but there has been a ‘perfect storm’ of issues in the past year: drought, bushfires, floods, trade wars and the oil price collapse have all affected how companies can continue to operate. Boards and their committees must maintain focus on a range of issues and not allow themselves to be consumed by COVID-19 commentary or speculation.”

Guthrie says boards should ensure their organisation remains calm and focused during the crisis. “With the global magnitude of COVID-19, it is important boards set the tone for their organisation with a considered response and lead by example. Difficult governance decisions in uncertain times could be required, but that’s our job.”

Organisation wellbeing

Dr Anne Astin AM PSM, says boards must consider organisation and individual resilience during the COVID-19 crisis. “The risk of anxiety among employees cannot be overstated. People are understandably worried about the health and livelihood of their family, work colleagues and friends, and themselves. Management will inevitably become fatigued and tensions could run high. Boards, first and foremost, must focus on the health and wellbeing of employees and other stakeholders, now and in coming months. The governance implications of this crisis will not be short-lived.”

Astin, a prominent food scientist, chairs the Food Agility Cooperative Research Centre (CRC) and Dairy Food Safety Victoria. As Chair of Good Shepherd Australia New Zealand, a not-for-profit that provides safe spaces for women and families, Astin has seen the effect that COVID-19 is having on the NFP sector and demand for its services.

“Unfortunately, demand for NFP services will go through the roof because of COVID-19,” says Astin. “With so many people losing their job, there will be a new class of “middle class” poor who will need support, not only financially, but also with all the personal, family and social problems that come with that. A spike in services demand will occur when many charities are under pressure from COVID-19, financially and especially if they rely on a large cohort of volunteers who have to stay at home.”

Communication is key, says Astin. “You can never over-communicate during a crisis. Yes, balance is needed to provide enough communication for stakeholders while letting management do their job. But bigger problems usually emerge when there are information vacuums. Boards must ensure organisation stakeholders are as fully informed as possible.”

Assessing crisis response and business continuity plans is vital, says Astin. “Larger organisations typically have detailed plans in this regard but that might not be true of smaller companies or charities. Boards must be satisfied their organisation has a clear plan to work through – and survive – the crisis or can develop or update such plans quickly if needed.”

Boards, particularly those in smaller organisations, should work closely with management on COVID-19 scenarios. “Again, larger companies will have people who can do that modelling. Small NFPs and membership-based organisations, for example, might require the board to help with modelling on best-case and worst-case scenarios and their impact on cash flow and funding.”

Boards can also help management of smaller organisations work through various contractual issues, as part of their risk-management focus, says Astin. “For example, does your insurance cover assets damaged by the crisis? What are the organisation’s key contractual risks? What are the main safety issues if staff are working from home or there is a reliance on volunteers? What problems could emerge in the next few months that we need to plan for now?”

Astin says there is no one-size-fits-all governance approach for COVID-19. “Every plan must be customised for the organisation and its situation. However, the common goal should be for boards to create a collaborative circle of support across the organisation, its stakeholders and the community. That is, for the governance community to show strong leadership during and after this crisis, as it has done so far.”