What Directors Should Be Asking Right Now

As the 50 US states emerge from lockdown, discussions tailored to the evolving marketplace and issues around employee health and safety are needed in the boardroom. While the specifics will vary depending on the circumstances, these 10 questions merit consideration during COVID-19 recovery.

1. What does our business look like going forward, and what is our strategy for aligning with market realities?

Companies will have to adjust to the pandemic’s impact on market demand for their core products and services. Organizations that can digitize their offerings have will have to do so totally in order to compete. Businesses dependent on gatherings of people, however, need to revisit their strategies. Here, consider the varied reopening policies in different parts of the country and potential regulations that could consequently be implemented.

In the interest of fostering resiliency, it may help to break planning periods down into smaller increments so that management can evaluate the market as it evolves, recalibrate operations to align with new realities, and pivot accordingly. Most companies should also assess whether their liquidity and capital structure need strengthening given the potential future scenarios they face.

2. What are we doing to create an environment in which as many of our employees as possible can work safely?

Companies are taking different approaches to reopening depending on the efficacy of their technologies and tools that facilitate remote work. Some are allowing remote work options permanently while others are not planning to reopen physical locations until 2021. The implications of emphasizing safety during recovery from a company reputation standpoint cannot be overstated.

With respect to manufacturing and other operations requiring manual labor, what proportion of the workforce can be returned safely? What level of production activity (and volume) is realistic, given established safety protocols? Do these levels align with opportunities seen in the market?

Management should adopt a “zero defects” mentality when reopening and empower employees to speak freely so that careless mistakes are avoided. Consideration should be given to air conditioning systems, the health implications of reopening shut-down buildings, the safety of how employees get to and from work (i.e., mass transit systems), workspace design, meeting protocols, managing the safety of common areas, and engaging employees who continue to work remotely.

3. Have we analyzed the customer experience to ascertain whether we should evolve our product and service portfolio to sustain and increase top-line revenues?

Transforming and pivoting the business as the market evolves is a vital, differentiating skill for competing in a market characterized by rapidly changing customer habits and ever-shifting consumer preferences. Does management have a clear view of how the company will optimize the customer experience? Does the organization have the right people and skills as well as the trust-based, innovative culture to make that vision a reality? This focus should include the delivery experience, with an eye to both speed and safety.

4. How do we alter our supply chain to minimize disruptions experienced during the pandemic and to ensure reliability?

Supply chain-disruption risk is a common topic in many boardrooms, as the failure to address it opens up directors and executives alike to harsh criticism, given the effects of the pandemic. Companies should give more weight to disruption-risk considerations as they evaluate the elements of quality, cost, and time. As they do so, they may have to consider changing customer preferences and new regulations requiring domestic or regional suppliers.   

5. Is our directors and officers (D&O) insurance coverage sufficient given current and future COVID-19-related risks?

No matter how extensive management’s due diligence is, savvy directors realize that reopening brings a risk of employees or customers getting infected, creating an environment ripe for class-action lawsuits. Advice from counsel may be useful to ensure the board is fulfilling its oversight responsibilities. Some insurers may have included effective exclusionary language in existing D&O coverage or may include such language when policies are renewed.

6. During the lockdown, what have we learned about our organization and from other leading businesses? Going forward, which learnings should we inculcate?

New innovations, revenue sources, and technologies, as well as flatter organizational structures, have led to increased connectivity with customers, employees, suppliers, and partners that may not have been extant pre-pandemic. Companies can learn from digital leaders who have prospered during the pandemic. The pandemic also illustrates the importance of going head-to-head with digitally advanced competitors who manage costs through highly automated and easily scalable processes. What takeaways should we incorporate into our culture and business model going forward?

7. How are evolving market expectations affecting our environmental, social, and governance (ESG) strategy?

Directors are well aware of the shots across the bow by institutional investors and asset managers regarding the importance of ESG matters in addition to acceptable financial performance. As ESG funds have thus far outperformed non-ESG funds during the pandemic, boards can expect continued stakeholder focus on relevant ESG metrics. 

8. How confident are we that our internal controls over financial reporting remain effective amid the changes occurring in our business?

History indicates that severe economic downturns breed financial reporting misstatements. Layoffs, furloughs, process changes, transitioning to a remote workplace, transitioning back to the office, and initiatives to focus on the customer can create, individually or collectively, opportunities for internal control deficiencies and fraud. Given the unusual issues around asset impairments, government funding, going concerns, and new risk factors, audit committees should exercise increased vigilance in this environment. In addition, critical audit matters raised by the external auditor warrant attention.

9. Have we strengthened our cybersecurity practices to address new threats arising from technologies we’ve leveraged to transition our workplace and business model?

Security and privacy questions remain as relevant to emerging from lockdown as they did in transitioning to a remote workplace. For most, at least in the near term, the work environment will remain distributed and business models will place more emphasis on reimagined processes, automation, and “hyperscalability.” The conversation should encompass technical and human parameters, as bad actors target both.    

10. How prepared are we for a resurgence of COVID-19 infection, including a return to lockdown in specific markets?

Unfortunately, flare-ups and possibly even another outbreak of the virus can and likely will happen in some areas. What lessons did we learn from being unprepared for the first outbreak? Have we conducted a post mortem? Do we have all of the tools we need to function remotely without missing a beat? Has our contingency plan been updated?

While many of the above questions apply across industries, more specific questions may be relevant to directors in different sectors. Accordingly, we have prepared illustrative, industry-specific questions for boards to consider in the following industry groups: consumer products and retail; hospitality; airlines; energy and utilities; financial services; health care; manufacturing and distribution; and technology, media, and telecommunications.