COVID-19 - ROLE OF BOARDS
Friday, 24th April, 2020
SUMMARY OF DISCUSSIONS
Covid-19 came with not much of advance notice, and wrought, and continues to wreak, untold havoc on
the lives and health of humankind, across continents, and the economic health of most nations. In the
corporate world, managements are waging continuing battles to ensure crisis management of a high
order. They are also seeking to put in place the building blocks of a recovery plan. Disaster Recovery and
Business Continuity plans are being subjected to extreme forms of stress-testing, necessitated by this
In this extraordinary effort to keep the ship afloat, so that it can sail, once normalcy sets in, Boards and
Non-Executive Directors seem to be having an insignificant role. A few managements have reached out
to Boards for advice and a few others have kept the Boards informed. A majority of the managements
have chosen to deal with the crisis by themselves, without " troubling" the Board.
- VUCA world is here. Some organisations will collapse.
- This could not have been in any company's risk register as its spread and impact could not have been
anticipated. Therefore, no company had a clear idea of how to deal with it.
- This situation being unprecedented, Board members and managements are figuring out their
respective roles in this context.
- Managements have no clarity on the extent to which they should keep Boards informed and/or
involved. Boards on their part, are not clear as to whether they should actively seek information, or
passively wait for information.
- Some managements, while taking whatever steps are contemplated in this context, are keeping Boards
informed and reaching out to Board members for guidance and support. Some others are sharing
information periodically, with no expectation that the Boards will come back with valuable information
or advice. Yet another category is not even keeping Board members informed, either because they
believe that their time can be put to better use or because of the fear of unwarranted intrusion.
- Most managements recognise that when companies emerge from this crisis, they could be significantly
different from what they were before this crisis.
- The response of different groups and different companies has been significantly influenced by their
inherent strengths, their access to capital, their ability to leverage expertise residing in the group etc.
Smaller companies, especially in the MSME sector, are suffering disproportionately, with shrinking
demand, revenues that have dried up, receipts that are nowhere in sight, and payments for which they
are being pressurised. The extent to which an entity is regulated has also significantly influenced the
ability of that company to respond to that crisis.
- CEOs are experiencing the phenomenon of being lonely at the top. This is a situation where
handholding by the Board is critical. The Board as a collective, and within it, individual Board members
should quickly examine, if they have not done so, in what areas they can come to the aid of the
management. Their interpersonal relationships, including, but not limited to, senior government
functionaries, should be brought into play at this stage, in order to strengthen management's resolve to
tackle the seemingly insurmountable problems.
- Many companies are staring at a mountain of debt. This is a global phenomenon. It is important for the
Government and the Central Bank to ensure that companies, especially smaller companies, are not
starved of funds at this critical juncture. Governments in some other countries have loosened their
purse strings to help companies tide over the financial element of the crisis, especially for sectors and
companies that are finding it difficult to raise capital.
- The situation being very stressful for companies, private equity funds are striking unconscionable deals
which post-Covid, could leave companies in a much worse situation than they were in before the onset
of the pandemic.
- It is also important that significant shareholders inject whatever capital they can provide in these
- Conceptually, the role of a Board does not change. Its traditional role has been to ensure that the
company has the right leadership, governance structure, strategy and tracking mechanism in place.
While these aspects of the role remain unchanged, the environment in which companies exist and work,
has undergone a very major change, and therefore the Boards need to reconfigure the manner in which,
and the priorities with which, they will discharge the responsibilities.
- There will be increasing engagement of the Board with management, Government, Regulators, and
various other stakeholders, but this engagement should not be in a manner that undermines the efforts
made in the same direction by the management. Stated differently, the role of the Board would be to
supplement, and not supplant the efforts of the management.
- The meetings of Boards need not be according to the predetermined annual calendar. It should be
possible for Board members to meet either in formal sessions or in informal executive sessions, to
determine issues, in regard to which, and the extent to which, they need to associate with the problemsolving
efforts underway. While there could be Board meetings, there must be the recognition that
formal meetings take up management time, and could detract management from its ongoing efforts of
putting out the fires and addressing the urgent concerns.
- This is also an occasion for the Chair of the Board to demonstrate effective leadership. In a normal
situation, the Chair's role is to provide leadership to the Board during Board meetings, in order to
extract value from his/her colleagues on the Board. In the present context, the Chair should expand the
role to engaging with Government, industry bodies as well as stakeholders, in order to serve as a bridge
between them and the management, as also to signal the continuing confidence of the Board in the
- Independent Directors should also have informal conversations among themselves, in order to enrich
the problem-solving potential that exists in the company. In the process, they should not individually
reach out to the management, but bring their thoughts and suggestions to the Chair of the Board, who
could appropriately communicate them to the management.
- The Board is the custodian of the moral compass of the company. Since that is predicated on values, the
Board should ensure that expediency which manifests itself in difficult times, does not adversely impact
on the value system.
- While management is normally presumed to act in the right manner, especially in difficult times, the
tendency of some managements to shoot all over the place must be identified and discouraged. The
Board should provide guardrails, and not handcuffs. Board members, who have in the past held
executive positions, and dealt with crises, should empathise with the management, and lend their
shoulder for the management to rest its weapons on.
- While the attention of management is expected to be almost entirely on tactical issues emerging from
the problem, the Board should step back from the immediacy of the situation, and look towards the
post-Covid situation, to identify the steps to be taken for the medium term to long term survival and
prosperity of the company.
- Managements at the best of times have to grapple with inadequate resources. This problem gets
accentuated in times like the present. Helping managements prioritise the resource allocation efforts is
therefore one of the major responsibilities of the Board. The related issues of liquidity and solvency
also need to be owned and addressed by the Board.
- These are occasions in which managements will have to consider unpleasant options such as wage
freeze or reduction or deferment as well as the freeze on hiring, and managing pending payments with
limited resources. Boards must back, and be seen as backing, managements' efforts in regard to these
difficult decisions. The perception must be clear, and the message must go out loud that the Board and
the management are completely united in regard to these difficult decisions.
- These are not circumstances in which managements have the luxury of time to think through all the
implications of some of their decisions. Speed in decision making does generate its own risks. This
should not persuade managements to be risk averse, and to search indefinitely for perfect solutions. In
balancing risk and reward, the management will legitimately look to the Board for passive, if not
- It is useful to remember that the workforce, as well as other stakeholders, will carefully scrutinise the
decisions of management. There must therefore be fairness in decision making and action, and such
fairness must be visible to stakeholders.
- While outstanding performers need to be encouraged, others should not get the impression that they
no longer belong. Capital raising efforts constitute yet another area in which the Board should provide
active leadership. This becomes even more challenging in difficult times, especially in joint venture
companies, where one partner is anxious to infuse additional capital by capital raising efforts, whereas
the other partner is willing to wait and watch how the situation develops.
- The importance of cash flow is a matter that does not require emphasis. Managements and Boards must
recognise that in these situations, with banks being flush with funds, and with bond markets looking for
credible issuers, capital can be raised at a reasonable price.
- Succession planning is one of the important responsibilities of the Board. It is entirely possible that
most Boards have by now addressed this situation satisfactorily, having regard to planned exits such as
arising out of superannuation etc. What assumes criticality at the present juncture is how quickly a
person can be replaced, at least temporarily, if that person is rendered non-functional by Covid-19. The
"here and now" replacements must be identified, and in some sense, be alerted to the possibility of
additional/ higher responsibilities being entrusted to them if Covid-19 takes any incumbent out of the
equation, hopefully temporarily.
- Whenever the role of the Board is discussed, strategy is identified as a major responsibility. It is
however on such occasions, that the importance of strategy is fully recognised. With both the present
and the future clouded by uncertainty, Boards and managements will have to look at strategic options,
contingent plans, and scenario-based alternatives, so that what needs to be done gets done quickly and
- Cost consciousness has not been a high priority with some Boards in good times. This is a context in
which Boards and managements should ruthlessly eliminate all avoidable costs and allocate resources
appropriately. While cost structures and business models will need to be re-evaluated, with increasing
focus on technology, re-inventing the organisation to cope with the changing world is clearly an
- In every crisis, it is the short term that understandably gets the highest attention. If a company does not
survive short term problems, all discussions regarding the long term will be academic. This however
should not take away the responsibility to harmonise short term plans and the long term strategy.
- This is clearly a time for thinking out of the box. All persons, irrespective of their position in the
hierarchy, should be encouraged to come up with suggestions and solutions that seem relevant, and can
possibly add value. At the same time, the Board should identify other business opportunities that are available to the company in post- Covid times, and help the management to prepare for such an eventuality. As the saying goes, no crisis should be wasted, because therein resides an opportunity.
- One problem that has surfaced in recent times, and has tended to become a frightening possibility in
Covid times, is the attack on cyber systems, and the inadequacy of many companies to recognise,
identify and respond to the threats. With a large segment of the workforce operating out of their homes,
the vulnerability of systems has increased and defence mechanisms must be put in place at the earliest
- In difficult times such as this, the mental wellbeing of employees needs to be ensured. Counselling
arrangements must be put in place, and employees must be made aware of the support systems that
are available within the organisation. Companies must work towards ensuring that as they step into the
future, they do so with a workforce that is recharged and reenergised.
- The possibility of litigations constitutes one of the unwelcomed products of the pandemic. Delay in the
fulfilment of contractual obligations is expected to give rise to litigation including class action suits.
Boards must work with managements to evaluate the possibility of pre-litigation mediation. At the
same time, the D&O liability insurance policies and other insurance policies should be carefully
scrutinised to ascertain whether they meet the requirements of the present situation.
- There could also be threat of litigation by employees who are adversely affected by Covid, and believe
that the managements did not support them adequately during their times of personal difficulties. This
possibility has been enhanced by the directions of the Government that persons in-charge of the
establishment will be responsible if in a post lockdown situation, any employee contracts the illness in
- It is entirely possible that without access to physical locations, as well as physical records, auditors
have some difficult in carrying out a proper audit. Boards and Audit Committees must satisfy
themselves by direct questions to the auditors, whether the quality of audit was in any manner
adversely affected by the inability to visit premises and access physical records, as also having inperson
discussions with the representatives of auditees.
- Communication is critical. All communication lines between the management and the employees,
between the Board and the management, and between the Chair and the CEO must be kept open at all
times. The content of the communication to employees and stakeholders must be clear, and should
reflect a sharing and caring attitude. Townhalls should become more conversational, than one way
monologues. The communication between the management and the workforce must be at different
levels of leadership, with the message remaining identical. The CEO should seek out the Chair of the
Board and, if necessary, other members to get insights and inputs that will strengthen him/her in
tackling the crisis situation. Chair and Board members should also be taken advantage of for
communications with the Government, Regulators and industry bodies.
- Erecting defence mechanisms against the crisis, identifying the opportunities that lie ahead, and
redesigning and preparing the organisation for the challenges of the future, are tasks in which the
management and the Board should completely identify with each other, with shared concerns, and
CORPORATE GOVERNANCE SPECIALISTS
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