NEW REPORT OUT NOW
Back to all opinion articles
29/04/2020
Clearly executives are critical during the COVID-19 pandemic, but what is the role of the board?
While executives are close to an organisation’s daily activities, people and operational changes, the board (particularly non-executive directors) retains a perspective that stands apart from management even more than usual.
Corporate governance expert Robert Tricker has a governance model that divides board activities into those that are outward and inward looking, and those focused on conformance and performance.
Tricker’s framework (with some adaptations) offers useful guidance for considering where boards should focus their efforts in the context of COVID-19:
Accountability to stakeholders
Right now, external relationships are critical. These include relationships with shareholders, financiers and other funders, key customers, suppliers and partners, unions, industry bodies and government policy makers. The board needs to obtain assurance that those channels are working effectively, communication is flowing regularly, and that risks and responses are openly addressed. Effective boards are involved in fostering critical external relationships and communicating steps being taken to sustain the organisation’s viability and future success.
Monitoring performance and compliance
Maintaining oversight of these factors remains a key role. This requires being assured that basic operational controls are in place while addressing the risks inherent in the current crisis. Board and management need to negotiate how reporting on performance will vary from a business-as-usual context, so the board is aware of inflection points and real-time trends, but management is not spending undue time in reporting or explaining changes in performance.
Anticipating risk
During the pandemic, some risks are magnified and others become less important. Frequently, crises expose and exacerbate existing weaknesses in processes, resources, capabilities and relationships. The board requires a shared view about heightened risks across the organisation and how these are being managed. The monitoring of risk shifts to identifying and assessing scenarios that may emerge over the next one, three, six and 12 months and beyond, and the actions required to mitigate the risks in those scenarios. Risks relating to the personal safety and retention of staff and customers, as well as liquidity, cash flow and financial covenants, should be foremost in the minds of board members.
Strategic development
The board is responsible for ensuring that decisions that must be made at this time are made, that decisions that should not be made are deferred, and that any decisions made to address short-term issues are consistent with, and will not detract from, longer-term strategies. This requires significant discernment that will become increasingly important the longer this pandemic persists. As far as possible, the board provides a continuing perspective on the medium to longer term while management may be consumed with immediate demands. The board needs to keep preparedness and positioning for recovery on its agenda and scan for emerging trends and opportunities.
Policy making
The board determines whether the current circumstances require changes in delegations to the chief executive so that management can respond in the timeframes required by these exceptional circumstances. Scenario planning and related risk assessments will inform which policies may be tested during this pandemic. The board should ensure that, as far as possible, board and management are clear about these policies and any process for their review.
Culture
A crisis such as a pandemic is the ultimate test of culture. The real organisational values are revealed in the organisation’s transparency and in how decisions are made, communicated and implemented. The board is a steward of organisational culture. Boards should assess how they will model the desired organisational culture. What levels and forms of visibility and communication are appropriate for the board? If staff are being cut and wages reduced, will board members share the financial pain?
For starters, the board needs to support management in responding to the exceptional challenges and to the personal demands on executive leaders.
The board sets the tone in its engagement with management, staff and other key stakeholders. It can address issues with relevant insights and offer calm reassurance about the organisation’s future, drawn from directors’ experiences during previous crises.
Boards need to be clear about the space they give management to respond to the daily evolution of the crisis without seeking to tell executives how to perform their roles. Directors should avoid the heightened temptation to perform the role of management.
Looking ahead, boards have a responsibility to consider the horizon beyond the pandemic. COVID-19 is resetting markets, consumer attitudes and competitive positioning. That disruption offers risks and opportunities; boards should ensure that enough time and attention are devoted to each.
Often, organisations are transformed through crises. The ways of working become more agile, with unnecessary bureaucracy giving way to adaptive action. Boards should encourage management to review the changes that emerge during the crisis (including reporting and interactions between boards and management) and ensure that recovery does not mean reverting to old ways of working. Instead, new ways of working should be embedded as a dividend from the crisis.
Boards have a unique role with a distinct perspective no other part of the organisation can bring. The board’s role is more important than ever during a period of uncertainty, like we are experiencing today as organisations confront COVID-19, and tomorrow as they position their organisations for recovery and a transformed world.
While executives are close to an organisation’s daily activities, people and operational changes, the board (particularly non-executive directors) retains a perspective that stands apart from management even more than usual.
Effort needs to be applied strategically
With so many functions to perform, boards need to avoid becoming as overwhelmed as the executives that report to them.Corporate governance expert Robert Tricker has a governance model that divides board activities into those that are outward and inward looking, and those focused on conformance and performance.
Tricker’s framework (with some adaptations) offers useful guidance for considering where boards should focus their efforts in the context of COVID-19:
Accountability to stakeholders
Right now, external relationships are critical. These include relationships with shareholders, financiers and other funders, key customers, suppliers and partners, unions, industry bodies and government policy makers. The board needs to obtain assurance that those channels are working effectively, communication is flowing regularly, and that risks and responses are openly addressed. Effective boards are involved in fostering critical external relationships and communicating steps being taken to sustain the organisation’s viability and future success.
Monitoring performance and compliance
Maintaining oversight of these factors remains a key role. This requires being assured that basic operational controls are in place while addressing the risks inherent in the current crisis. Board and management need to negotiate how reporting on performance will vary from a business-as-usual context, so the board is aware of inflection points and real-time trends, but management is not spending undue time in reporting or explaining changes in performance.
Anticipating risk
During the pandemic, some risks are magnified and others become less important. Frequently, crises expose and exacerbate existing weaknesses in processes, resources, capabilities and relationships. The board requires a shared view about heightened risks across the organisation and how these are being managed. The monitoring of risk shifts to identifying and assessing scenarios that may emerge over the next one, three, six and 12 months and beyond, and the actions required to mitigate the risks in those scenarios. Risks relating to the personal safety and retention of staff and customers, as well as liquidity, cash flow and financial covenants, should be foremost in the minds of board members.
Strategic development
The board is responsible for ensuring that decisions that must be made at this time are made, that decisions that should not be made are deferred, and that any decisions made to address short-term issues are consistent with, and will not detract from, longer-term strategies. This requires significant discernment that will become increasingly important the longer this pandemic persists. As far as possible, the board provides a continuing perspective on the medium to longer term while management may be consumed with immediate demands. The board needs to keep preparedness and positioning for recovery on its agenda and scan for emerging trends and opportunities.
Policy making
The board determines whether the current circumstances require changes in delegations to the chief executive so that management can respond in the timeframes required by these exceptional circumstances. Scenario planning and related risk assessments will inform which policies may be tested during this pandemic. The board should ensure that, as far as possible, board and management are clear about these policies and any process for their review.
Culture
A crisis such as a pandemic is the ultimate test of culture. The real organisational values are revealed in the organisation’s transparency and in how decisions are made, communicated and implemented. The board is a steward of organisational culture. Boards should assess how they will model the desired organisational culture. What levels and forms of visibility and communication are appropriate for the board? If staff are being cut and wages reduced, will board members share the financial pain?
Practical steps need to be taken
With this framework to guide activity, there are practical steps boards can take to help organisations come out the other side with strength.For starters, the board needs to support management in responding to the exceptional challenges and to the personal demands on executive leaders.
The board sets the tone in its engagement with management, staff and other key stakeholders. It can address issues with relevant insights and offer calm reassurance about the organisation’s future, drawn from directors’ experiences during previous crises.
Boards need to be clear about the space they give management to respond to the daily evolution of the crisis without seeking to tell executives how to perform their roles. Directors should avoid the heightened temptation to perform the role of management.
Looking ahead, boards have a responsibility to consider the horizon beyond the pandemic. COVID-19 is resetting markets, consumer attitudes and competitive positioning. That disruption offers risks and opportunities; boards should ensure that enough time and attention are devoted to each.
Often, organisations are transformed through crises. The ways of working become more agile, with unnecessary bureaucracy giving way to adaptive action. Boards should encourage management to review the changes that emerge during the crisis (including reporting and interactions between boards and management) and ensure that recovery does not mean reverting to old ways of working. Instead, new ways of working should be embedded as a dividend from the crisis.
Boards have a unique role with a distinct perspective no other part of the organisation can bring. The board’s role is more important than ever during a period of uncertainty, like we are experiencing today as organisations confront COVID-19, and tomorrow as they position their organisations for recovery and a transformed world.