Board Governance during a Crisis

By Joergen Jakobsen, DaneAsia Consulting Pte Ltd

When a company is facing a crisis the board leadership is put to the test. The actions of the board can be critical for how successful a company will emerge from a crisis – or if they will be able to emerge at all. Writing this blog during the time of the COVID-19 pandemic this is more evident than ever. In this blog I will examine the top 3 priorities a board need to focus on during times of crisis.

Framing of the crisis and its phases appropriately

As a company finds themselves in a crisis having a material impact on the company the risk of losing sight of appropriate governance is real for many companies. When facing a crisis, it is helpful for the board to break down the crisis into 3 key phases in order to frame the crisis with different time horizons allowing for appropriate options to be considered in the various phases. These 3 phases are:

1. The crisis phase

During this phase the frame is typically short term and relative narrow in scope.  The key consideration is about how to protect the company, the people and its key assets. It is about damage control, prevention of major harm to the company and its stakeholders – and maybe even about the survival of the company. This is often talked about as the Business Contingency Plan for the company.

2. The recovery phase

In this phase the frame becomes wider and more mid-term in. The focus turns to how the company will emerge from the crisis. In this phase a range of tactical options will typically be evaluated in the context of how the underlying market environment starts to improve. This is often talked about as the Recovery Plan for the company.

3. The New Normal

It is important to think about the post-crisis environment as a different market environment compared to the pre-crisis environment. The market conditions and the customer requirements might have changed. The competitive landscape might have changed. The stakeholder expectations might have changed. Thus, the frame required to plan for the New Normal must be wider and a new Strategic Plan is required for the company.

Although it is helpful to think about the 3 phases as different in frame and scope it is important for boards to have an overall view of the planning and decision framework required to bring the company from the crisis situation into the New Normal given the decisions made in prior phases can impact optionality of future phases.

Focus on what matters most during the 3 phases of the crisis

The objective of the board is to govern the company by setting the frame for the future of the company within which the CEO and the executive team will define and execute the strategy under the review and approval of the board. The role of the board is to preserve and enhance the value of the company as seen by both shareholders and other stakeholders while minimizing the risk. In this light let us evaluate the key governance priorities of the board pertaining to the 3 phases:

1. The board’s key focus during the crisis phase

The key priority in this phase relates to value preservation and risk mitigation to minimize the impact of the crisis on the company. Thus, the key areas of focus relate to organizational and financial resilience:

  1. Establish scenario planning to determine the worst-case scenario of the crisis. Establish a Business Contingency Plan to ensure the company can withstand the worst-case.
  2. Review organizational resilience and experience in handling a business crisis at the anticipated level. This includes review of the experience of the executive team and the board and if required involve external resources to address deficiencies. It also includes review of the company’s work processes to effectively handle the nature of the crisis.
  3. Review the financial resilience required to handle the crisis. Assess capital requirements related to the worst-case scenario and if required increase the company’s liquidity.
  4. Review the potential crisis impact to strategic customers and partners and determine how to mitigate this risk.
  5. Increase communication frequency to the employees and key stakeholders to ensure their understanding and buy-in for decisions made.

During the depth of the crisis the board often brings a key value in being less consumed in the day-to-day operational challenges than the executive team. They often bring perspectives and experience from how other companies and other industries handle the crisis which can prove valuable. Also, during this phase the board should increase their meeting frequency to ensure decisions are made in a timely manner.

2. The board’s key focus during the recovery phase

Pending the context of the crisis this phase might have a high degree of uncertainty as timing and nature of the recovery might be difficult to predict. Thus, it is important to stay agile and adjust the recovery plan as required. The key priorities by the board would be:

  1. Evaluate the probable scenarios and strategic business recovery options provided by the executive team against the company’s ability to execute. Challenge the board to ensure various scenarios and recovery options are presented before deciding on the best plan forward.
  2. Review the compensation plans to ensure it is aligned to the new business realities striking the optimal balance between motivation of the organization and the reduced business level.
  3. Ensure the executive team defines and reviews changes required to align the organization and the operational business processes required for the business recovery plan.
  4. Review and update the financial plan and ensure adequate capital is available and allocated to make the plan successful.
  5. Communicate the business recovery plan to the organization as well as key stakeholders to ensure their support and understanding of their role to execute the plan.

3. The board’s priorities preparing for the New Normal

As the company emerges from the crisis it will be facing a New Normal. Customer behaviors and expectation might have changed from the impact of the crisis. Competition might have changed and potentially consolidated. Business processes and associated technologies might have evolved during the crisis. In addition, stakeholder expectations or legal requirements might have changed. In short, the New Normal phase might look very different from the business environment experienced prior to the crisis.

With the above in mind the board should undertake the following activities to ensure the company is well positioned for the New Normal:

  1. The board should review and if required update the overall frame and vision of the company.
  2. Request the CEO and the executive team to develop strategy options aligned to the updated frame and vision for the company and aligned to the New Normal as well as the internal capabilities of the company. The board should review and approve the new strategic plan and its KPIs and empower the executive team to execute the strategic plan.
  3. Evaluate the profile of the CEO and the execution team in order to ensure the leadership has the adequate experience to carry out the new strategy of the company.
  4. Update the risk assessment framework of the company and define risk mitigation actions as required to ensure the risk of the company is managed at the adequate level. Ensure learning and experiences from the crisis are captured.
  5. Communicate the updated strategy to the organization and key stakeholders to ensure support and alignment to the new plan.
  6. Revert to a normal cadence and format for board meetings to manage the overall governance to the company and support of the CEO and the executive team.

Having appropriate board governance processes in place

In summary, it is critical for the board to adapt and contextualize their governance practice during a crisis situation. However, the fundamentals of good board governance continue to be critically important and should be in place before a crisis develops. Good board governance includes aspects like having a diverse and active board, understanding of the roles between the board and the executive leadership team, and having in place a strong board culture and processes to optimize the effectiveness of the board – which will be put to the test during a period of crisis.

First published on LinkedIn on 25 May 2020.

Joergen Jakobsen, IDP-C is a board member, business advisor and consultant leveraging more than 30 years of experience from multiple large global technology vendors. His consulting practice is mainly focused on board advisory, business performance management, leverage of partner eco-systems for profitable growth, and optimizing organizational and individual performance in a culturally diverse environment.

Talent on the Board Agenda, before and during the crisis

Webinar with Helen Pitcher OBE and Mary Sue Rogers – 18 May 2020

Talent has never been a more important topic for the Board.  The focus on talent at the Board level is evolving, and many Boards demonstrate best practice while others still see it as more of a reporting and compliance activity.

At its heart, it cuts to the sustainability of the business.  Gone are the days when the Board examined a Nine Box matrix once a year to review the succession pipeline and rarely did these processes yield talent fit for the future as they were looking at replacing “like for like” in many instances not looking at the changing landscape of skills requirements.  Often people were placed in these boxes because they were good “Number 2’s” and made their bosses life easy!

The Financial Reporting Council – whilst a UK Code – covers many international businesses and is usually regarded as best practice governance throughout the world now requires Boards to know the talent in their organisation and the skills required for the Board to be fit for purpose.

COVID-19 has thrown up its own challenges with talent both for the future and for the immediate if sadly a key member of the team falls victim to the virus has led to emergency measures to identify who can step into these roles.  It is also highlighting a need for different skills and the leadership capability to steer the organisation through a remote and distributed leadership lens.

The webinar held on 18 May 2020, facilitated by Liselotte Engstam and Hagen Schweinitz, IDN Board members, and delivered by Helen Pitcher OBE, IDN President and Mary Sue Rogers explored the issue of Talent, the Board’s focus and the myriad of challenge it creates.  Practical guidance was given as to how to approach this and excellent questions were posed by the 80 plus people signed up for this lively and interactive session.

Topics discussed included:

  • The type of company and size of the Board will drive how the talent agenda is addressed. For those of us that are passionate about this topic, we will have achieved success when the HR Committee, Nominations Committee, Remuneration committee, or whatever it might be called,  has a level of standardisation and focus equal to the Audit and Risk Committee.
  • Every company’s governance process should have oversight into key talent topics beyond just executive remuneration and CEO recruitment.
  • Having an annual Board cadence around topics such as strategic talent needs, succession, employee development, engagement, culture, and specific workforce challenges such as recruitment and retention is best practice.
  • Boards should also have a way to educate themselves on the key talent trends – topics such as “gig workers”, robotics and AI, career development, and performance management.

By Helen Pitcher OBE, IDN President, Non-Executive Director, Chair Board Committees, and Mary Sue Rogers, Non-Executive Board Director, Committee Chair.

What can boards do to handle the Coronavirus Pandemic?

Webinar with PwC Singapore – 31 March 2020

On Tuesday 31 March 2020, the INSEAD Director Network held a topical webinar for its members on “What can boards do to handle the Coronavirus Pandemic”.

The webinar was facilitated by Liselotte Hägertz Engstam (IDN Board Member, Non-Executive Director & Chair at Listed & Private Companies), introduced by Karen Loon (IDN Board Member and Non-Executive Director), and featured guest presenters, See Hong-Pek and Marc Philipp of PwC Singapore, and with Q and A support by Gerard Forlin QC.

In her introduction, Karen Loon noted that COVID-19 is a wicked problem which globally is impacting all our lives personally and well as professionally. A challenge for all of us is dealing with the rapid change – how do we move from our fear zone (anxiety and ambivalence) to a learning zone, and ultimately a growth zone where we embrace this opportunity.   She also shared her experiences of both some short-term challenges of boards (especially helping people, business continuity and clients), as well as some medium term potential focus areas, and concluded that it is during these fluid times that it is important that we all leverage our networks for diverse ideas and perspectives.

Three waves of response

SEE Hong-Pek of PwC Singapore highlighted three potential scenarios (contained, pandemic with hot spots, and uncontrolled pandemic) concerning the evolution of the crisis which need to be taken into consideration by companies which will have different impacts on organisations.

Companies are likely to go through three different waves (mobile – immediate; stabilise – medium term; and strategise – long term) as they learn to adapt and accept the new “norm”.

Supply chain challenges

Marc Philipp of PwC South East Asian Consulting outlined some of the external and internal challenges which companies which PwC works with have experienced in relation to their supply chains.  These have included external (unpredictable demand; supply disruption; economy uncertainty; contractual challenge), and internal issues (production/internal supply, workforce limitations; financial and regulatory issues; operational issues).  An example of a challenge for some companies was to be able to manage the increase in demand for products in China after some restrictions were lifted.

He also suggested eight questions which boards could be asking in relation to their business continuity plans, operational risk assessment, scenario planning, alternative sourcing, risk assessment across supply chain tiers, critical supply chain data, temporary inventory and evaluation processes, and product redesign/material certification resources.

IDN members also raised questions, particularly in relation to legal matters including global legislation, work from home legal employer duties, data protection, and potential litigation.  The speakers all agreed that good communication with all stakeholders is vital, and that that board members play a key role in supporting the mental wellbeing of the people in our organisations, particularly CEOs.

INSEAD IDN will be arranging more webinars on managing during the crisis for our members in the next few months so do watch out for them!

SEE Hong Pek – Partner, Business Resilience, PwC Singapore  specialises in assurance and management consulting services in the areas of information technology, data privacy and business controls.  

Marc Philipp, Partner & Management Consulting Leader, PwC South East Asia Consulting has significant experience in corporate strategy, operating model design and digital supply chain transformation across Asia Pacific.

Managing the Board in a time of Crisis

with Herman DAEMS, Chairman of the Board of BNP Paribas Fortis

Webinar with IDN Belgium Alumni – 13 May 2020

IDN Belgium invited the IDN Belgium network to listen to a speech on “Managing the Board in time of Crisis” with Herman DAEMS, Chairman of the Board of BNP Paribas Fortis.  This webinar, moderated by Xavier BEDORET, was attended by approximately 40 participants.

We began by raising the question of the priority to be given to short term vs. long term issues.  Short-term topics undoubtedly include concerns about liquidity and solvency.

Secondly, is the widespread crisis a threat to the independence of our company? Or is it an opportunity to consolidate another player?  Is the composition of the board, and in particular the diversity of profiles, a success factor?  We are thinking not only of gender diversity, but also diversity of expertise in the field of digitalization and e-transactions.  The quality of the relationship with the CEO and the executive team is essential.  The teams must be close and aligned. Sometimes the chairman needs to manage tensions at the top.

In the longer term, we will have to measure the impact of the crisis on the value chain.

The speaker concluded by saying “our companies will be called upon by society to play a different role”.

By IDN Belgium Ambassador, Xavier BEDORET