Insights created to navigate the operational challenges which COVID presents
In 1992, Sir Adrian Cadbury defined corporate governance as the system by which companies are directed and controlled. That short, yet comprehensive, definition is still very much valid today. That definition refers to two sets of activities as part of governance; direction and control, both fall within the responsibility of the board of directors. Boards need to set the right vision, mission, and values of the company, approve its strategy, along with its risk appetite and KPIs. Further, the board needs to make sure that the company has a solid, reliable, and trustworthy control system.
Whilst the spread of COVID-19 may not have tangible impact on the control side, boards will be required to ensure the company has adequate systems in place to navigate the challenges, along with ensuring the reporting and information being generated are sufficient and support the strategic direction, which may have been realigned to manage unforeseen circumstances.
Boards will now need to work with management teams much more intimately, hence the engagement levels of the board need to be heightened in order for realignment and business adjustments to be successful.
A pandemic of this nature will prove to be testing for the corporate culture, the core question which boards and their management teams need to be asking is “will our culture be relevant to address this pandemic”.
As an illustrative, if the culture of your businesses is focused on achieving targets and managing for profit, then this will need to be adjusted immediately to ‘purpose over profits’, ensuring the care and welfare of your people, clients, suppliers and the wider world comes first. Shareholder value must be secondary to compassion and protection.
The corporate strategy will need to be readjusted, particularly the two aspects which are most impacted by a pandemic, which include business models and key performance indicators (KPI).
As the crisis may have a prolonged period, boards and management teams should concentrate on evaluating their current strategy and adjusting to address some of the considerations which need to be in place, focusing on:
• Where their revenues will come from
• How they can achieve long-term objectives
• What initial investments are required?
• What new business models are available?
Risk & KPIs
Boards need to work closely with management teams in carefully reviewing current and potential risks which are related to the existing strategy, business model and KPIs. While expected risk is also related to new strategies and business models, prior to making any changes, boards need to be clear on what the associated risks are with the adjustments, and whether they accept these.
Further consideration also needs to be given on whether boards and management teams have the authority to take such risks without shareholder input.
Boards must re-design the way in which they assess the management team, using criteria relevant to the local, regional, and global markets, rather than using the archaic assessment strategy of using short-term financial results.
In conclusion, during time of crisis key stakeholders must adjust and realign their roles, approach and strategy in order to collaborate and protect the value of its people, customers and wider market. Adopting a conventional model during crisis will have detrimental impact to the culture, reputation and sentiment of the business.