Boards Can Guide Businesses Through a Crisis

Boards of directors are uniquely positioned to help management teams plot a path through and beyond the current crisis.

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The coronavirus pandemic is a crucible moment for management teams and their boards of directors. Companies that can respond in real time to rapidly shifting challenges while accelerating longer-term strategies will most likely stand as beacons on the battered landscape of the postcrisis economy.

Boards of directors are in a unique position to help management teams achieve this balancing act — by focusing on immediate fundamentals while keeping their eyes on the horizon. Being removed from day-to-day operations, independent directors can help management teams battling in the fog of war to pinpoint the critical factors for survival while uncovering opportunities that will allow the company to emerge stronger in a radically reshaped world.

Below are three effective practices that boards should adopt. The first and second — understanding the situation and approving an action plan — must take place quickly in order to survive. The third — thinking through strategic changes — is a longer-term process that must start as soon as survival is assured.

Verify Business Fundamentals in Areas of High Flux

During a crisis of this magnitude, the board must understand how the company can weather the storm. Directors should begin by asking management for an in-depth analysis of the pandemic’s impact on the company’s liquidity. The board needs to become quickly educated about access to credit lines and thresholds of debt covenants, as well as the financial implications of planned expenditures, share repurchases, and shareholder dividends.

The board should also prod management to consider potential showstoppers. For instance, what would happen if there were a major breach of data security? How would the company continue to operate if its supply lines were cut by government restrictions? What would happen if the virus spread rapidly among portions of the company’s workforce?

A useful way to snap a management team to attention on the areas at the greatest risk of becoming destabilized is to systemically review the pandemic’s impact on the company’s relationships with key stakeholder groups — shareholders, customers, employees, suppliers, and governments. The directors should ask management to talk with representatives of all five stakeholder groups to get reactions to the crisis. Then, when the board approves an action plan, management should communicate the main points promptly to all of them.

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