To gain insight into the new governance challenges faced by boards over the next few months as companies begin a reopening and recovery process—hopefully a permanent one—the NACD undertook a pulse survey of 306 directors across multiple industries, conducted between May 14 and May 21. The survey revealed that directors expect the COVID-19 pandemic to have lasting effects—on business strategy, on the nature of work and on board-management interactions.
Governance challenges. Directors were asked to identify the five most significant governance challenges they expected to encounter in the subsequent three months. Sixty percent of respondents identified the need to shape an effective post-crisis strategy, by far the most commonly identified challenge. Interestingly, the NACD pointed out that the issue of revisiting companies’ historical strategies was also identified as a longer-term challenge by many survey respondents in 2019; the NACD concluded that the “COVID-19 pandemic has only accelerated the demise of strategic plans.”
Other challenges widely identified included ensuring the ongoing health and safety of employees (49%), understanding all the risk dimensions stemming from the crisis (46%), striking the right balance between good governance and not overburdening management (45%) and overseeing financial health (also 45%). Topics more commonly on the list—such as director engagement (8%), board succession planning (5%) and recruitment (4%)—fell in priority. Ensuring effective executive succession planning was also low on the list at only 13%—a somewhat surprising result given the pervasiveness of COVID-19 and the well-publicized instances of prominent CEOs suddenly stricken with the virus or required to self-isolate because of exposure to the virus. While many boards already have succession plans in place, those plans may not contemplate the potential for the rapid spread of COVID-19 or the need for succession plans that are multi-layered. (See this PubCo post.)
Important trends. Asked to identify trends that will “most impact the post-crisis recovery” of their organizations, 54% of directors responding to the survey identified the “changing way in which work gets done” as most likely to affect post-crisis recovery. Unfortunately, there is not a lot of detail as to precisely what directors had in mind, but the NACD concludes that some of the expected changes relate to the “acceleration of digital transformation,” which was the third most noted trend at 32%. Reduced global demand came in at 35%. The NACD found “some variation by sector, with directors from consumer-focused firms ranking major shifts in customer preferences higher on the list. Further, smaller organizations (those with revenues of $50 million or less) rank access to capital and overseeing financial health as more important than other issues.” What came in at the bottom of the list? “Greater emphasis on purpose over profit,” mentioned by only 3% of respondents. It’s anyone’s guess whether that statistic might provide some insight into the impact of the Business Roundtable’s new “Statement on the Purpose of a Corporation.” (See this PubCo post.)
Engagement with management. The pandemic has led boards and managements to meet much more frequently than in the past, sometimes even weekly. Will this level of engagement continue once the pandemic subsides? Forty-eight percent of respondents predicted that they will continue “more regular communication with management” than prior to the crisis. While virtual board meetings have become necessary, 48% of directors did not believe that they are as effective as in-person board meetings, while 33% believe they are.
Board confidence. Confidence levels are high: 92% of respondents were confident that their companies would survive the crisis. In addition, 87% had confidence that management had an “effective playbook for dealing with this type of crisis,” awarding their CEOs an average 3.8 grade on a 4-point scale.
What questions remain? Directors told the NACD that, over the next three months, their boards should be prepared to answer the following questions:
- “What key information do stakeholders require to sustain their confidence in the company?
- How should the company redesign its workforce after the crisis?
- What are the lessons learned from management’s response to the pandemic?
- What business development opportunities have arisen during the pandemic? What are the associated risks? Should the company take advantage of a rare opportunity to reposition itself in the sector?
- How can the company promote the new leadership capabilities in the C-suite?”