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Boards must judge when to step back, to allow their management teams to get on with daily business operations and managing COVID-19 impacts and to reset expectations on materiality of matters requiring board attention.

At this critical time, boards should ensure they maintain a focus on the future. Pre-COVID-19 strategies, business plans, assumptions and forecasts must be assessed to ensure they are fit for purpose in a post-COVID-19 economy. Similarly, existing risk management frameworks, crisis management plans and business continuity plans should be reviewed and updated to capture lessons learned and reflect post-COVID-19 requirements.

Understanding how governments and key stakeholders are each responding to the crisis, and how those responses may evolve over time, will help shape the future direction of organisations. Effective boards should invest time and resources to carefully consider and understand the impacts of these responses to position their organisation for success as society emerges from COVID-19 restrictions.

As government intervention and slowing infection rates point to a period of tentative stability, what are the key considerations and the questions that boards should be asking? How can a board best position their organisation, not only for survival but also success, for a horizon affected by COVID-19 that extends beyond the coming weeks and months? In this director tool, we examine some of the key areas that boards should be focussing their attention on over the short to medium term.

Critically assess and update strategy and business plans

Existing strategy and business plans should be reviewed and updated to reflect the short-term economic impact of COVID-19 and changes to the organisation's operating environment, especially around changes in customer demand and any supply chain security. In many cases, the operating model has been challenged, with the disruption to usual business operations both exposing weaknesses in existing models and highlighting opportunities in modifying business practices. In reviewing organisational strategy, boards should consider the following areas:

Supply and value chain issues

  • How reliant is the supply chain on the physical importation of offshore goods? Can supply arrangements be restructured to reduce import risks, to diversify providers and otherwise reduce delivery times?
  • What initiatives can be implemented to attract or retain customers when faced with supply chain constraints? For example, can pre-order incentives be offered?
  • Can delivery times be improved to deliver goods the 'last mile' from warehouse or storefront to the end customer instead of relying on external sources?

Workforce issues

  • What can we learn from COVID-19 to support a healthier and more resilient workforce?
  • How has COVID-19 shifted perceptions around what is reasonably expected in a safe workplace?
  • Should flexible or work-from-home arrangements be utilised more regularly across the business to support the organisation’s strategy?
  • Does the organisation have the right mix of full-time, part-time and casual employees and contractors, especially in light of changes to supply and value chains?
  • Can reliance and expenditure on external consultants or contractors be reduced and the required expertise be sourced or developed inhouse from existing employees?
  • While sometimes unavoidable, redundancies or stand downs can negatively affect employee morale and organisational reputation. Have the impacts of workforce changes been adequately addressed and managed?

Emerging opportunities and challenges

  • Has COVID-19 presented any opportunities or challenges unique to our industry or organisation and how can we leverage or overcome these?
  • Foreign government lockdowns have exposed weaknesses in relying on an offshore workforce. Does the organisation have a contingency plan in place for when an entire offshore business unit goes offline?
  • Should we maintain a core onshore unit or train back-up personnel who can come online quickly to fill the gaps?
  • Is now the time to think and act locally? Given the strong government measures and responses in Australia and New Zealand leading to lower COVID-19 infection and fatality rates compared to other countries, does it make sense to refocus on the Australasian market?

Strategic acquisitions or divestments

  • Are there strategic acquisitions that will support our business model in the future? This may deliver benefits ranging from consolidating and strengthening supply chains, to cost reductions and production synergies.
  • Are there any business units that we should divest? These potential divestments might not fit within reshaped strategic or business plans, or may be an appropriate means of shoring up capital or provide the opportunity to re-deploy capital into a more effective investment.

Review crisis management and business continuity plans

Crisis management plans and business continuity plans should be reviewed and updated to reflect learnings from the COVID-19 pandemic. These plans should be updated on a more frequent basis, to capture new information and COVID-19 measures around industry standards, best practice and any vulnerabilities or structural changes caused by COVID-19.

  • In responding to the impact of the COVID- 19 crisis, what was done well and what has been managed poorly by our organisation?
  • How did the crisis management and business continuity plans respond and adapt to external factors such as any competitor or coordinated industry-wide responses?
  • Does the business continuity plan adequately cater for flexible or work-from-home arrangements?   

Assess risk management frameworks

COVID-19 has shown there can be significant risks to financial stability, operational capability, capacity to meet contractual obligations and commercial relationships arising from pandemics. Existing risk management frameworks should be reviewed and assessed through this lens.

  • Does our risk management framework adequately cater for once-in-a-generation events including epidemics or pandemics?
  • Are there other risks that were highlighted by the impact of the COVID-19 crisis, such as supply chain, financial and market risks that need to be adequately addressed?
  • Can workplace health and safety policies be updated as a positive long-term shift rather than a temporary reaction to the COVID-19 crisis?

Analyse cash flow, financing and capital structure

Consolidating the organisation's financial position is critical during times of crisis and this requires consideration around cash flows, revenue, liquidity, existing finance, availability of future finance and capital structure, but boards should not lose sight of what comes next.

  • What is our financial position? Are there any immediate concerns that need to be addressed?
  • What is our capital structure? Will the market or financiers be supportive in the event we need to raise debt or equity? Would it be advantageous to have a reserve of undrawn debt or capital for the recovery phase of the economy which can spur growth either organically or through strategic mergers and acquisitions?
  • What is our liquidity profile? Is there sufficient cash to pay costs over the short and long term? Can we service existing debt? Is it necessary to defer or cancel an upcoming dividend payment?
  • Will there be an increase in bad debts from customers? Is there mutual benefit in lengthening repayment terms or providing a discount for upfront payments? Conversely, are suppliers causing a cash squeeze by shortening their payment terms?
  • Is there any government or industry support available to access now or in future? Examples include the JobKeeper program or relief available to specific industries.

Stakeholder relations and external communications

The COVID-19 crisis has shone a light on the importance of being able to rely on continued shareholder support for both publicly listed and privately held companies, whether this is in the form of financial support through capital raisings or equity injections or informal support for a board's COVID-19 response plan. At the same time, government, financial systems and key sections of the market have embraced the principle of 'sharing the burden' in dealing with the economic impacts of the COVID-19 response, bringing into focus community expectations of business. Now more than ever boards need to be mindful of at times competing stakeholder expectations and ensure an effective communication strategy is in place.

  • What are our shareholders focused on? Does their focus align with our strategy and business plan?
  • Will our shareholders be supportive of our organisation helping to 'share the burden' and support the wider community rather than focussing on pure corporate and shareholder profits? For example, deferring or cancelling an upcoming dividend payment or reducing short term margins.
  • Are all key stakeholders adequately updated on any significant changes to our organisation?
  • Does the communication strategy focus both on the immediate response to the crisis, as well as longer term and post-COVID-19 strategy?
  • Where relevant, are we maintaining regular engagement with key contacts within regulatory agencies to ensure that any potential changes in regulatory focus do not come as a surprise?
  • Are we adequately complying with new and changing regulatory responses to COVID-19, whilst continuing to comply with existing legal and regulatory requirements?

Digital presence, technology capabilities and cybersecurity

Government mandated shutdowns of physical stores and services around the world, falling brick and mortar foot traffic and increasing social distancing measures have reinforced the importance for organisations to have a strong digital presence and technology capability.

  • What advantages exist online for us to adapt our business model not just to weather the COVID-19 storm, but to support the business strategy in the recovery period?
  • Do we have a technology platform that supports flexible or work from home arrangements for employees?
  • Do we have adequate cybersecurity measures in place to protect the company, employees and customers?
  • How have consumer behaviours changed or digitization trends been accelerated as a result of COVID-19?

Focus on the ‘road to recovery’

While boards and other key stakeholders have appropriately focused their immediate attention on the short-term impacts of COVID-19, the period of stability afforded by a slowing infection rate in Australia presents an opportunity for boards to refocus their attention on their primary governance role. It is essential that boards look forward and plan the 'road to recovery', ensure their strategic direction remains fit for purpose and maintain adequate oversight and management of key risks and opportunities for the business beyond COVID-19.

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About the authors

Kate Towey and Charles Ashton are partners in the Allens Corporate and M&A group. They have extensive experience advising boards on corporate governance and reputationally significant transactions.

About us

The Australian Institute of Company Directors is committed to strengthening society through world-class governance. We aim to be the independent and trusted voice of governance, building the capability of a community of leaders for the benefit of society. Our membership includes directors and senior leaders from business, government and the not-for-profit sectors.

For more information: 1300 739 119w: aicd.com.au

Disclaimer

This document is part of a Director Tool series published by the Australian Institute of Company Directors. This series has been designed to provide general background information and as a starting point for undertaking a board-related activity. It is not designed to replace a detailed review of the subject matter. The material in this document does not constitute legal, accounting or other professional advice. While reasonable care has been taken in its preparation, the Australian Institute of Company Directors does not make any express or implied representations or warranties as to the completeness, currency, reliability or accuracy of the material in this document. This document should not be used or relied upon as a substitute for professional advice or as a basis for formulating business decisions. To the extent permitted by law, the Australian Institute of Company Directors excludes all liability for any loss or damage arising out of the use of the material in this document. Any links to third-party websites are provided for convenience only and do not represent endorsement, sponsorship or approval of those third parties, or any products and/or services offered by third parties, or any comment on the accuracy or currency of the information included in third party websites. The opinions of those quoted do not necessarily represent the view of the Australian Institute of Company Directors.