This article was first published on June 10, 2020.
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Obligations for non-executive directors (NEDs) are easily stated but executed with difficulty. Arguably the most challenging responsibility under stress is protecting long-term shareholder value. Whilst this necessitates a focus on survival in the short term, it means boards must divert sufficient attention to what comes next: recovery.
Moving Out Of The Survival Phase
The survival phase of the COVID-19 crisis, in which organizations grapple with the challenges of lockdown and its near-term implications, is well underway. These are the tactical and operational matters of keeping the business alive and defending its financial position.
The challenges and threats are myriad: Operations are stressed by process changes and staff shortages, employee and customer behavior is altered, and supply chains are disrupted by demand fluctuations and government interventions aimed at ”flattening the curve”. But, navigating these challenges is the domain of executive management.
Focusing On Recovery
Getting ahead of the recovery will require ensuring that the firm has the right strategic focus for the world after COVID-19. Whilst the board has an important role in advising, supporting, and challenging leadership decisions around survival, it is in planning for recovery where NED engagement has the potential to disproportionately benefit the firm. Organizations need to form a view on how networks, supply chains, regulation, tax arrangements, and patters of customer demand may land after the crisis and bundle them into scenarios around which plans can be made. The unique combination of skills, experience, and resources of NEDs is a considerable benefit to many firms. This will be particularly important for driving the conversation of what the landscape will look like post-COVID-19, and how organizations can reposition for success.
The challenge of the recovery phase should not be understated; the evolving economic outlook, unprecedented government interventions, widespread and varied sectoral restructuring, and changes in individual behavior create substantial uncertainty about what is to come. Boards typically want, and need, to be involved in the debate and approval of strategy decisions, but can be reluctant to lead strategy design, a role they rightly expect to be played by senior management. In ordinary times this is appropriate. However, these are not ordinary times; if ever there was a time for boards to play a greater role in future strategy, it is now.
A systematic approach can help boards assess and adjust their future competitive positioning. Four dimensions of uncertainty need to be explored to consider how the world will normalize in both the medium and long term. Boards should be working as a team to form a collective view on the post-COVID-19 landscape across these dimensions, reaching out to contacts in government, academia, their suppliers, customers, and logistics partners to test that view in order to converge on a central scenario and understand implications of the alternatives. Many open questions sit below each of these dimensions.
Executive leadership has a vital role to play in the future of every organization. However, with the massive day-to-day challenge of maintaining business activity in the face of deep and ongoing uncertainty, survival and charting a path through the storm should be management’s absolute priority.
Once the storm has passed there will, of course, be winners. These will be firms that have reset their strategic focus appropriate to the changed settings of the new world. Ensuring firms are best positioned for this uncertain future is a fundamental part of a boards’ responsibility. There is, therefore, a greater necessity for boards to think strategically and use their collective experience to ensure their firm is positioned for success. Both survival and recovery will be fighting for Directors’ attention; too much focus on the former, at the cost of the latter, would be a mistake.