Investors have been advised to avoid placing boards and their companies under pressure to take “undue risks” in search of a short-term investor benefit during the global Covid-19 pandemic.
The advice comes from the International Corporate Governance Network (ICGN), a club for asset managers around the world, and forms part of a raft of advice now emerging for businesses coping with the impact of the virus.
The ICGN Covid-19 guidance says avoiding demands for short-term gains “reflects not only on some level of enlightened self-interest, but also the moral imperative to contribute positively to the broader threats to public health and social stability”.
The advice came on the same day the UK government moved its crisis strategy from “containment” to “delay” and the Federal Reserve injected $1.5trn into the US economy to shore it up against shocks from the spreading virus. Earlier this week the Bank of England reduced interest rates from 0.75% to 0.25% to support the economy while the UK government announced emergency fiscal measures.
The World Health Organisation reports there are now more than 125,000 confirmed cases of Covid-19 infection worldwide, with 4,613 deaths. China said it believed its own epidemic had now peaked as new cases declined, though spread of the virus in Italy and Iran has reached new highs.
The ICGN is keen that boards, asset managers and owners prioritise public health, and stressed that investors should remain calm.
Policy director George Dallas said the virus was now a “systemic risk”.
“But the significant economic impact is adversely affecting companies and markets, and it is important for the investor community to remain calm and maintain a long-term perspective that will be supportive of companies navigating this challenging environment,” he said.
“Investors will also look to boards to provide leadership in crisis management to survive near-term pressures and to act strategically to maintain the ability sustainable value over time.”
The ICGN guidance added that investors should aim to demonstrate “support for companies” as they navigate the crisis and “maintain an approach that promotes long-term investment horizons and sustainable value creation”.
ICGN also stressed to boards that management of the crisis could not be siloed. “This is a matter for the board as a whole,” it said.
Investors, the ICGN guidance suggests, should ensure boards “recognise” their role and are “structured” to address the crisis. They should also monitor where boards is obtain information and that they have data to “support decision making” and understand the day-by-day risk.
Consultancy firm McKinsey stressed a “scenario planning approach” to confronting Covid-19 in a recent guidance paper.
The planning, it suggests, should be based on three possible outcomes: a quick recovery, a global slowdown and a global pandemic and recession.
Categories for examination include protection for employees; setting up a “cross functional” response team; managing liquidity to weather the crisis; stabilising supply chains; and then practicing the plan. Simulations, McKinsey says, are “invaluable”.
“Many top teams do not invest time in understanding what it takes to plan for disruption until they are in one.”
Mazars, an advisory and accountancy firm, brings planning down to specifics. Alan Frost, a business consulting director, advises an examination of cashflow, planning to deliver services with a reduced workforce, and implementation of remote working.
No business will be spared the impact, Frost wrote in a recent blog post.
“But it’s not too late to plan, consider, document, and challenge how your business will survive uncertainty whilst responding to significant events, through a business continuity plan or other means.
“The plans you put in place now will invariably help your business operate regardless of what happens in the coming months.”
Meanwhile, some doubt has been cast over the coming AGM season, with Clifford Chance, a law firm, suggesting it could see some distruption as other organisations cancel large scale events.
Companies appear to be pushing ahead with “physical” AGMs, despite concerns about the virus and due to worries about the legal validity of “virtual”-only gathering.
Clifford Chnace suggests a hybrid, physical and virtual option may be the way to go, where boards can.
Companies should ensure they have a process for questions to be sumitted electronically. There is also an option of postponing AGMs if a company article allow.
In a briefing paper, the firm says there are a number of “legal, practical and investor relationship issues to be carefully thought through in order to determine the most appropriate course.”
The virus will is already proving tough on business, just ask the aviation industry. But it has a role to play. McKinsey sees a purpose in the response from business.
“The coronavirus is a story with an unclear ending. What is clear is that the human impact is already tragic and that companies have an imperative to act immediately to protect their employees, address business challenges and risks and help mitigate the outbreak in whatever ways they can.”