Covid-19 emerged in December 2019 and has quickly become a global crisis that threatens the health of individuals and the welfare of societies on a vast scale, including its impact on global economic activity and growth.

The ongoing—and profound—uncertainties create great challenges for corporates, their boards and their investors as they contemplate how best to navigate these difficult and dynamic times.

Covid-19 clearly meets the International Corporate Governance Network’s (IGCN) criteria of a systemic risk as put forward in ICGN’s Guidance on Investor Fiduciary Duties: “The nature of systemic risk is that it builds over time, it is interactive and synergistic and, once in play, is difficult to control.”

Addressing this systemic risk responsibly is a moral and economic imperative for governments as well as for companies and their investors. The near-term priority is to seek to contain Covid-19 as a matter of public health. This will come at a cost, at least in the short-term to economic activity, company performance and profitability.

Maintain a long-term perspective

Despite these heightened economic pressures both companies and investors should avoid focusing on the crisis in terms of short-term shareholder value implications. It is here where an extended time horizon, and perhaps a grounding in ethics and values more generally, should guide both investor and board responses.

The first priority for managers and boards will be to ensure the company’s own sustainability and financial resilience. The current crisis will result in financial stress and uncertainty. As a practical matter this will require companies to confront challenging capital allocation questions where compromise will be required. This include difficult decisions, such as the potential need to cut dividend payments, capital spending or costs—including staff redundancies.

Investors will hopefully demonstrate understanding and support for boards as companies navigate potentially acute financial threats and near-term market pressures. And investors should specifically avoid encouraging a company to undertake undue risks that might provide an immediate investor benefit but could also ultimately jeopardise the company’s financial stability or the sustainability of its business model and competitive position.

Board effectiveness and acting strategically

Until recently, Covid-19 would have been for most companies and boards a proverbial “unknown unknown”. However, many companies will have had in place disaster or crisis planning capabilities to deal with these sorts of unknowns or unanticipated shocks.

In the first instance this often comes under a company’s risk management function and then through risk oversight of management’s response to such risks at the board level. Some boards (including ICGN’s own board) may have existing risk or crisis committees to help define decision-making or operational protocols. The crisis committee often works closely with management and the board chair in addressing unexpected emergencies. A committee-supported process can be an important contributor to board effectiveness.

However, the urgency of Covid-19 means that this is a matter for the board as a whole, and that the board is ultimately accountable for a company’s responses, even though the company’s management itself may be confronting these risks on a day-to-day basis.

Investors will expect corporate boards to address the potential business impact of Covid-19 and to develop an appropriate strategic response. This calls for an effective crisis management capability, as well as the ability of the board to think in terms of scenario planning in assessing the impacts on the company’s business, competitive position, financial resilience, shareholders and stakeholders.

 Questions for boards to consider

1. 1. Does the board recognise its role and accountability to provide oversight to the company’s management of the Covid-19 crisis?
2. How is the board structured to address the crisis? Is there a clarity of roles and responsibilities?
3. How does the board get information about the crisis and demonstrate that it has an adequate and up-to-date understanding of the risk faced by the organisation?
4. Does the board have access to internal or external subject matter experts on Covid-19 to support decision-making?
5. If a crisis management committee exists how does the board allocate responsibilities to it and how does this committee interact with management and the board as a whole?
6. Scoping the problem: what are the key financial risks and pressures and how resilient is the company to confront negative economic outcomes?
7. How is the board addressing the crisis and its impact on employees, customers, supply chains and local communities?
8. What key financial and strategic decisions have to be made and in what time frame?
9. How will the company balance the interests of shareholders, stakeholders and the overall sustainability of the company itself?
10. What are the plans for business continuity?
11. How are communications managed internally and externally?
12. How will the company communicate the economic impacts and threats to the company’s financial sustainability and business model?

George Dallas is policy director at ICGN.