How many times have you read or heard the term "NEW NORMAL" during the time you've been sheltering in place? Countless, no doubt. You've also got an inbox stuffed with articles, memos, alerts, and blog posts by experts informing you about "What your board needs to do... now!" to deal with the Covid-19 pandemic, and for good reason. These are unprecedented times, and everyone is looking for guidance on how to handle an array of challenging situations, as well as confirmation that they are thinking about the right things and asking the right questions.
The bolus of literature about the role of boards and legal counsel in the time of the coronavirus (which has felt like a year squeezed into less than three months) can be viewed as a collective body of work (A) reemphasizing what the job of the director has been all along; and (B) applying the legal fiduciary duties of directors to the specific situation at hand. As we've seen through crisis after crisis over the past two decades, whether it be the accounting scandals of the early 2000s, the 2008 financial crisis, or the wave of cybersecurity failures in the mid-2010s, the fundamental obligations of corporate directors do not change no matter the situation thrown at them. The job of the director still boils down to fulfilling his or her fiduciary duties of care and loyalty.
Given the plethora of writing and advice on what boards need to do in the immediate and short-term, I'm going to look a bit beyond that and forecast what the new normal will look like for boards of directors post Covid-19, whenever we arrive there.
The “new normal” will not be the same for everyone.
The “new normal” will not be the same for everyone. What boards will face after they have managed through the immediate Covid-19 crisis will be a tale of the “Haves” and “Have Nots.” Companies in some industries (e.g., pharmaceuticals, consumer staples, e-commerce)—the Haves—will come out of the crisis relatively OK, or even in a position to capitalize on new opportunities in the wake of disruption. Most others (e.g., food services, travel, hospitality)—the Have Nots—will face tremendous struggles to get back to where their businesses once were or just to stay in business. The two types of companies will be challenged in different ways, and some boards will need to seriously retool and swap out current directors with new ones to achieve the necessary mix of experiences and skills. The board you have today may not be the one you need to get you through the next five years.
The common thread for boards will be to support their management teams.
The common thread for the role of boards at both the Haves and the Have Nots will be to support their management teams. Management teams at the Haves that are seeking to innovate will need the support of their boards to take risks and chart out long-term strategies that may test the patience of investors looking to quickly recoup losses. Management teams at the Have Nots that are struggling to keep their companies afloat will need the support of their boards as they face difficult decisions on how to reset and find capital when revenues and financing they used to rely on have disappeared and will likely not return. They will be under attack from predators, some of whom will be the Haves. The Have Nots will need to tap more heavily into of their directors’ knowledge, experience, and business acumen to navigate through turbulent and uncharted waters.
Covid-19 will accelerate business trends that had already begun.
The Covid-19 global health and financial crisis will accelerate business trends, both favorable and adverse, that had already begun, including what a lot of us are now doing on a regular basis: WFH, video therapy, distance learning, and ordering everything for delivery. As “necessity is the mother of invention,” the climate will be ripe for innovation for the Haves that can afford it, but only if their boards support and encourage management teams to take risks when there will be internal and external pressure to be conservative. The boards of the Have Nots will need to challenge their management teams to look for businesses and markets to strategically exit, while not gutting the entire enterprise. Like the management gurus and pop psychologists say, it's just as important to identify what you need to stop doing as it is to identify what you need to do more of. That's hard, and it will test managements' levels of bravery and pain tolerance. It will be valuable to have board members who have lived through those experiences, even ones who have made decisions that failed. On the darker side, we're starting to see higher rates of companies filing for bankruptcy protection, which will be the “least worst” or only choice for many more. Boards of companies in that position will need the fortitude to accept reorganization as the company’s best chance to reset and eventually re-emerge, or recognize that failure is the only option.
I'll have more to say about the new normal over the next few months. In the meantime, there's going to be a lot for us in the corporate governance field to chew on. Most corporate governance experts and commentators like to focus on what the board did or did not do that resulted in a crisis, even a truly unpredictable one the like one we're in now. "Where was the board!?!" That's only natural. I am equally, if not more interested in examining how the board does its job once the crisis hits. In my eyes, a crisis is where we see how good a board really is. It's when the board "earns its stripes" (and its keep).
Be well and stay safe.