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Effective governance during a crisis

Effective governance during a crisis

Directors’ duties, COVID-19, and the important relationship between the board and management

 

 

By Tanya Postlewaite
June 9, 2020

The duties of board directors do not change during a crisis such as COVID 19. But directors should discharge their duties with heightened importance and a sharper focus, moving swiftly and collaborating with management in a mutually transparent way.

Directors of Canadian companies must meet the standards of a fiduciary duty (to act honestly, in good faith, with a view to the best interests of the corporation), and a duty of care to the company (to exercise a level of care, diligence and skill that a reasonable person would exercise in comparable circumstances). They must also be prudent, diligent, and free from conflicts of interests.

Directors do not have to establish a standard of perfection; however, they are under a stronger microscope during a crisis because the stakes are usually higher.

What directors should consider in a crisis

In a crisis such as COVID-19, there needs to be profound recognition by directors that things are not business as usual. This does not mean directors should parachute into management roles, but they should be proactive in their approach to their duties. When facing a crisis, directors should implement an oversight structure and protocol that will demonstrate they fulfilled their fiduciary duty and properly discharged their duty of care. Following are a few fundamental things that should top of mind during COVID-19.

Ramp up communication

Enhanced communication and frequent, quality reporting is the hallmark expectation that a board of directors should place upon management. This includes the following actions, many of which have a spotlight on the leadership of the board chair:

  • Establish a regular cadence of formal reporting (weekly or bi-weekly), focused on the implications of the pandemic to the company.
  • Consider whether directors’ fees for frequent, shorter meetings will be waived.
  • Ensure risk management is a core element of pandemic reporting so that credit, regulatory, operational and reputational risk are clearly understood on an ongoing basis.
  • Set clear board agendas for certain routine matters that can be deferred if more time is required to focus on issues related to the pandemic.
  • Ensure the CEO has frequent contact with the board chair and there is an open line of communication, above and beyond the increased reporting.

Keep an eye on the bottom line

Financial repercussions are to be expected during a global pandemic. For directors to fulfill their duties, they must demonstrate that they continuously monitored:

  • Liquidity
  • Overall financial situation of the company
  • Extent of deferrals and credit losses
  • Potential changes to the organization’s finances or investments
  • Sources of available cash
  • Potential impacts on the supply chain and reliance on third parties
  • Bottom line expectations of regulators

Management must tailor the information directors require must to provide frequent and accurate snapshots of the changing financial landscape. If directors are not receiving data to understand the bottom line, they must ask for it from management.

Consider the human impact

Directors have significant oversight duties that cover a wide spectrum in a pandemic but they should never lose sight of the human impact. Directors should ensure management is seeking strategies and solutions to address the well-being of employees. Employees are the heart of any organization and their continued engagement, health and motivation are critical in both the pandemic and the bounce-back phases. A progressive management team should be considering how life at work could be better after the pandemic—potentially creating a working environment that may be less traditional then the pre-pandemic environment. Directors should be open-minded to management’s progressive ideas, ask questions, and decide whether novel risks associated with a new normal have been considered and mitigated.

Look forward to the bounce-back

In a crisis, people must pull together to persevere. The strength of the relationship between a board of directors and management in the COVID-19 pandemic and the bounce-back phase may separate good companies from great companies. Frequent, accurate information, and open lines of communication between the board and management, will help directors meet their legal duties and persevere during the pandemic and the recovery phase.

Tanya Postlewaite is currently VP, Governance and Corporate Secretary. Since 2013 she has held roles of legal counsel, VP Compliance, Chief Compliance Officer, CAMLO and Chief Privacy Officer at Concentra and has developed and matured Concentra’s regulatory programs, ensuring effective management of Concentra’s prudential obligations. Tanya collaborates closely with the Board of Directors and Executive Leadership Team.

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