014 December 2021

Best practices in corporate governance during the crisis

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The covid-19 crisis has brought to the fore new problems related to the supply chain, the lack of liquidity or inability to pay short-term debts, and even the difficulties presented by new working practices such as teleworking.

Against this backdrop, the role of the Management Board and that of managers and other key positions in companies has increased. In this way, all the decisions taken by this body create a greater influence on the company’s future, and it is vital to take the appropriate measures to ensure the continuity of the business.

In addition, the importance of the Board’s commitment, its support for Executive Directorship and the need for new profiles in this body have been highlighted, among other practices that should be followed during the crisis and in the post-crisis period. We explain all of these below.

The role of the Management Board

As noted above, the role of the Management Board is key to ensuring the success of any company.

While Executive Directorship must be responsible for taking the initiative and disseminating messages, and must therefore ensure effective communication, the Board is responsible for ensuring that the company has all the necessary skills, bearing in mind that during the crisis, new profiles of professionals have emerged to mitigate the different risks.

Board commitment and involvement

Furthermore, during this period of crisis and uncertainty, it is essential to achieve the full commitment and involvement of the Board members in the Management. This effort will be accompanied by a general meeting at which all processes related to covid-19 and the present and its future effects can be updated.

Board support to the Executive Directorship

In addition to this full involvement, the Board must participate in decision-making related to the company’s survival and may even emerge stronger from the crisis. It should be noted that a series of opportunities accompany every threat, generally hidden, and it is advisable to take the time to analyse these. 

Questions to be asked by the Board

Finally, every Management Board needs to consider a number of questions in this crisis. First, has the delegation protocol been reviewed? Secondly, what would be the effects on the company if the CEO or the CIO were to be absent for long periods, and is the company prepared to deal with such events?

Given this situation, the Appointment and Remuneration Committee needs to address succession planning, whether for the President, CEO or other key positions.

In addition, the Chief Executive should be asked about his or her views on the impact of covid-19 in attracting and retaining talent.

On the other hand, what do Directors need to be aware of? Each Board Member needs to fully understand his or her role so that there is no doubt as to when and how he or she should be involved and his or her participation in external activities, communications with third parties, or other related tasks.

Trust between management and shareholders

Fourthly, we emphasise trust between these parties as a fundamental factor, thus ensuring good and transparent communication between them, which should become standard practice.

We point out that, during this crisis, many companies have seen these good relations broken and jeopardised in this period of crisis. In response to this, we recommend holding a meeting to recover or maintain good relations. In this meeting, it is very important to clarify the reasons and repercussions of this trust on the company’s future.

New profiles on the Management Board

During crisis and post-crisis periods, it is necessary to reorient the Board’s activity so that it can respond to the problems of the crisis in an efficient manner. To this end, there are likely no specialists capable of dealing with the new situations that may arise among the people who make up this body.

Therefore, any Board must check that it has professionals capable of solving the different problems presented below:

• Financial problem: as we have already mentioned, a large part of the problems that companies have to face is the lack of liquidity or inability to meet the payment of short-term debts, so it is essential that Boards have experts capable of creating a practical approach while generating a contingency plan for different future scenarios;
• Legal challenge: an expert must be available to understand the complex legislative and regulatory framework that lies ahead;
• Strategic issue: given the total paradigm change in recent months, it is logical that the strategy will be highly modified. It is therefore essential that the Board has an expert capable of managing the creation of a new strategy, both for the short and long term, and always in line with the contingency plans created;
• Health issues: likely, many Boards do not have a health professional, but this is another new issue that every company needs to be able to manage properly;
• Technology issue: especially now that teleworking has become a reality in many companies, it is necessary to have an expert capable of managing this change.

Finally, it is necessary to have leaders capable of overcoming the obstacle of uncertainty.

In conclusion, we stress the importance of measuring the results of all actions carried out, creating corrections that allow senior management to understand the failures made, thus being able to refine the strategy planned for these periods of crisis and post-crisis. In addition, it must be ensured that the company has the necessary tools to manage change.

Source: https://www.diligent.com/es/gobierno-corporativo-mejores-practicas-crisis/