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Corporate Governance

Corporate Boards Slammed by Coronavirus Rethink Risk Planning

April 29, 2020, 12:10 PM

More remote work and better crisis communications. Less dependence on a single supplier and fewer in-person board meetings.

Those are just some of the ways companies and their boards are likely to change how they operate as the coronavirus pandemic puts pressure on crisis planning.

Crisis preparedness is getting more attention among directors, who say they hadn’t done enough contingency planning before the Covid-19 virus outbreak.

“What this has taught a number of board members is that they need to stress their plans and test them more severely in the future,” said Steve Klemash, who leads a board center for the Americas at auditing firm EY. “As they do post-mortems on this crisis, you’ll see that playing out.”

Even before the pandemic, an EY poll of 500 directors and chief executive officers globally found few felt well prepared for responding to and recovering from a major risk event. Only one-fifth of companies in the EY survey “very frequently” readied for risks with simulation exercises, stress testing, and scenario analyses.

Some companies are already indicating remote working could become more common going forward. Klemash said companies will also try to build more redundancy into their supply chains to reduce dependence on a particular supplier.

Reviewing Plans

About one-third of directors polled in March just after the virus was deemed a pandemic had reviewed management’s plan for minimizing supply chain disruptions. About the same share of the nearly 200 directors surveyed by the National Association of Corporate Directors had pressure tested management’s assumptions about the possible business impacts of the virus.

Even companies with crisis plans in place are likely struggling to adapt them to their current circumstances. Companies that might have planned for a shutdown lasting weeks are now facing a months-long curtailment.

“This is a different game,” Peter Gleason, NACD’s president and CEO, said. “Companies have to react in real time.”

Virtual Meetings

Many directors were also unprepared for crisis communications, according to another mid-April survey of 100 women on boards by the Boardlist. Almost half of the public and private company directors surveyed didn’t have a plan for communicating during a crisis like the Covid-19 virus outbreak.

“The cadence of communication has increased dramatically,” said Shannon Gordon, chief executive officer of the Boardlist, an online marketplace for connecting women with board opportunities. But “if you don’t have a plan in place for how to communicate and support the CEO in a situation like this, it can become chaotic,” she said.

Some directors anticipate in-person attendance for board meetings will no longer be required in the future, now that fear of spreading the virus has limited gatherings, the Boardlist survey found.

Risk Response

Boards’ reaction to the coronavirus could echo how companies have girded for other risks like hurricanes or cyberattacks.

“After Katrina, companies started devoting more resources to hurricane risks,” said Michelle Lowry, a finance professor who directs Drexel University’s corporate governance institute. “After data breaches, compares started devoting more to cyber defenses.”

With the coronavirus, “there is going to be increased attention on succession plans,” since some CEOs and other top executives have contracted the virus, Lowry said.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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