Five key areas of board focus to help boards in their oversight of the company’s pandemic response.
The speed and breadth of the unfolding COVID-19 crisis—dramatically impacting lives and healthcare systems, disrupting business operations and supply chains, slowing markets, and now posing the risk of a global recession—is putting nearly every facet of business to the test. Not since the financial crisis of 2008–2009 have crisis response plans, business continuity and resilience, cash flow, scenario planning, and corporate leadership come under such intense pressure.
Navigating the uncertainty requires a sharp focus on people, liquidity, operational risks, and contingencies while keeping sight of the bigger picture—strategy, risk, and resilience. With information changing daily (even hourly), companies should expect to recalibrate their responses—and potentially reframe their thinking about how the COVID-19 crisis is impacting the business—as conditions change.
To help boards in their oversight of the company's pandemic response—managing through the immediate crisis as well as addressing vulnerabilities exposed by the outbreak—we highlight five key areas for board focus:
Based on our conversations with directors, KPMG subject matter professionals, and others on the front lines of the crisis, these five areas are critical today and in the medium-term.
The initial focus on a company's people and operations located in COVID-19 hot spots is quickly going global, with Europe, the U.K., and now the U.S. seeing spikes in coronavirus cases. The focus on employee well-being, therefore, should now be proactive, international, and company-wide.
What policies are in place to protect and support employees (e.g., hygiene programs, restrictions on travel and congregation, flexible and remote work policies, healthcare)?
Do we communicate these policies—and provide timely updates—clearly and frequently to employees?
In addition to employees, does the company understand how its other key stakeholders are being impacted by COVID-19?
Lessons learned from the 2008 financial crisis—marked by turmoil in world markets, shortages of cash and liquidity, tremendous volatility and uncertainty, and the prospect of a prolonged recession—can provide a basis for boards to consider near- and longer-term financial risks posed by the coronavirus crisis. Among the lessons learned:
Given the uncertainty regarding the economic impact of the coronavirus crisis, scenario planning is essential.
Understand the array of financial risks to the business and how management is addressing these risks under different scenarios.
Focus on fair value and possible asset impairments that may pose significant risks for the company.
Supply chain disruption is being felt across most industries, with potentially five million companies globally experiencing some level of disruption.2 The problem has quickly become global, and the complexity has made it challenging to model and evaluate the range of impacts and alternatives.
Likewise, the impact of the crisis on workers and the workplace—particularly directives for social distancing and the resulting closures of offices, schools, and local businesses—along with the demands on technology systems to support remote working may pose significant operational challenges for the company.
What measures are being taken to stabilize the company's supply chain?
Is the board confident in the company's business continuity plans?
Are the company's technology capabilities able to support a significant increase in remote working and virtual operations?
Given the fast and fluid pace of the crisis, the directors and business leaders recognize the critical importance of frequent management updates to the board. As directors noted in our recent white paper, the board's role in a crisis is to stay informed and oversee management's response, but "without getting in the way. Let management do its job and expect them to keep the board informed. But stay on top of the crisis until you reach the landing point."3
Understand the scope of the crisis and how management is responding.
Consider the potential impact of the COVID-19 crisis on the board's operations and effectiveness.
Most companies with fiscal years ending December 31 have filed their 2019 annual reports, but not all. These delayed filers and companies on fiscal years other than December 31 (particularly retailers who may be on a different fiscal year) are likely to file in the final weeks of the reporting cycle and, therefore, will need to consider the ramifications of the coronavirus in their annual reports.
Those companies fortunate enough to have already filed their 2019 annual reports are nearly through the first quarterly operating periods. As they prepare their quarterly reports over the next few weeks, they will need to assess the financial reporting impacts of the coronavirus crisis in the quarter as well as the need for enhanced disclosures.
Companies should monitor the necessity for disclosures regarding the current and potential effects of coronavirus—e.g., risk factors, MD&A, liquidity, results of operations, and known trends and uncertainties—as well as the adequacy of the company's disclosure controls and procedures in the reporting of this information. Among the potential areas of business risk disclosures to consider:
Accounting and financial reporting impacts
Companies should consider whether economic uncertainties and market volatility have or will affect accounting conclusions, including:
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