The role of directors during COVID-19 and beyond
The role of directors during COVID-19 and beyond
The COVID19 pandemic is unlike any previous crisis. Directors need to step up and prepare their company for the future. They should question whether the risk-management approach is sufficiently robust. This article provides a starting point (reference to the 10 value drivers).
COVID-19 has been declared a health pandemic by the World Health Organization, impacting not only the health of people but also having extreme effects on society and the global economy. We suddenly realised real superheroes do not wear capes, but masks, known as healthcare professionals fighting COVID-19 on the frontline. There are also the not to be forgotten heroes who are actively fighting on the frontline of the struggling economy. These individuals are known as directors of companies and businesses that keep our economy alive and contribute to the livelihoods of millions of employees, stakeholders and other beneficiaries in society.
Key focus areas for the Board and its Directors
Directors' duties remain the same during the COVID-19 pandemic. They retain the responsibility of acting with due care and skill in the best interests of the company. They should ensure their businesses remain in good health, maintain solvency, liquidity, meet contractual obligations and retain the ability to pay salaries. These are unprecedented times which can rapidly turn a thriving business into an insolvent one. Directors should act fast to formulate a COVID-19 strategy and deal with the emerged risks. Directors' primary focus should be to have access to information – most important all external factors that may affect the business and secondly, internal factors that may affect the company's response to the risks emerging from external factors.
What should directors consider in the short term?
The most crucial attention point is Liquidity & Profitability. This requires directors to do proper financial forecasting and consider the financial impact of COVID-19 on revenue streams. This includes considering the impact of financial trends and looking at past events to obtain a better understanding. Working capital needs to be monitored carefully: considering cash conversion measures and managing accounts receivables, while also ensuring funding facilities are available as additional resources to keep the business going. This also increases the need for directors to focus on additional compliance requirements. Governments might issue new legislation, or it could become more difficult to meet contractual obligations. Also, due to increased litigation risks it is advisable to develop a regulatory universe specifically relating to COVID-19.
Reputation & Ethics should not be overlooked by directors. The way a company treats their stakeholders during this pandemic could give rise to reputational risks. Directors should formulate clear strategies regarding engagement and communication with investors, business partners and other stakeholders, including managing the expectations from their employees. People & Society is now of uttermost importance. Therefore, directors should establish a business strategy that promotes Health & Safety in the working environment with the aim to continue as productive and normal as possible. This requires the business to focus on the emotional and physical well-being of employees and consider playing an active role in society with initiatives to support communities and other stakeholders.
As part of the strategy, directors should evaluate business continuity and how to reach their customers. This might require setting up new business models, adding new service lines and identifying new opportunities to survive the impact that COVID-19 will have on the organisation. The business needs to be as agile as possible to focus on Growth & Competition. Only robust businesses which are able to make the required changes in a timely manner will survive. Directors should assess the actions of competitors, assess market growth and critically evaluate if existing market or product strategies are still relevant. Now, more than ever, technology is of uttermost importance. Directors should evaluate IT infrastructure and assess if it is sufficient to assist the business to operate as remotely as possible. They may have to consider to accelerate IT investments to maintain productivity. Production & Operations will most definitely be affected by this pandemic, and directors need to consider the impact on the supply chain cycle. It is critical to have a mechanism in place to track the mobility of critical suppliers, the workforce and pay attention to an effective crisis management response plan.
What do medium- and longer-term activities look like?
As we start to phase out of the lockdown and slowly move back to normal, directors should ensure that the company is looking towards the future. This requires engagement and collaboration from directors to ensure their business moves smoothly through the anticipated phases, which requires:
Reaction , to assess what the 'new normal' will entail and evaluate the possible long-term impact of the recent lockdown on the economy and the organisation as a whole, including stakeholders like clients and suppliers.
Resilience , requires an in-depth analysis of the value chain to consider unforeseen impacts which could have further negative implications. Directors need to critically consider if they are looking at the right risks, by remaining active in their risk assessment activities. This includes paying attention to new emerging risks and prepare the organisation for future 'black swans' or unforeseen events that could result in similar business disruptions as the COVID-19 pandemic.
Recovery , involves taking relevant actions to ensure risk assessment and control activities are aligned to take rapid actions and monitor those actions to consider the appropriateness of controls in place to mitigate those risks. It is a continuous process that requires assessment of the mix of controls in place and ask critical questions to assess if the company is over (or under) controlling, or how to improve efficiency by automating some of the controls in place.
A New Reality , by planning for a future that requires clear structured objectives of what the company aims to achieve and how it will position itself in the market and business landscape of the 'new normal'. This requires embracing the new normal and to plan ahead for the (short- and long-term) steps your organisation will need take to when gradually phasing out of the lockdown. This might include:
- Ensuring regular communication with principal customers and stakeholders
- Reviewing and assessing what impact COVID-19 will have on workforce planning and management
- Reviewing of phasing impacts depending on your sector
- Understanding and deploying digital and process automation to mitigate the impact of disruption
- Developing and implementing enhanced risk management practices
Going forward the role of directors will remain critical to the success of the company, especially in times of crises, to ensure actions are taken to mitigate the impact of disruption by developing and implementing enhanced risk management practices. The governing body's primary governance role and responsibilities remain steering and setting of the strategic direction, approving policy, planning, ensuring accountability and overseeing and monitoring of activities. Without proper direction and leadership from directors the company will be like a rudderless boat in stormy water!
How can KPMG help?
KPMG has developed an easy to use self-assessment tool which aims to facilitate a risk assessment of your organisation's response to COVID-19. The risk assessment has been divided into ten risk categories for which a number of questions have been formulated. This will provide you with an assessment score for each category as well as an overall assessment score for your organisation to evaluate the readiness to move into the next steps of resilience, recovery and adjusting to the new reality. Please contact us and we will share this free tool with your organisation as well as some guidance to interpret the results.
We are happy to answer all remaining questions that you may have on this important topic. Please contact us for more information:
Director, Internal Audit, Risk and Compliance Services
T: (020) 656 7099
Manager, Internal Audit, Risk and Compliance Services
T: (020) 426 2507
* Marjolijn is the ERM Lead for KPMG the Netherlands and also the former Head of Governance and Assurance at Royal Dutch Shell
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