How boards can help their companies survive

Behind every successful executive team is a board that oversees management and provides the guidance and support it needs to carry out its long-term plans. However, the pandemic has put that relationship to the test. Over the course of a few days in March 2020, strategic plans were thrown out, deals were put on hold, and new financing was arranged to prevent potential financial bleeding among other adjustments made. “It was like going through the various stages of grief,” says David Leith, a corporate director for RF Capital Group. “You started with denial, then panic, and then you had the operational response.”

Since the pandemic began, board responsibilities have certainly expanded. Typically, members help management set strategic priorities and ask executives tough questions to help ensure deals are well considered and sound. But now, boards must oversee, probe, query, and advise more than ever before. “Having simple curiosity and being deliberate with questions—these are always important,” explains Jonathan Goodman, global managing partner of Monitor
Deloitte and a Vice Chair of Deloitte Canada. “They’re even more so when we
think about the precious time and energy that need to be applied through the
pandemic.”

More risks to consider

In the early days of the COVID-19 crisis, boards did a lot of heavy lifting—whether a business was in good financial shape or not. Jane Kinney, a board member for Intact Financial and Cenovus Energy, says that when oil prices fell last March and April, the Cenovus board had to approve a dividend cut and a reduction in capital spending. “We were talking about survivability,” she explains. With Intact, which didn’t run into the same financial issues, the board had to help management transition to a work-from-home reality and bolster the company’s customer service. “In this case, existing strategies were actually accelerated,” she says.

As people have gotten used to the realities of operating businesses in a pandemic, many boards have been helping management pursue new avenues for growth, notes Goodman. “On one hand, you’re trying to keep the company going, but on the other, you’re trying to spur management into action and help them recognize opportunities,” he says.

But when it comes to acquisitions, boards must be extra careful to ensure they’re buying the right businesses, he explains. Company risk environments are more expansive than they’ve ever been in his career, he says—this is due in part to the COVID-19 crisis, but also to the many economic, technological, and geopolitical factors that currently exist and will arise in a post-pandemic world. Leith agrees, adding: “The question we’ve been asking ourselves is, ‘Do you understand how much the risk environment has changed?”

Three things to keep in mind

Boards, advises Leith, must presently consider the following three factors. First, planning environments remain uncertain in both the short term and long term. Besides pandemic-related adjustments, Leith says, the world is undergoing major technological disruptions, a dramatic change in energy production, and
continued geopolitical issues.

Second, there’s a lot of liquidity in the market, which makes it easier for companies to make mistakes. “Too much money is typically an invitation to
undisciplined deal-making,” he explains. “Boards really need to recognize that
we’re in extraordinary times for financial markets when money is effectively free.”

The third and often most important risk to keep in mind, says Goodman, hinges on company culture. If you buy a company with a culture that’s not a good match with that of your existing company, things can go south quickly. This is especially true in a virtual world, where integrating teams is harder to do. “Boards must really press management and say, ‘Do you think you can integrate
and bring two cultures together in a virtual environment?’” he says.

Ultimately, boards are meant to support the CEOs they’ve put in place, but given that management tends to get excited about potential deals, board members must be willing to weigh all the options. “There needs to be a lot of conversations—about the future, the uncertainties, the base expected cases, the best cases, the economics, and the price premiums,” Kinney says.

Planning ahead

The COVID-19 crisis has put a stronger spotlight on the need for gender and racial diversity in the boardroom. While the situation may not improve as quickly as people would like, Goodman thinks that over the next few years, meaningful progress can be made. “We have to ask ourselves about diversity in terms of gender, ethnicity, race, as well as background, experience and thought,” he says.

It’s also important for boards to take the time needed to consider future risks to their businesses, which Goodman thinks could include a major cybersecurity attack on critical infrastructure. As the pandemic has shown, boards must be ready for anything. “A big issue is imagination,” he says. “How do you ensure space and time and consideration for possible challenges, given the reality of constrained, precious, boardroom hours? That’s a critical issue as it relates to strategy and mergers and acquisitions.”