Have Malaysian boards ‘caught a virus’ unprepared

The Perfect Storm!

The ‘Perfect Storm’ – a trio comprising the US-China trade war, plummeting oil prices, and COVID-19, is truly testing the resilience of global economies.

The current COVID-19 pandemic has almost frozen major economies around the world. The Malaysian economy was also not spared. With Malaysia announcing a four-week Movement Control Order (MCO) in an attempt to fight the pandemic, non-essential businesses were forced to close. Many businesses are now looking to strategise their operations post-pandemic, as well as work on their business recovery plan. 

With announcements on various Government subsidy schemes and stimulus packages, a common knee-jerk reaction by businesses is looking at ways to keep operations afloat, either by way of cutting costs or filling the revenue gap. In this current storm, businesses need a robust and agile captainship by not just senior management, but more importantly the stewards of the company - the board.

Boards are responsible for safeguarding the governance and viability of an organisation. When the stakes are high and scrutiny intense, the board plays a unique but demanding role. 

Stepping in may be uncomfortable, but stepping aside is not an option. 

What are boards thinking?

The Institute of Corporate Directors Malaysia (ICDM) ran a poll on ‘Malaysian Boards and Directors Preparedness for COVID-19’. The report measured the readiness of Malaysian businesses, in responding to the risks, challenges and ensuring business continuity in this highly volatile time.

What can and should boards do during a crisis? 

Boards are being challenged to monitor, discuss, and support the management’s risk assessments, business continuity plans, and crisis management and organisational responses. Expectations on board oversight were already increasing, as new risks continue to evolve rapidly and unpredictably. This has been strongly evidenced by the COVID-19 related risks, which are now a top priority on most board agendas.

Boards play a crucial role in supporting a forward-looking agenda and in making sure that the company aligns strategically with the new normal that will most likely follow after this high-impact event. It is thus important for board strategies and composition to uphold sustainability of their business models and ramp up their preparedness for volatile times. 

So what else can the board do?

• Redefine board roles and goals - Boards can extend their roles and decision-making abilities to support and guide management. Coming from diverse backgrounds with varied experience, the board can question and challenge the management team to view things from a different perspective.

• When is greater intervention needed? - Plan as much as possible in advance, and agree on roles and responsibilities, so that crucial time is not lost working out an intervention - if it is needed, especially when management is unable to provide the necessary leadership. They must also be agile enough to respond to any changes. 

• The board and succession - Discuss succession risks of particular positions openly, together with management, informed by their views, and again in executive session. Boards should view this with a risk lens eg. Vacancy, Availability, Readiness, Disruption, Control.

• The working board - Organise regular meetings by phone or videoconference, when directors or key members are unable to freely move around. Meeting remotely, it is critical that the ‘chair’ ensures that all directors participate and are heard. It is critical to have regular chair-board member check-ins.

• The special role of the chair - The board and its committees should continue to meet, and at a cadence that corresponds to the gravity of the crisis. The chair is also the sounding board to the CEO during a crisis, to ensure all plans are activated accordingly.

• Ensure effective communications - Board and management need to communicate effectively to their stakeholders. Together, they must oversee that the right level of engagement and disclosure is provided – both internally and externally*.

Final thoughts

The effects and aftermath of the pandemic will be felt long after it ends. The work of boards at this pivotal moment is a critical factor in a business’ ability to emerge from the current crisis, and push forward into a new era of economic recovery and opportunity. Apart from the principles that strong boards exemplify during a crisis, these 3 steps should also be practiced.

By Cheryl Khor, Risk Advisory Leader and Head of Centre of Corporate Governance at Deloitte Malaysia.