Could board directors and executives have anticipated the pandemic? Yes, responded Louise Pentland, an executive at PayPal, the payments company, and a non-executive director of Japan’s Hitachi, during a recent webinar. Would the prospect of a global shutdown have been taken seriously enough to create a “full playbook” for a pandemic? “I don’t think so. I really don’t.”

It is taken seriously now. Company directors have scrambled to respond to coronavirus and its consequences. The crisis is testing the resilience of the “G” in the ESG triad of environmental, social and governance responsibilities.

Boards handle normal business risk through ordinary processes such as audit, and company-specific risks through business continuity programmes and contingency planning. But few if any had prepared a plan for the first shockwave of a global pandemic whose impact on business has outweighed the disruption of the 9/11 terrorist attacks on the US or the 2008 financial crisis.

Louise Pentland
Louise Pentland of PayPal and Hitachi: 'We have to anticipate that this could happen again and now we have to be ready for it'

The crisis has also sent companies back to their core principles. “Empathy and the humanitarian element of leadership” play a particularly important role in this crisis, Ms Pentland told the webinar on the governance implications of Covid-19, organised by the European Corporate Governance Institute (ECGI).

Faced with such an emergency, there is simply no time to assemble the “ideal” board. But as former BT chief executive and serial board director Peter Bonfield, currently chair of NXP Semiconductors, puts it, “when push comes to shove, your [board’s] culture and style can sort out those [companies] who do well” from those who falter or fail.

Those with “busy” directors, who actively offer advice to executives, perform better through a crisis in the short term than companies with more passive “monitoring” directors, according to a new working paper, based on a study of how hundreds of US companies responded to disruptive events. That seems counter-intuitive, given that established research suggests advisory directors impede shareholder value, co-author Luh Luh Lan of the National University of Singapore told the ECGI webinar.

She suggests such active directors may have more of their personal reputation at stake and will therefore devote more time to rescuing the company. The same study points out that in the longer term, though, their presence may again hamper the day-to-day monitoring role of the board once the disruption fades.

For governance veteran Guy Jubb, outgoing ECGI president, this is one reason why boards need to ensure they have the right modus operandi to handle future waves of this pandemic, or comparable global threats. He suggests boards need a “programmed default” response. This may involve, for instance, deferring to a subset of the board — perhaps the chair and senior independent director — who would work directly with executives on the immediate response.

It is a difficult balance to strike. Jill Ader of Egon Zehnder says she was able to use the “altitude” she had as chair to set the tone for the executive search firm’s response to the pandemic. Her initial fear — ultimately unrealised — was that the board and the executives “might go off in different directions”.

Jill Ader who is the chairwoman of Egon Zehnder. Egon Zehnder, Nova South For How to Lead. 31/5/19
Jill Ader of Egon Zehnder says her 'altitude' as chair helped when setting the tone of the response

Boards have also valued a diverse range of voices contributing to scenario planning as the crisis has evolved. Swedish companies have emphasised, for example, the importance of stakeholder co-ordination and transparency, involving unions, institutional shareholders, boards and local authorities.

NXP’s Sir Peter points to the value of hearing different opinions in the boardroom, from both the “risk-averse, doom-and-gloom [directors] and others who said ‘it isn’t going to last that long’”.

Geographical spread has turned out to be important. Directors with knowledge of how Asia tackled the beginning of the crisis have offered their advice to those in Europe or the US, where the pandemic struck later.

In the aftermath of coronavirus, boards may seek new expertise, perhaps from among the epidemiologists and disease modellers who have come to the fore — in the same way that some banks have brought cyber security specialists on to their boards to advise on the risk of hacking. Mr Jubb cautions, though, against the risk of introducing unintended complacency: “As soon as you have an expert on cyber or actuarial science, the rest of the board will switch off.”

Covid-19 and its consequences have offered Prof Lan a way of testing on a far greater scale her own and fellow researchers’ hypotheses about the way different directors help companies work through a crisis.

In the meantime, though, boards need to prepare for a different risk landscape. “We have to anticipate that this could happen again and now we have to be ready for it,” Ms Pentland says. For instance, the widespread nature of the impact has made boards think about their “people location strategies” and how to react when there is no “fail-safe” alternative to facilities forced to close.

Peter Bonfield says the crisis is accelerating existing trends

Sir Peter adds that the crisis is accelerating a process of deglobalisation and digitisation that was already under way. As the short-term risks diminish, so the medium- to long-term future looks more uncertain. “If these trends continue”, he says, boards will need to start asking “what would we do in five years?”

That was a hard question to answer even before the pandemic; now it looks even harder.

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