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How COVID-19 Impacted Board Governance

Insights from a series of virtual gatherings

  • October 2021

The COVID-19 pandemic created unprecedented turmoil around the world. For companies and their boards, it meant reacting quickly and decisively in a gloomy landscape. New priorities emerged overnight, such as shoring up the capital structure of the company and finding ways to adapt to managing mass working from home, severely disrupted supply chains and the unpredictability of where and when the next waves would hit. 

To understand the state of governance in this landscape, we held regular virtual gatherings throughout 2020 and 2021 with a diverse group of board chairs and non-executive directors from around the APAC region. The participants serve on the boards of large, publicly-listed companies, start-ups, not-for-profit organizations and partnerships. The gatherings served as a forum to discuss the lingering effects of COVID-19 on boards and, more broadly, to exchange governance lessons and insights during a time of crisis and uncertainty. What follows are highlights of the issues that have played a pivotal role in the board’s agenda.

COVID-19 and the Macro-Environment

As monumental as COVID-19 has been, it is also important to recognize it occurred at the same time as other significant macro issues. Firstly, geopolitics and the ongoing anti-globalization narrative, which is proving challenging for many companies. One example looming large is the perception of the political environment in China, which has led some companies to pivot their previous growth plans in Asia to staying closer to home. Others remain bullish but are carefully observing the changing regulatory landscape. Experienced board members can play a key role by offering balanced views and providing greater local context to board discussions on these issues. 

Secondly, with climate risk and social movements garnering increasing media and public attention, Environmental, Social, and Governance (ESG) is now being taken extremely seriously across all industries. Generally speaking, the focus on the three different pillars of ESG vary geographically. For example, in North America civic movements mean that companies are closely addressing the Social pillar; in Europe the Environmental pillar is often the top concern; and in Asia, the Governance angle tends to be the main area of focus. Regardless of the prioritization within ESG, it is an issue that has captured government, regulator, investor and activist attention. In fact, some investors are placing more importance on ESG than financial outcomes. ESG committees are starting to crop up on boards and playing an increasingly important role in setting the broader strategy for organizations.  

Thirdly, private equity has become increasingly powerful in recent times. Board members are seeing plenty of interest from PE firms and increasing amounts of M&A and JV activity. Where companies have already got established relationships then JVs and M&As can proceed as usual. However, where relationships are new or non-existent, it can take significantly more time to develop trust and decide to proceed without the face-to-face opportunities of the past.  

The coming together of these macro issues is unparalleled. Boards have had to adapt and lead in ways they could not have predicted. 

New Ways of Working: For Better or Worse? 

An immediate and obvious impact of COVID-19 was that it changed not only the agenda of board meetings, but also its operating model. Most board directors have adapted to the virtual meeting format and are finding ways to make it work for them. Some chairs noticed that using video conferencing evened out participation, but differences in a director’s state of mind (personal situation, exhaustion, isolation) have never been more conspicuous. Also, many chairs have built their careers, networks and non-executive experience through having intimate, long-standing, face-to-face relationships with others. A key message was that it can be harder to pick the right moment to voice dissent in a virtual setting. The ability to have open, honest and diverse conversations is crucial to good governance so this is something that chairs must keep in mind to ensure everyone can make a solid contribution. 

The frequency and length of board meetings has changed. Many companies have had many more meetings in addition to the regular schedule, but that extra time has not been uniformly spent the same way. For some, it has been about discussing things together more, whereas for others it has been about focusing on a particular issue (e.g., risk and compliance) and investing more time on that. There is no right answer. It has proved to be very situational.  

Preparation for meetings has never been more important. To ensure board meetings run efficiently, some companies are hosting pre-briefing sessions to enable all board members to gain sufficient understanding of key topics prior to the board discussion. In general, board chairs are taking more time holding one-on-one conversations and pre- and post-board discussions in smaller groups to make up for the lack of in-person interactions. 

With some countries opening up again, there are examples of ways of working going back to the way they were pre-pandemic. What has changed for good is still up for debate. 

How Board Hiring and Integration Has Changed

Physical boundaries make it harder to chair board meetings – and to hire directors. There are undeniable changes for the better, such as a more democratic approach to hiring and less geographical constraints to finding the right fit. However, the missing intimacy of meeting and building relationships in-person is a hinderance. 

Board chairs value building close working relationships with their board members. Events around the board meeting were particularly valuable for developing and maintaining relationships. They also provided opportunities to fully understand the individual perspective of each member, enabling a better understanding of diverging views through dialogue and constructive challenge. It is important that chairs continue to support diverse perspectives and find ways to support directors to voice any dissent. 

When hiring and integrating new board members the role of the chair is crucial. They need to set the tone and culture for the board. In a virtual setting, they need to be more mindful to support new and diverse voices without harming the overall balance.

The Ongoing Impact on Management Teams 

We are consistently hearing how the last 12-18 months has led to CEOs being tested like never before. Unfortunately, CEO exhaustion is a common theme. In order to retain talent, some boards are repricing existing long-term incentives and looking at a range of non-financial as well as financial targets associated with variable remuneration. 

CEOs have also been increasingly seeking more guidance from the board to deal with the rapidly changing environment and complex, high-stakes decisions. This is especially true on key issues like human resources, employee and customer safety and risk management. The line between what is a management decision and what is a board decision has blurred. In some jurisdictions, non-executive directors are liable for legal and civil penalties for actions taken by management and cannot hide behind executive decisions. Directors have stepped up to the increased intensity of their obligation, although there is little clarity on whether this is likely to revert after the pandemic.  

For boards, the lack of face-to-face interactions has led to different dynamics and interactions with the management team. In some cases, the inability to visit key locations has diluted the ability to oversee the executive team and connect with the second level management group. Board members need to consider how they will adapt to plug this gap if their ability to travel remains constrained. 

As time goes on, it is important for boards and management teams to find an optimal operating framework. Some things that were required at the early stages of the pandemic might not be suitable now. Open and honest conversations built on mutual trust and respect can help make this process a smooth one. 

Moving Forward: Balancing Immediate Action and Strategic Intent

One thing is very clear – even with huge uncertainty, boards still need to make decisions. There is a sense that when the board is functioning well, and the business of board meetings is fairly routine, then remote board meetings seemed to work satisfactorily. But if remote board meetings are here to stay, there is a risk that they could become more operational and focus predominantly on risk management. This could lead to simply focusing on short-term issues and avoiding longer-term, strategic issues. 

However, after the initial shock, shoring up the capital structure of the company and settling into a new operating rhythm, the general consensus is that boards are now moving toward answering more strategic questions. What will the world be like after the pandemic? What opportunities does the company have to capitalize on? What acquisitions or divestments make sense? In some cases, opportunities that were not considered interesting in the pre-pandemic era are now seen as attractive options. With ongoing low-interest rates, there is a sense that investors are willing to look at alternative ways to secure yield. How long this appetite will last is hard to predict.  

There is not a one-size-fits all way that boards will evolve as a result of the pandemic and other macro issues that they have weathered over recent times. Each board will adapt to their own environment and situation. Creating the time to take stock will allow boards to reflect on what has changed. This will enable decisions about what changes should remain and what should return to pre-pandemic norms. 

The virtual gatherings we have hosted have been insightful and invigorating, enabling board members to share stories, connect the dots, and provide guidance.. We are grateful to the participants who have willingly and openly shared their insights with us and each other. We hope that the insights shared here provide useful context for board members everywhere as they continue to operate in uncertain times.  

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