Governing through the COVID-19 crisis - 10 key considerations for Boards - Deloitte
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Governing through the COVID-19 crisis 10 key considerations for Boards
Introduction
As a typical “black swan” event, COVID-19 took the world Note – this publication was produced
by complete surprise. The focus of most organisations on 26 March 2020. The COVID-19
situation is evolving rapidly, and
to date has been on mobilising crisis response teams to some extent unpredictably, the
and working quickly to manage operational disruption, information below may have changed
from the date of publication.
assess the financial implications, understand the key
risks and protect employees.
While the full impact of this pandemic Much of the COVID-19 thought leadership
remains unknown, as the situation to date has been aimed at executives
continues to evolve on a daily basis it is and management. The purpose of this
becoming clear that the economic and article is to provide guidance to Board
financial ramifications will be felt across members in respect of their role and
the globe. One thing we can be certain on response to a crisis, as well as insight
is that now, more than ever, organisations into some of the specific areas Boards
need strong and resilient Board leadership (and Board committees) should be
helping their organisations respond, focusing on in respect of COVID-19. This
recover and thrive. has been summarised into our ’10 key
considerations for Boards’. Further, in the
appendix we also provide details of further
resources that may be of interest to Board
members to help keep them updated.
0110 key considerations for Board members
1
Clarify the Board’s role in a crisis and for their performance; and provide
be mindful of directors’ duties challenge on their approach. Discharging
When something goes wrong in an the Board’s stewardship role will involve
organisation the Board will always find providing additional guidance and support,
itself in the spotlight, receiving scrutiny such as: shaping the BCP strategy; guiding
from all stakeholders such as investors the organisation’s response as the
and regulators, as well as the media. pandemic evolves; and sharing insights on
When the stakes are high and scrutiny key risks. For many organisations the initial
is intense, the Board has a unique role response phase is the least effectively
in crisis management which should be planned phase of a BCP and may require
clearly understood by both the Board additional guidance and input from the
and management. Stepping in to support Board.
management may be uncomfortable, but
stepping aside is not an option. The Board
3
adds most value when it: provides critical Understand and challenge the
oversight; long-term planning and strategic operational and financial impacts on
support; helps to engage key stakeholders; the organisation
and understands when intervention is Boards need to understand the
necessary. They also need to respect impact of COVID-19 on both business
boundaries and not stray into executive operations and financial performance,
territory when providing this support. considering both the short and long
This is in addition to remaining focused term implications and adapt accordingly
on other key responsibilities, which is as organisation priorities change. The
particularly important for Boards operating assessment of operational disruption
in regulated industries. Alongside this, and financial impact requires an in-depth
Board members should be mindful of analysis by management that reflects
their fiduciary and statutory duties under the organisation’s industry, geography,
company law, including the duty to ‘act in business model and supply chain. It should
good faith in what the director considers to cover a range of different scenarios that
be the interest of the company’. have been stress tested and identify if and
how the organisation will operate under
the worst case scenarios. Board members
2
Balance the two key aspects of should provide independent challenge on
the Board’s role – supervisory and these assessments and their underlying
stewardship, in respect of Business assumptions. Further, Boards should also
Continuity Planning understand and challenge the implications
The use of a Business Continuity Plan of the operational and financial impact
(‘BCP’) provides companies with a roadmap on revenues, cash flow, liquidity, debt
and processes that support the company obligations, profitability and dividend
and its strategy in times of the unexpected. payments.
At this stage most organisations will be in
the process of executing their Business In the Financial Services Industry (‘FSI’)
Continuity Plans. The Board should work operational resilience has in recent times
with management to understand the been an area of focus for regulators
current status of the BCP and how the and should be high on Board agendas
Board can best be utilised to support the to understand how digital channels and
BCP, discharging both its supervisory and outsourcing arrangements will be affected,
stewardship roles. In the context of the as well as how customers will be impacted.
Board’s supervisory role, it will be required
to: oversee management’s implementation It is also important that Boards keep
of the BCP; hold management to account updated on emerging policy and regulatory
02developments related to COVID-19 and the financial position of the company, or
understand if, and how, these might otherwise result in failure. Alongside this
ease the burden of these challenges. information in the financial statements,
For example, in the FSI the European appropriate references should also be
Banking Authority (‘EBA’) has postponed set out in the front half disclosures that
the EU-wide stress test exercise to 2021 explains the potential impacts on the
to allow banks to prioritise continuity of company’s business model, strategy, key
their core operations, including support performance indicators and principal risks
for their customers. Similarly, the Central and uncertainties.
Bank of Ireland (‘CBI’) has also announced
a number of measures to safeguarding Audit committees will need to familiarise
monetary and financial stability. themselves with the key accounting
considerations and be prepared to
challenge management and engage
4
Keep updated on disclosure and with their auditors in respect of these
reporting obligations unforeseen circumstances.
Listed company Boards will need to be
aware of their disclosure requirements
5
and the impact of the pandemic on their Continue to robustly oversee risk and
financial reports. We expect this to be a compliance
fast changing area, with regular guidance There are a number of actions Boards will
and updates being issued by the European need to take to ensure robust oversight
Securities and Market Authority (‘ESMA’), of risk and compliance during the period
the Financial Reporting Council (‘FRC’) and of the pandemic. Firstly, they will need to
the Financial Conduct Authority (‘FCA’). Key ensure that there is a process to monitor
recommendations to date have highlighted COVID-19 specific risks, enabling the Board
(1) the need to disclose as soon as possible to understand the likelihood and impact
any relevant significant information of the risks, as well as any controls and
concerning the impacts of COVID-19 mitigating actions that can be taken. In
in accordance with the Market Abuse addition to this, it is important that Board’s
Regulation, (2) the importance of providing do not lose sight of other risks facing the
transparency on the actual and potential organisation, paying close attention to
impacts of COVID-19 in the financial report those that may be heightened, for example
and (3) delaying the announcement of cyber risk, health & safety, data protection
preliminary results. and financial risk.
Companies will have to revisit their Regulated FSIs will also be expected by
financial reporting timetable and consider regulators to take all reasonable steps
the impact of COVID-19 on accounting to continue to meet their regulatory
conclusions related to a number of areas obligations. Boards should be comfortable
such as: the impairment of non-financial that management are taking the necessary
assets (including goodwill); valuation of actions to ensure that this continues
inventories; allowance for expected credit through remote working and importantly,
losses; restructuring plans; breach of loan that the organisation remains focused on
covenants; hedging relationships and tax protecting the interests of consumers.
considerations to name a few. Further, they
will also need to consider the implications
6
on the assessment of going concern and Focus on talent matters
viability and whether these circumstances Talent will be an area requiring focus
will result in prolonged operational from Boards as organisations make
disruption which will significantly erode substantive changes to the type of work,
037
the workforce and the workplace in Communicate with both internal and
response to COVID-19. Boards should be external stakeholders
provided with an opportunity to input A good crisis response is not only
into the arrangements and understand about swiftly addressing what has gone
the key talent-related risks and how these wrong, it is also about being focused on
are being mitigated. Key areas to consider stakeholders – proactively communicating
include: with employees, shareholders, regulators
and other stakeholders. In recent years
• Succession planning – Board’s will
there has been an increasing focus on the
need to revisit succession planning and
Board’s role in stakeholder engagement,
may need to prepare temporary plans
an area that is often incorrectly
for key executive and Board positions,
assumed to fall solely within the remit of
as well as critical roles, if existing plans
management. For example, in respect of
do not provide sufficient contingency
employees it is appropriate for the Board
arrangements. As COVID-19 continues
to work with management to set the right
to spread rapidly, there is an increased
tone. Similarly, Boards should be aware
risk that key people will be temporarily
of the key messages being delivered to
unavailable due to quarantine or
investors, the mechanisms to update them
illness. In this event there should be
and those that require support from the
clear leadership alternatives. Regulated
Chair or other Board members. Regulated
FSIs should think carefully about how
FSI Boards should also be thinking about
pre-approved control functions will
how they will engage with their regulators
be impacted and whether their roles
and supervisors. Boards should have a
may need to be temporarily carried
robust framework around engagement
out by others and subject to regulatory
activities that they can leverage to support
approval.
engaging with stakeholders at this critical
• Health & safety – COVID-19 requires time. If not, they should agree protocols
focus on health and safety across all that provides clear guidance for the Board.
organisations, no matter what sector.
Factors to cover are broad and range
8
from: responding to symptomatic Operate a different mode of
employees or visitors; protection of governance
privacy; quarantine requirements; Dealing with a crisis requires operating a
ensuring safe working environments; and different mode of governance, one where
accounting for staff members. decisions get made, implemented and
communicated quickly and there are clear
• Remuneration – although this may
escalation processes. To support this there
not be an immediate action, in light of
are a number of practical points for Boards
the operational disruption and financial
to think about:
impact of the pandemic, Boards and
Remuneration Committees will need to • Board-level crisis committee – at
consider the impact on remuneration this stage most organisations will have
and incentives such as pensions and established executive level incident
bonuses. response or crisis management team.
However, it is important that appropriate
For organisations that find themselves mechanisms are also put in place to
in a situation whereby they need to take support the Board. We have seen a
difficult actions, such as pay cuts or number of organisations create Board-
layoffs, Boards will need to be involved level crisis management committees
in these critical decisions and think which can help utilise independent Board
about all stakeholders and the long-term members’ skills and expertise, and make
sustainability of the company. efficient use of Board time.
04• Committees – in addition to a creating to ensure smooth meetings, as well as
a crisis management committee, other consider their leadership style and any
Board committees will also have specific changes required to enhance meeting
responsibilities. For example, Audit effectiveness.
Committees will need to consider the
impact on financial reporting and audited With COVID-19 resulting in restrictions on
accounts, Risk Committees will need to large gatherings, the closure of venues and
get to grips with the full risk profile and travel bans, conducting Annual General
keep abreast of emerging risks, while Meetings will be challenging, particularly
Nomination & Governance Committees for those with a 31 December year end.
may need to step up their efforts on Boards need to understand their options
succession planning. and the legal parameters around these.
For example, can they postpone the
• Management information – the
meeting? can they hold a virtual AGM?
COVID-19 situation is extremely fluid
what if the notice has already been issued?
and fast evolving. Management will need
to ensure that Boards are equipped
with the latest information on a range
Don’t forget about sustainability
of areas, from operations and finances
While the pandemic will have a significant
10
to risk and talent, to support decision-
operational and financial impact for
making. Importantly, management need
most organisations, as well as profound
to be able to present this information in
implications for society and the broader
a manner that enables Board members
economy, it will also reinforce the need
to quickly distil the critical points and
for organisations to demonstrate
assess the impact of the pandemic on
commitment to their societal purpose. In
the organisation.
other words, their licence to operate for a
• Minutes – the recording of Board purpose beyond simply making profits for
deliberations becomes more important shareholders that serves the interests of
during a crisis when Boards will be their wider stakeholders. This is evident in
making significant decisions that will a recent quote by Martin Whittaker, Chief
potentially impact all stakeholders. All Executive of JUST Capital in the Financial
minutes, actions and written resolutions Times: “We believe this [COVID-19] is the
arising from Board meetings should be acid test for all this talk about purpose and
given careful consideration, particularly stakeholder capitalism… this is when we find
in the regulated FSI where minutes are out who was just talking the talk and who is
already subject to intense regulatory walking the walk.” Amidst the management
scrutiny. of the crisis it is important that
sustainability continues to be discussed
during Board discussions, albeit through a
9
Embrace virtual Board and different lens.
shareholder meetings
Physical distancing guidelines will render
traditional face-to-face Board meetings Conclusion
impossible. Boards will now have to rely As the COVID-19 situation continues to
on video and tele-conferencing as the evolve rapidly, it is important that Boards
key means to hold meetings. Care will understand their role and how they can
need to be taken with attendee location effectively govern their organisations and
to ensure that ‘mind and management’ support management, leveraging Board
are seen to be in Ireland, steering clear of members’ valuable insights and expertise.
unintended consequences from a tax or It is also important that they ensure
regulatory perspective. Chairs will have to continued focus on stakeholders, and keep
work closely with Company Secretaries to abreast of developments in the current
leverage the best technologies available challenging environment.
05Appendix
Additional resources We have also included some examples of
The table below provides a list of useful resources for FSI below. For information
additional resources relevant to the key on additional sector specific resources,
considerations set out in the article. In please view our ‘insights by sector’ global
addition, Board members can access our webpage.
Deloitte Ireland COVID-19 webpage for
all the latest thought leadership - https://
www2.deloitte.com/ie/covid-19.html#
Article ref Theme Publication
All sectors
1 Crisis management ‘Stepping in: the board’s role in crisis management’
Directors responsibilities ‘The Principal Duties and Powers of Company Directors under the
Companies Act’
2 Business continuity ‘The benefits of a Business Continuity Plan’
planning ‘Business Continuity Planning Checklist of preparatory actions in
responding to COVID-19’
3 Financial impact ‘COVID-19: Managing cash flow during a period of crisis’
‘COVID-19: Credit solutions for companies with urgent cash needs’
‘COVID-19: Navigating Volatility & Distress’
‘COVID-19 Debt Advisory update’
EBA statement on actions to mitigate the impact of COVID-19 on the EU
banking sector
3 Financial impact Opinion by Governor Gabriel Makhlouf in Sunday Independent
Operations ‘Bravely face the epidemic, resume work calmly’
Supply chain disruption ‘COVID-19: Managing supply chain risk and disruption’
4 Accounting ‘FRC Guidance on audit issues arising from COVID-19’
ESMA recommends action by financial market participants for COVID-19
impact
‘FRC supports moratorium in corporate reporting’
‘Accounting considerations related to coronavirus disease 2019’
‘FCA requests a delay to the forthcoming announcement of preliminary
financial accounts’
‘Joint statement by the Financial Conduct Authority (FCA), Financial
Reporting Council (FRC) and Prudential Regulation Authority (PRA) – 26
March 2020’
5 Cyber risk ‘COVID-19: Cyber considerations amid a global pandemic’
‘Cybersecurity: everybody’s imperative’ - A guide on guarding against
cyber risks
06Article ref Theme Publication
All sectors
6 Talent ‘Deloitte COVID-19 Practical workforce strategies that put your people
first’
‘The heart of resilient leadership: Responding to COVID-19’
‘Increasing organisational resilience in the face of COVID-19’
Income tax and COVID-19: Ireland income tax & immigration considerations
immigration
7 Stakeholder ‘Board briefing on the new Section 172(1) statement’
engagement
‘Hearing the stakeholder voice - Effective stakeholder engagement for
better decision making’
‘COVID-19: Maintaining customer loyalty and trust during times of
uncertainty’
8 Governance ‘Board impact - Thinking differently about boards’
‘Insights from Deloitte’s governance practice in China Global board
briefing: Lessons learned from China and beyond’
‘2020 Directors’ Alert - Reimagining governance and oversight amid
digital disruption’
‘Stepping in: The board’s role in the COVID-19 crisis’
9 Board meetings Tax residence
Annual General Meeting ‘AGMs and impact of Covid-19 guidance note’
10 Sustainability Coronavirus poses ‘acid test’ for conscious capitalism; climate pressure
continues
‘Embracing the Board’s role in sustainability’
Financial services industry
1 Banking and Capital ‘COVID-19 potential implications for the banking and capital markets
Markets sector’
‘COVID-19 | The UK supervisory and regulatory response for banks’
‘2020 banking and capital markets outlook’
2 Insurance ‘Potential implications of COVID-19 for the insurance sector’
‘COVID-19 | The UK supervisory and regulatory response for insurers’
‘2020 insurance outlook’ - Insurers adapt to grow in a volatile economy
3 Investment ‘COVID-19 and the investment management industry’
management ‘COVID-19 | The UK supervisory and regulatory response for investment
managers’
‘2020 investment management outlook’ - Crossing boundaries for
profitable growth
07Contacts
See our website for further details: www.deloitte.ie/ccg
Centre for Corporate Governance
Colm McDonnell Melissa Scully
cmcdonnell@deloitte.ie mscully@deloitte.ie
01 417 2348 01 417 8656
Risk Advisory
David Kinsella Sean Smith
davkinsella@deloitte.ie ssmith1@deloitte.ie
01 417 2529 01 417 2306
Eileen Healy Laura Wadding
ehealy@deloitte.ie lwadding@deloitte.ie
021 490 7074 01417 2934
Acknowledgement
In drafting this publication we have leveraged the Deloitte publications listed in
the Appendix and where relevant, have summarised or extracted some of the
key messages. We would like to thank the authors of these publications for their
timely insights and encourage our readers to access these documents for further
information.
Deloitte Centre for Corporate Governance
The Centre for Corporate Governance is designed to provide boards and senior
management with a single point of access to current developments, Deloitte
perspectives, learning materials and other useful information related to corporate
governance. We provide a range of corporate governance services across all
industries, bringing insight into the latest developments and the practical
challenges. We work collaboratively with clients to either assess their existing
governance arrangements in place or to assist in the design and implementation of
new solutions. Our approach is tailored to your needs and will be dependent upon a
number of factors to include: sector you operate in, ownership and legal structure,
whether you are regulated and the stage of maturity your business is.
08Contacts
Dublin
29 Earlsfort Terrace
Dublin 2
T: +353 1 417 2200
F: +353 1 417 2300
Cork
No.6 Lapp’s Quay
Cork
T: +353 21 490 7000
F: +353 21 490 7001
Limerick
Deloitte and Touche House
Charlotte Quay
Limerick
T: +353 61 435500
F: +353 61 418310
Galway
Galway Financial Services Centre
Moneenageisha Road
Galway
T: +353 91 706000
F: +353 91 706099
Belfast
19 Bedford Street
Belfast BT2 7EJ
Northern Ireland
T: +44 (0)28 9032 2861
F: +44 (0)28 9023 4786
Deloitte.ie
At Deloitte, we make an impact that matters for our clients, our people, our profession, and in the wider
society by delivering the solutions and insights they need to address their most complex business
challenges. As the largest global professional services and consulting network, with over 312,000
professionals in more than 150 countries, we bring world-class capabilities and high-quality services
to our clients. In Ireland, Deloitte has over 3,000 people providing audit, tax, consulting, and corporate
finance services to public and private clients spanning multiple industries. Our people have the
leadership capabilities, experience and insight to collaborate with clients so they can move forward with
confidence.
This publication has been written in general terms and we recommend that you obtain professional
advice before acting or refraining from action on any of the contents of this publication. Deloitte Ireland
LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result
of any material in this publication.
Deloitte Ireland LLP is a limited liability partnership registered in Northern Ireland with registered
number NC1499 and its registered office at 19 Bedford Street, Belfast BT2 7EJ, Northern Ireland.
Deloitte Ireland LLP is the Ireland affiliate of Deloitte NSE LLP, a member firm of Deloitte Touche
Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”). DTTL and each of its member
firms are legally separate and independent entities. DTTL and Deloitte NSE LLP do not provide services
to clients. Please see www.deloitte.com/about to learn more about our global network of member firms.
© 2020 Deloitte Ireland LLP. All rights reserved.You can also read
