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Boards Need to Think Beyond the COVID19 Crisis
by Professor Jordi Canals
Since the eruption of the global pandemic earlier this year, many boards of directors have been working with their companies’ management team to support them and help the firm’s long-term survival. Many boards are taking their duty of care more seriously.
Boards of directors are facing various challenges in trying to help their companies in this crisis. I will highlight two of them. The first is the low visibility that we have on the long-term effects of the pandemic on our companies and the global economy. It is difficult to draw scenarios. We do not know whether the pandemic will be under control in six or twelve months. Moreover, though we know consumers’ behavior will change, we do not know how deep the change will be once the pandemic is under control.
The second challenge is that many boards of directors do not have a well-developed competence to work on strategy issues with the CEO. A common practice in boards throughout the world parcels off strategy as the CEO’s and senior management team’s domain. The board approves the key strategic decisions but does not spend a lot of time in strategy debates.
Boards can work on the firm’s strategy issues by knowing the business well, asking some questions on key themes for the company’s future and debating the answers with the CEO. I will describe four of these questions.
Survival
The first question is related to company survival. This will still be a very important goal throughout the next months. CEOs are considering some gloomy scenarios. But boards should ask CEOs and CFOs some central “what if” questions. A very important one is to think about how a company can survive if the final scenario for 2020 -and possibly 2021- happens to be a really bad “worst case scenario”. Some industries such as airlines, hospitality and non-essential retail are considering falls in revenues between 50% and 80% of the 2019 levels.
To consider these pessimistic scenarios, boards should not stick to the GDP growth forecast prepared by governments and central banks. These institutions try to do a good job, but it is very difficult to forecast when everything looks dark. Instead, boards may want to focus on what they consider a very bad “worst case scenario” and accordingly introduce the required correction. Can we adjust the company to it? In this crisis, we should hope for a quick recovery -and this hope is very important for getting rid of fear-, but we should plan for the worst to make sure that the firm can survive.
Strategy reflections: Some forces that will reshape businesses
The second question is which underlying trends in our industry are here to stay, and their impact on our business model. We should take them into account when we think about the future of our company. Each industry is different. Throughout the past weeks of this global pandemic, some emerging trends have grown stronger. I will highlight some of them:
-Global supply chains are suffering a hard blow with many disruptions as a result of trade restrictions and social distancing measures put in place by governments.
-Consumers will do more shopping online if the shopping experience is good enough. Physical stores will not disappear, but the move to online shopping will speed up.
-Virtual work has become widespread. Online work and meetings may not be as productive as physical meetings. Balancing family with work responsibilities is a challenge. But flexible work time between home and the office may be the new normal.
-Online work has an important implication: the days of large corporate offices in prime locations and overcrowded cities may be over.
-The quality of the firm’s people remains its highest valuable asset. Individuals are having a great impact in this crisis, helping the company navigate in a difficult context, serving customers by solving their problem and helping other colleagues. Investing in people is even more important than investing in technology or physical assets.
New board’s agenda and priorities
These trends will have a different impact depending on each industry and company. Boards that care about the firm’s long-term development, under the leadership of their chair person, need to redefine the board’s agenda and its priorities, as most of these trends will become part of the new normal, even if there are still many unknowns. The firm’s strategy needs to take newly emerging trends into account and the board needs to spend time reflecting upon their impact on the firm’s business model and performance.
How do we serve our customers?
Boards of directors should encourage CEOs and their senior management teams to think about how to better serve customers in this changing business context. Winning customer propositions will likely be different when it comes to key dimensions such as pricing, product variety and environmental awareness. People’s policies and development will need to adjust to this new world to attract the best talent.
The technology platform and capabilities will need an important change to serve more customers online and allow people to do a better job working from home. Sourcing and global operations will need to be redesigned.
This crisis is not only about a temporary fall in revenues; it will open up more changes and companies that adapt fast and develop the required capabilities will emerge stronger. In this sense, a central question is: Are we serving our customers really well?
Time to stop, think and adapt
After initial effort to make sure that employees´ and customers’ safety is guaranteed and liquid assets are ensured at reasonable levels, boards should spend time thinking about how the business needs to change and set new priorities. In this process, boards should also reflect on their firm’s purpose, their people, and the capabilities that they need to adopt, as well as their reputation and role in society.
Boards can offer a great service to their companies: they can help firms not only to survive, but also -if possible- to create a better future. Companies with sound strategic orientation and good execution not only will do better, but will also create shared prosperity and jobs for many.
Jordi Canals
President
IESE Center for Corporate Governance
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