Covid-19 crisis: Proof of corporate sustainability

Crises have arisen in national, regional, and global levels, causing adverse effect of different magnitudes. The ongoing COVID-19 crisis severely hit global economic and financial conditions while it also likely weigh Asian GDP to plunge at a much steeper pace than previous catastrophes.

In an effort to control the viral outbreak, countries have imposed various levels of measures such as national lockdown, curfew, temporary suspension of department stores etc. These moves substantially affect businesses, particularly those in the service sector such as aviation, tourism, hotel, and restaurant.

Numerous operators have to lay off staffs and eventually go out of business following months of declining revenues. Meanwhile, some restaurants have shifted to delivery mode as business operators adapted to survive. The ongoing situation, which changed ways in conducting certain businesses, is a fine test for corporate sustainability.

Directors are corporate leaders with crucial roles in governing the organization to ensure it survives this very crisis. They should consider how their companies should tackle the following issues (adapted from 10 Questions to Guide Boards Through the Pandemic article by Dambisa Moyo in 2020)

1. Health and safety of staffs: This agenda should be the top priority at the Board meeting to consider the pandemic impact on health and safety of staffs as well as aid measures to help employees sustain themselves and families.

2. CEO succession planning: A key role of the Board is to prepare CEO succession planning in case of emergency. The ongoing global pandemic could create succession risks for CEO and other significant executive positions. Therefore, the Board must ensure that an appropriate succession plan has been in place and business operations will continue in case of emergency.

3. Company’s ability to cover near-term expenses: All companies, even those whose products and services are in high demand such as food producers and retailers, need to examine their liquidity position to ensure that it can cover short-term expenses and obligations such as maturing debt and staff salary. Liquidity-squeezed companies need to access low-interest funding source or manage revolving credit. For companies with robust balance sheets, the Board and Management need to consider whether the company should take advantage of the low-rate environment and leverage more.

4. Salary management: The Board must carefully consider whether it is necessary to lay off staffs as corporate revenues fell. In this regard, the Board needs to take into consideration eventual impact on employees, long-term plan of the company, and future corporate growth prospect.

5. Shift in supply chain: Aggressive measures to cope with COVID-19, including lockdowns and travel bans, have substantial adverse effect on global supply chain. In a delivery survey of suppliers in March by Institute for Supply Management: ISM, it detected slower delivery from suppliers to production organizations. Among 16 industries that registered slower delivery in March were clothing, leather, and related products, garment, logistics equipments, primary metal, computer, and electronics. None of the industries reported faster delivery than February. The supply chain disruption will urge companies to compare cost and shift the supply chain accordingly.

6. Staff readiness for remote working in extended period: The company should establish relevant policies to accommodate staffs who work from home, taking into account work efficiency, cyber threat and data breach risks mitigation, health and well-being of staffs.

7. Sustaining corporate culture: The Board must assume proactive roles in defending and strengthening corporate culture in order to cope with increasing uncertainties and unusual situations. Robust corporate culture requires genuine support from strong and caring leaders, which will make staffs feel that they belong to the team and take parts in an orchestrated effort to resolve the crisis.

8. Interactions with financial markets: Analysts and investors generally anticipate negative impact from the crisis on corporate earnings. Boards of some companies have decided to trim dividend payment, treasury stock purchase, and new investment while some acted as they deem appropriate. The Board must also take into account any effect on relationship with investors and other stakeholders.

9. Business model strength: Besides short-term liquidity, the Board also needs to assess long-term opportunity of the company’s business fundamental, its capacity to repay debt obligations, and available cash to maintain liquidity.

10. Corporate social responsibility: The Board could allocate resources to support the Management in tackling COVID-19 outbreak. For examples, some hotels in the U.S., U.K., and Germany were converted into temporary hospitals, some of Walmart’s parking lots were used as drive-thru testing sites, Google assigned 1,700 engineers to develop websites for COVID-19 testing and screening.

The ongoing COVID-19 crisis could last as long as two years or until effective vaccine is discovered. Since each industry will be on different pace of recovery, the Board should govern the company by discreetly taking into account interests of all stakeholders. They must review corporate strategies, financial liquidity, opportunities and threats to weather through this crisis.

Reference
1. Chang Yong Rhee. (2020). COVID-19 Pandemic and the Asia-Pacific Region: Lowest Growth Since the 1960s. IMF Website.
2. Institute for Supply Management (ISM). (March 2020). Manufacturing Index Summaries.
3. Dambisa Moyo. (2020). 10 Questions to Guide Boards Through the Pandemic. Harvard Business Review Website.

Veerin Siriphan
Senior CG Analyst
Thai Institute of Directors Association (IOD)