Part 2 of "Ask A Director: What Lessons Have Boards Learned from COVID-19?"Diligent Institute conducted extensive interviews with over two dozen experienced directors from different sectors, geographies, and backgrounds on how modern governance practices and behaviors are changing in response to the pandemic and its impact, which boardroom changes might be permanent, and directors' most important lessons learned. This opening segment provides a compilation of director responses to questions about the pandemic and what it means for modern governance going forward. Read the full report here.
How Has the COVID-19 Pandemic Changed Corporate Governance?COVID-19 impacted almost everything about our daily lives, including the way people work and operate in the business world. As we approach a full year of COVID-19, we asked directors how board governance has been changing as a result of the pandemic. The following are some of the most significant and frequently discussed changes that came up in director interviews.
- Phyllis Campbell: JPMorgan Chase & Co. (Pacific Northwest), SanMar, SanMar, US-Japan Council, and Allen Institute
- Anna Catalano: Willis Towers Watson, Kraton Corporation, HollyFrontier Corporation, Frontdoor, Inc., and Appvion
- Rafael Cerezo: Puig, Flamagas, Aubelia (Uriage), and ISDIN
- Brad Neilley: Princeton International Technology
- Lea Ray: Patriot One Technologies Inc., Aleafia Health Inc., ProDemnity Insurance Company, and RFA Bank.
- Donna Wells: Mitek Systems (MITK), Apex Technologies (APXT), Betterment and Happy Money
- Dawn Zier: Hain Celestial Group (Nasdaq: HAIN) and Spirit Airlines (NYSE: SAVE)
Directors Are Learning How to Use Virtual Meetings to Their AdvantageDirectors are working hard to adapt to virtual meetings. For many, adjusting to the dynamic of a board meeting without in-person interaction was challenging. However, as we move into the 10th month of COVID-19, directors are finding some unforeseen benefits.
'The biggest adjustment has been virtual meetings. Directors have had to go through a learning process with technology and various platforms, but it has taught us about how to have productive conversations when we can't be with one another in person. We've learned how to let everyone speak without interruptions and how to signal that we want to say something. For the boards with international members, we have adjusted our schedules because of time zone differences. We have moved committee meetings to the weekends, and instead of two full days of meetings, we do three morning meetings ...For global boards, it's been an adjustment as well.' -Anna Catalano 'Virtual meetings do not come naturally to board members. We received more information beforehand than we used to. The actual meetings were more organized, with people raising hands before speaking, for example. The end result was that even though virtual meetings go against the grain, they became very efficient in terms of timing and topics as well as being much more flexible. Our chairman was able to send out meeting requests so that we could respond more quickly to any issues that arose.' -Rafael Cerezo
Directors Stand Firm Behind Increased Meeting Frequency and Information FlowDue to the nature of the pandemic and how quickly the impacts on business change, directors commonly cited an increase in meeting frequency and information flow. For the directors we spoke with, this change was and still is absolutely necessary for successful pandemic management.
'More than ever, we have to stay up to date on relevant, evolving issues. As board members, we have to do more reading and research outside of the normal company or industry updates. We have to keep up on changing news and facts surrounding the pandemic, social unrest, and political situations so we can have deliberate and intentional conversations on how any of these might impact our business. You want your organization to be proactive instead of reactive and help the CEO and executive leaders be ready for the unexpected.' -Brad Neilley 'We have decided to meet with a much faster cadence. Rather than the typical quarterly board meetings interspersed with committee calls and meetings, we chose to meet monthly to make sure we were keeping up as significant new information was coming in. We were in frequent discussions to make sure that the board and management were in sync and informed.' -Donna Wells
How Have Director Roles and Responsibilities Changed as a Temporary Crisis Became Permanent?During initial crisis management in March, our conversations with directors indicated that the lines between management and the board had blurred in some cases. As a result of the unprecedented nature of the pandemic as well as its sheer scope and magnitude, directors rolled up their sleeves and took a hand in dealing with some operational-level issues to ensure management was not overwhelmed. We asked directors how this relationship had evolved in the last six months.
Directors Are Shifting Back into Long-Term Strategic Management with a COVID-19 LensIt is clear the pandemic will disrupt normal operations well into 2021. Directors have had to make yet another shift: out of crisis management and into a precursor of the new normal of board governance.
'We've had to shift focus to figure out when we can get back to normal. That has not been answered yet. The sentiment that 'we can wait to handle certain issues until COVID-19 is over' doesn't work anymore. The temporary mindset of March and April has changed, and we're shifting back to look at the long term. Specifically, for highly regulated companies, there are things that cannot be put off. So the question becomes, how do you accommodate decisions that cannot wait in the current climate?' -Lea Ray 'The pandemic has changed how we prioritized the short term. We had a crisis committee and a COVID-19 committee looking at our employees, clients, and cash. It was a short-term way of governing. Then when it became clear that this would be a U-shaped recovery, it was more about shifting back to long term. Now we are looking at how we handle going back to work. I'm a member of the audit committee, and we were looking at performance and security measures for people coming into the office and avoiding public transportation. Now we are in a stage where the new normal has become normal, so it's becoming more about managing business as usual while taking advantage of any opportunity that arises in the short term. For example, you may have M&A opportunities because many companies did not have sufficiently strong balance sheets to withstand the pandemic.' -Rafael Cerezo 'Boards are trying to figure out the tension of 'nose in, fingers out' in a world where no one has answers. Management has been asking lots of questions, so it has been difficult for directors to know when to lean in and when to leave management alone. This dynamic is changing right now. I always say, 'Nose in, nose in' twice. Keep the fingers out! This line is blurring right now because of the uncertainty of overlapping situations: COVID-19, racial equity, economic deterioration in many sectors faster than expected, natural disasters due to climate change, and so on. Directors need to bring up different possibilities for the future: Have you considered this option? What are we considering as a response? How has this changed? It may feel more intrusive, but you need to push nose in. Now it's more important than ever to explore the assumptions and possibilities behind each decision.' -Phyllis Campbell
Boards Are Asked to Answer New QuestionsBecause COVID-19 was so unprecedented, directors found themselves being asked for advice more frequently and on a wider range of issues. The pandemic brought workforce issues, such as travel policies, sick leave, health policies, mental health and well-being, and workplace sanitation into the spotlight. Boards are discussing issues that they had never anticipated before 2020, and the longevity of COVID-19 means that these topics are not likely to fade in prominence anytime soon.
'Directors are being tapped more frequently for advice. More questions are being put out on a more frequent basis in advance about topics like layoffs, financial scenarios, [and] assumptions about financial projections. Now management presents these projections with more explanation of the assumptions about them: business travel, personal travel, and so on. The questions we are being asked to answer are more focused. We spend more time debating because management is looking for deeper director perspectives, and everyone is guessing to a certain extent because of how unprecedented this pandemic has been. Calls take longer, but that's okay.' -Phyllis Campbell 'Our board has experienced a heightened awareness of financial sustainability. We are focusing on being nimble regarding spending money. We've also had to become more operationally focused, and management has had to make some changes. The board is a bit deeper in operations right now than what was normal before the pandemic. I don't think we have overstepped, but we are definitely more aware of operations-level decisions and asking more questions about things like employee sentiment and mental health that we would not normally have asked.' -Lea Ray 'Boards are being tasked with a lot of issues around human capital given the pandemic and the pressing need to address gender and racial diversity. It's imperative that boards have a handle on these topics and how they impact corporate culture and vice versa. All the social and human capital issues that management teams are currently facing will have profound impact on business moving forward, and it's important that these topics be discussed regularly in the boardroom. One positive from the struggles we, as a society, have faced over the past year, is that these issues are being moved into the spotlight and action plans are being put in place. You can have the right strategy, but you need a strong underlying culture and talent agenda to truly win.' -Dawn Zier>>Continue to Part 3 of 7: What Pandemic-Era Board Governance Practices and Mindsets Will Be Permanent? >>Return to Part 1: Ask A Director: What Lessons Have Boards Learned from COVID-19? >>Return to Diligent Institute.