Ever since COVID-19 began sweeping the globe, companies have remained stuck in pullback mode. Movie theaters, like AMC Entertainment Holdings, temporarily closed doors. Dining establishments, such as Olive Garden’s parent company Darden Restaurants, have shifted to carryout and delivery. Manufacturers have slowed down development, responding to a lack of demand.
The impact from the slowdown could lead to a 34% reduction in U.S. gross domestic product during the second quarter, according to economists at Goldman Sachs Group.
It’s within these depths that boards must prepare for when things begin returning to normal again. How a company bounces back from this devastation could determine its survival.
This historic re-launch will require foresight and communication between board and management to prepare for the resumption of regular operations, while preventing short-term hiccups that could stall a recovery.
“The role of the board hasn’t changed,” says Jim Brooks, chief operating officer at consulting firm Control Risks. It’s still long-term stakeholder management. As companies re-launch operations, directors can’t lose sight of that responsibility.
Here are three things to consider, when your board begins the process of getting back to business as usual.
1. Understand the New Financial Situation
As the coronavirus’ impact heightened, the U.S. Securities and Exchange Commission said companies could delay reporting first-quarter results, if needed. It comes as many chief financial officers and audit committees compile “financial reporting like they have never dealt with before,” says Paul DeNicola, a principal within PwC’s governance insights center.
Understand where the business stands and the artillery it has to work with as it restarts post-crisis. Directors should question new risks within reporting that may have emerged alongside the virus’s spread and help communicate issues to institutional shareholders.
Having a grasp of these numbers will also help the board determine what’s needed on a personnel level. As the crisis hits, millions of people were laid off or furloughed, as businesses downsized in response. Still, only 16% of CFOs surveyed by PwC reported expecting to layoff staff by the end of March.
The ability to hold on and retain talent during this unprecedented and sudden halt in activity will make it easier for a company to scale up operations back to full power.
CEOs and management teams should “lean on boards,” adds DeNicola, as they discuss moving back to full deployment of employees.
2. Gauge Where The Supply Chain Stands
The business won’t be the only entity recovering through the depths of this crisis. If a company produces and sells products, it is likely that its entire supply chain that supports the manufacturing and construction of that product has also suffered.
“If every part of the supply chain isn’t ready to ramp up, it’s useless,” says Sunil Chopra, a professor of operations management at Northwestern University’s Kellogg School of Management.
The board should have regular communication with management about the status of every part of the supply chain and have back-ups available for portions of the chain, if possible. This is where boards’ often fall short, says Chopra.
Ideally, companies would have back-ups for each portion of the supply chain, going as far as providing a fee to a supplier to serve as insurance when the regular partner can’t operate. But in good times, as management looks for ways to cut costs, these programs tend to get slashed without much of a fight, Chopra has found.
Boards should “challenge” the urge by management to cut this setup, adds Chopra.
3. Set Realistic Expectations For Future Operations
Depending on the depth of slowdown, the board must set realistic expectations for how fast the business can bounce back. It’s a time where boards focused on the long-term health of the organization will most benefit.
Some companies may return to normal in three months. Others could take more than a year. A company’s position will strengthen, no matter how deep COVID-19 cut into the business, if the board can exercise patience with management, present precise strategies for recovery to shareholders and offer clear expectations on where the company will be in the future.
Shareholders can “tolerate all sorts of short-term pain,” says Control Risks’ Brooks — if they understand the goals, strategies and timeline to navigate the issues and challenges.
It’s also why, as the economy rights itself, it’s important for boards to evaluate where the company and industry will stand in the next six months or year.
That’s where organizations can find competitive advantages, Brooks adds. Long-term thinking remains the board’s primary purpose, putting the onus of the long-term rebuild on their shoulders.