In the aftermath of the 2008 financial crisis, the role of non-executives came under huge scrutiny. Boards were described as “part of the problem” and non-execs as “poorly trained” and “incapable or unwilling to challenge management”.
Things changed. Present non-execs can testify that there’s no shortage of training, particularly as governance standards constantly tighten, nor a lack of governance, scrutiny and challenge, with heightened investor and government interest in how companies are run. How much has that prepared us for Covid-19?
They say that “no crisis is like the last, so prepare for uncertainty”, but I’d be stunned if many boards were ready for this. Stress-testing might have become standard, but how many considered scenarios of income plummeting to zero — for months? However, some of the warning shots surrounding companies’ responses are in more familiar territory, whether that means dividend payouts, senior management remuneration and the treatment of staff and vulnerable customers. Not all businesses got the tone right.
What do non-execs do in a Covid-19 crisis? An experienced chairman said to me last week: “If this is war, then this is the time to trust the troops.” Decisions are being made with astonishing rapidity and requiring constant board approval that would strangle management. However, there isn’t a playbook for this. Swift judgments can be poor, as well as good. My boards are trusting our management, but we are using our experience to act as a sounding board, with appropriate challenge. Our collective experience of numerous crises is proving useful.
When facts are scarce, optimism or pessimism bias about the likely trajectory of the economic shutdown can lead to very different decisions. Non-execs who work across sectors are highlighting other scenarios and alternative conclusions. Non-execs generally have more time to look more widely and to add political insight, which is hard to see when you’re fighting in the trenches. In remuneration policy, for example, expectations changed rapidly just as bonuses were being put into payrolls and 2020 long-term incentive plans issued. And as boards are all starting to think about “business post-Covid”, non-executive directors can use their wider business experience to nudge teams to think more radically about what is possible. The post-pandemic world may look very different.
This all sounds very structured. It feels anything but. Boards have had to match the pace of their management teams. Board meetings have moved from monthly face-to-face meetings to weekly calls, along with WhatsApp groups and daily calls between chief executives and chairs. In businesses effectively closed down, cash is scrutinised daily.
Yet I’m not seeing increased bureaucracy; rather, non-execs are staying close so that decisions are swift and, almost above all, are providing moral support to exhausted leaders working every hour to try to save businesses or to keep vital public services running, while worrying about their own staff who are sick. Many of these leaders (and non-execs) have taken significant personal financial hits as salaries and bonuses are cut.
In 2008 it was the action taken (or not) over previous years that led to organisations succeeding or failing. We know that many businesses won’t survive this crisis. We will have inquisitions about debt levels, pay equality and ownership models. On my boards, it’s clear that investment in good leadership is paying off, as is board teamwork and clarity about purpose. After all, it’s easier to pivot quickly if you know what really matters. Let’s hope that we find a way to beat the virus, save lives and reopen the country to business before all of the best governance in the world is simply not enough.
Natalie Ceeney CBE is a board chair and non-executive director.
Related post: How to recalibrate in a crisis
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