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Home Featured

How Does Corporate Governance Change in a Crisis?

3 Common Practices That Help Organizations Stay Nimble

by Dottie Schindlinger
June 19, 2020
in Featured, Governance
driver's hand on gear shift in car

In this crisis, some companies have flailed, but some have fared relatively fine. Why such a disparity in outcomes? Dottie Schindlinger, Executive Director of Diligent Institute, shares what COVID-19 has taught us about continuity, crises and corporate boards.

The COVID-19 pandemic is not the first crisis that corporate directors have faced, but in terms of its complexity, scale, economic impact and continued uncertainty, it’s unprecedented. Between shattered supply chains and the volatile stock market, organizations have looked to corporate leaders for effective responses and solutions. In early March 2020, we interviewed corporate directors from around the world to learn more about how their boards have adjusted their processes, priorities and perspectives in response to the COVID-19 crisis.

The Impact of the Crisis Has Been Complex and Uneven

Organizations and communities across the economy have been impacted by the COVID-19 crisis in different ways. In our earliest conversations with directors, most expressed the belief that the companies with the deepest cash reserves would be the most resilient. For some industries – such as travel and hospitality, and for companies with less liquidity and less adaptable business models – this crisis could lead to extinction. For others, the crisis accelerated demand for their companies’ goods and services. Some companies experienced harm early on, but anticipated they would withstand the crisis and recover once the pandemic subsides.

The lopsided impact and the uncertainty surrounding the recovery timeline have been hallmarks of the pandemic. Even six months after the first cases of COVID-19 were reported, many businesses across states are still partially shut down, and neither an effective course of treatment nor a vaccine is predicted to be widely available for many months to come. These factors complicate the decision to reopen businesses, especially as they attempt to effectively safeguard employees, customers, suppliers and other stakeholders. In order to thrive beyond the pandemic, directors expressed flexibility and adaptability as the top strategies moving forward.

Shifts in Society Are Calling Corporate Boards to Act Now

The complexities that corporate boards are facing today are not all related to the COVID-19 virus, but also to long-standing societal factors compounded by the pandemic. Shortly after we concluded our research, anti-racism protests erupted across the U.S. in the wake of the murders of George Floyd, Breonna Taylor and Ahmaud Arbery, among many others. The anger and frustration expressed by the protests were, in part, caused by the pandemic, which disproportionately impacted communities of color both in terms of infection and mortality rates, as well as unemployment and negative economic outcomes.

This new chapter in the crisis creates additional complexity for corporate leaders to navigate and will require action that they previously did not emphasize enough. Many corporate leaders have publicly denounced the killings and made statements on social media in support of police reform, ending systemic racism and creating a more just society. However, we have yet to know whether these statements will result in action. Honesty is crucial at this time, and statements coming from companies that do not have great track records on diversity and inclusion have not been received positively.

The Pandemic Reminds Corporate Leaders Just How Global the Economy Is

The pandemic and resulting shutdowns have made the complexity and interconnectedness of the global economy more obvious and tangible than ever before. For example, prior to the pandemic, roughly half of the world’s supply of N95 facial masks – life-saving equipment required by every health care worker fighting the virus – was being produced in China, which came to a halt as the country had to shut down factories to help slow the spread of the virus. The resulting shortage prompted companies in industries as varied as automotive and pet suppliers to begin producing masks. In our interviews, directors reflected on how this experience has demonstrated that there are no truly “local businesses” anymore; every enterprise, regardless of size, has been impacted profoundly by this global event.

The Single Largest Workforce Transition in History Happened in a Matter of Weeks

The shutdowns also brought about the largest unplanned transition to remote work in history. The shift at first seemed that it would be a short-term effort to help the health care system adjust and manage the influx of new coronavirus patients. However, with few options to ensure the health and safety of employees, customers and other stakeholders even after three months of “stay at home” orders, corporate leaders have come to see remote work as the “new normal,” or at the very least, as a style of working that has become more accepted as a result of this crisis.

The Crisis Revealed New Opportunities and Greater Risk

The shift to remote work creates many new opportunities, but it also comes with abundant new risk – especially cyber risk, as employees and directors alike are relying on home networks, personal devices and unsecured communication channels to share sensitive documents and information. For corporate directors, the shift to remote work also means holding all board and committee meetings virtually, some for the very first time. Corporate leaders – whether they were ready for it or not – found themselves thrust into the era of “modern governance,” requiring new technologies, adapting governance processes and data-driven insights required to achieve effective corporate governance. All of these decisions also required leaders to quickly come up to speed with the risks of using unsecured systems and tools, such as personal email accounts, group messaging apps and videoconferencing systems.

Governance Practices Changed During This Crisis

While the shift was sudden and dramatic, the move toward modern governance, which is hallmarked by agility in corporate leadership, has been gaining momentum over the last decade. Corporate directors leverage a variety of technologies, proactively seek data and insights and have more nimble communication and collaboration practices. Their governance practices and decision-making include a broader and more diverse group of stakeholders, with a more global set of perspectives. So, while this crisis was unprecedented, many of the directors we interviewed found they were at least somewhat prepared to respond to the pandemic and were able to stay nimble and adapt rapidly as the situation evolved.

The directors we interviewed provided several specific governance practices that changed as their companies responded to the pandemic. Below are the top three responses:

1. Management and governance should become more tightly aligned.

Directors told us that they found there was some “blurring” of the lines between the jobs of the executive team and the board during the crisis. Individual directors might be called upon to leverage their networks to help remove obstacles, and senior management team members might be called in to join board-level conversations in substantive ways. Directors told us they felt these changes were positive and necessary, but that they should be temporary and once the crisis had ebbed, it would be important to ensure the board was not “stepping on management’s toes.”

2. Board and management updates should be more frequent, but not become distractions.

Most of the directors we interviewed told us their boards began a new cadence of weekly/biweekly briefings and updates so directors would have a specific time to get their questions answered. Directors were particularly sensitive to the severity and scale of the crisis facing their companies’ CEOs and executive teams and did not want to distract them from doing the important work. This included avoiding asking for special “one-off” reports or calling executives for random “check ins.”

3. Crisis can sometimes lead to opportunity.

Many directors offered aspects of governing in a crisis that they found to be positive. For example, many offered that the new style of virtual meetings – shorter, more focused, less passive – to be preferable and something they hoped to carry forward beyond the pandemic. Additionally, others reported that through the crisis they had identified new talent within their own companies – individuals who had been asked to step into roles that amounted to “battlefield promotions,” and they had been highly successful. Deepening and diversifying their companies’ talent pools was a positive outcome for many of the directors.

The dramatic corporate shift caused by the pandemic posed a variety of unique challenges for directors, but it also shed light on their ever-evolving role as leaders and decision-makers. In these times adversity and uncertainty, it’s clear that modern governance matters more than ever.


Tags: Board of DirectorsCOVID-19Crisis Management
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Dottie Schindlinger

Dottie Schindlinger

Dottie SchlindlingerDottie Schindlinger is the Executive Director of Diligent Institute. Diligent is the leading provider of secure board communication and collaboration tools designed to promote improved performance for boards and leadership teams. In her role, Dottie provides thought leadership on related topics through digital and print publications, conference presentations, and workshops for board members and executives globally.

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