The COVID-19 pandemic (Covid-19) took South Africa and the world by surprise and, as the second wave continues to create uncertainty, directors play a crucial role in assisting their companies to steer through these unprecedented times. Although many companies have taken steps to safeguard their futures, it is imperative that they remain ahead of the curve. Below is a checklist to assist directors in fulfilling their duties while Covid-19 rages on:
Risks related to cybersecurity and related litigation will increase as the volume of electronic communications rises. In addition, board-related communication may come to light in the event of litigation and, as a result, boards must be mindful of any written communication circulated between its members and to third parties. In so doing, boards should assist their management team in developing a proactive and reactive crisis communication plan which can be implemented both internally to employees and externally to clients. Boards should assist management teams to establish frequent, positive and transparent communication with key stakeholders. This communication will help to manage the company’s public image by avoiding any negative public opinion and taking advantage of opportunities to enhance the company’s corporate reputation.
Continue to hold board meetings as often as possible.
It is imperative that companies remain up to date with agile business methods and identify successful examples of how similar businesses responded to the pandemic. These methods should be discussed at board meetings to provide oversight, long-term planning, and strategic support to companies. Boards should ensure that minutes and resolutions reflect the thoughtful consideration given by directors, and that these are consistent with the company’s public disclosures.
Create a special committee to manage the pandemic and implement systems to monitor Covid-19 risks.
If this has not yet been done, boards should consider establishing a special committee to oversee the company’s response to the pandemic. Alternatively, responsibilities can be delegated to existing committees i.e., Risk Committees, IT Steering Committees and Health and Safety Committees. The committee(s) should meet regularly with management to provide the necessary oversight and guidance and report to the board accordingly. It is imperative that there are adequate reporting processes that allow boards to obtain up-to-date information about Covid-19’s impact on their companies’ operations
Carefully consider the company’s Covid-19 disclosures.
To assist in considering whether risks presented by COVID-19 or related effects are necessary for disclosure, the below considerations for assessing and disclosing the impact on COVID-19 might be useful:
- How has Covid-19 impacted the financial condition and results of operations?
- How has Covid-19 impacted the capital and financial resources, including the overall liquidity position?
- How do you expect Covid-19 to affect assets on your balance sheet and your ability to timely account for those assets?
- Have Covid-19-related circumstances adversely affected your ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures?
Give special consideration to earnings guidance.
Discuss with management whether changed circumstances merit an update to, or withdrawal of, earlier guidance to shareholders. Review and update cautionary language to maximise the protection of forward-looking statements.
Evaluate the financial strength of the company.
Boards should understand how the financial strength of the company is being affected by the pandemic so that it can act accordingly. Directors should understand the company’s liquidity, solvency, profitability and operating efficiency to ensure that its interests, and that of its stakeholders, are safeguarded going forward.
Seek Appropriate Advice.
In certain circumstances, it may be appropriate for a board to engage advisors directly rather than relying on those retained by management. This is particularly true where there is the potential for management to be conflicted. Keep in mind, however, that although directors may rely on advisors, they cannot outsource the board’s decision-making responsibilities. Directors should understand their fiduciary duties, including whether they have duties to other constituencies such as creditors, and whether certain transactions will receive heightened scrutiny.
Review your indemnity agreements and insurance coverage.
It is important that directors have adequate Director and Officers Liability Insurance. Because a company cannot indemnify its directors and officers if it becomes insolvent, insurance will likely be the only financial protection directors have if a claim is made against them.
In a crisis like that of COVID-19, the board has a unique role in ensuring that the companies they oversee will weather the uncertainty. This puts directors at an increased risk but through utilizing the above checklist, the threat can be mitigated.