September 30, 2020
Published: Journal of Accountancy
In previous years, work as a corporate director generally was predictable. Board members could count on an approximate number of meetings, oversight topics that generally remained the same, and business conversations inside and outside of the boardroom.
Everything changed in March, when the COVID-19 pandemic disrupted business and society in unforeseen ways. Boards were meeting more regularly, more virtually, and getting more into the details on topics previously addressed only at a high level.
The pace of meetings has slowed since the spring, and boards’ focus areas remain in flux. What directors take away from the pandemic will be critical to company survival and success.
Paula Loop, CPA, the leader of PwC’s Governance Insights Center, said directors will be more effective if they come to terms with the reality that there’s no going back to the way things used to be.
“It’s really important for boards, when there’s a time of crisis like this and things are really changing rapidly, to make sure you’re sitting back and capturing the potential highlights from this, that thing that you can leverage going forward that will improve and change your business,” Loop said. “Instead of saying the whole time, ‘I just want to go back to where we were. I want to go back to the status quo,’ thinking about, ‘Are there some nuggets in here that are really going to change us and accelerate our strategy for the future?’”
PwC’s 2020 Annual Corporate Directors Survey delves into board members’ thinking on numerous topics, including specific questions this year about how boards had managed the uncertainty of the pandemic. Nearly 700 public-company directors took part in the survey.
Loop said there were three main areas that directors better understand as a result of the crisis:
- Digital transformation: “Almost all companies recognized that the more you were leveraging technology, the more prepared you were to deal with a remote process, even if it’s remote working, if it’s remote selling — whatever it was,” Loop said. “Many companies are thinking of switching up some of their investment spend and putting more into accelerating their technology and digital transformation.”
- Customer interaction: “Consumer companies learned a lot during the crisis. They learned where consumers like to go to buy things. Many consumers that didn’t do a lot of online shopping are now pretty good at it. It forced a different behavior. So, companies should be reacting and seeing the cues and saying, ‘How are we going to change things going forward?’”
- Real estate: “Almost every company that I interact with, while they recognize there’s a need to come back to the office and be together at some point, they’re also recognizing that there’s potentially a core group that might be able to work substantially remotely going forward,” Loop said. In that scenario, companies might not need the real estate they’d traditionally considered an imperative.
Boards traditionally didn’t look closely at company forecasts, Loop said. The members knew if they were on track or not regarding revenue. But COVID-19 changed that; liquidity suddenly became a short-term concern. The cadence and content of board meetings changed as a result, she said.
“Many boards went to some sort of consistent update or meeting format so that they could stay abreast of the pandemic’s impact,” Loop said. “We saw lots of companies that were doing standing board calls once a week every Saturday morning, or every other week, depending on liquidity or what other crises they were trying to deal with.”
Board-level management discussions touched on new topics such as the cost and safety concerns of reopening offices. Boards also took on more oversight of whether cash reserves should be deployed. Loop said the decision to use cash reserves or not was company- and industry-dependent.
“When we got into the COVID situation in March, I think liquidity was the No. 1 thing that companies and boards were focusing on,” Loop said. “No one really understood much about the crisis. We had no idea how long it would go on for, what the toll would be. No one felt comfortable forecasting revenue, forecasting collections.”
Many companies, she said, began making sure they had access to cash through lines of credit or negotiating new rates on existing loan vehicles in case they needed it. The economic environment is steadier now than in the spring, Loop said, but forecasting remains more challenging than it was a year ago.
Board members in the survey gave their companies high marks for how they handled the initial shock of the pandemic. However, just 37% of respondents said their board fully understands their company’s crisis management plan. So clearly more work must be done in a time of high stress. Board members were cognizant in the first weeks of the pandemic that management was quite busy.
“I think they wanted to be respectful of management, which was dealing with all these issues and didn’t necessarily have all the answers either,” Loop said.
Boards today still don’t have all the answers they’re seeking. That’s yet another sign that directors must learn to be more comfortable with uncertainty.
“The one thing that COVID did teach us is to be agile, to pivot if you need to, to think differently, to learn from this experience that we’re all going through and see what you can take from it that can be valuable going forward,” Loop said.