How Can Directors and Officers Aid in the Response to COVID-19March 13, 2020
As we find ourselves in the midst of the COVID-19 pandemic, questions arise as to what role a company’s Board of Directors should play in an organization’s response. While the Board should support management as the leaders of the Company’s day-to-day operations in time of crisis, the Board can take on the mantel of longer-term planning for the still uncertain time when the virus subsides.
The first step in longer-term planning is identifying and assessing potential risks resulting from COVID-19. The risks will vary by industry, but could include direct liability for contamination or infection. For example, in the hospitality industry, there could be potential claims for failures to exercise reasonable care in cleaning hotel rooms or other environments kept open for guests.
In other industries, there may not be the potential for direct liability from the virus itself, but failure to mitigate the financial impact of the pandemic may generate future litigation. Boards will need to examine industry-specific risks, including those associated with supply-chain disruptions and the reduction of customers, as well as lost employee productivity and the potential illness of key executives.
For many companies, the risk of some form of business interruption appears all but inevitable. This is the time for Boards to review their existing business interruption and contingency plans – or develop them if they do not exist. Significantly, Boards should review these plans with a view to the fact that the COVID-19 pandemic is unlike other catastrophes in that it is a not a singular disaster from which a company must now recover, but a still-mounting concern that will have potentially substantial effects for months to come. Boards should also review existing insurance policies to determine whether their general liability or other policies cover the types of business interruption COVID-19 may cause for their company.
Boards need to play a role in implementing – and adapting – their company’s business interruption plans as the circumstances evolve. Larger Boards should consider establishing a special committee to work with management and monitor the pandemic in detail. All companies, however, should identify the sources of information on which they intend to rely and any third-party action (i.e., declarations of emergency, requested closures, mandatory shutdowns) which may directly impact the company’s operational plans.
Finally, Boards can support management by remaining focused on financial disclosure and regulatory reporting obligations that will come due while management is dealing with day-to-day fallout. Boards should review and revise financial forecasts and budgets as developments with the pandemic unfold. Unfortunately, allegations that the Board failed to appreciate or disclose the financial impact of COVID-19 may form the basis of litigation once the virus subsides. Therefore, effective communication of changing economic realities to internal and external stakeholders may be one of the Boards most important contributions.
In these largely unprecedented times, Boards must remember that their core duty isto act upon the informed judgment of its members in the best interest of the company. Boards can meet these obligations largely by staying informed by reputable news sources and supporting their managers as the challenges before them continue to evolve.