If we each had a quarter for every time we’ve heard or read
the word “unprecedented” since the declaration of the Coronavirus Disease 2019
(COVID-19) pandemic, we would have plenty of money despite the nosediving stock
market. In these—dare I say—unprecedented times, boards and the companies they
serve are faced with new governance challenges and opportunities.

To get some real-time governance perspective, I spoke to two
highly accomplished directors about their insights on this front: Jan Babiak
serves on the boards of the Walgreens Boots Alliance and the Bank of Montreal and
works with large private companies across different industry sectors, and Greg
Sandfort is a director and the former president and CEO for Tractor Supply Co.
and a director for the WD-40 Co. Some important themes emerged from the
discussion.

Help management fight
the alligators rather than fighting them yourself. Babiak has a colorful
analogy for the role of the board during this crisis: “Imagine that management
is in the swamp fighting alligators,” she said. “The board should be on the
bank, pointing out the alligators management can’t see, while at the same time
keeping one eye on the horizon for a meteor on its way.”

Board members should not become needy during this time, she
advised. “Don’t ask unnecessary questions. Do your homework—read the website,
look at the company’s internal and external communications like their LinkedIn
posts, and review what analysts are saying—before asking management obvious
questions about what they are doing,” she said.

Pull together,
virtually, while management goes “red team, blue team.” Sandfort’s board meetings
have gone virtual, just as thousands of his companies’ employees are now working
from home. “On one of my boards, we were using Webex for a two-day virtual
meeting with people from all over the world. The connection went completely
dark in the middle of the meeting, but we just regrouped and carried on,” he
said.

Sandfort believes the key to making virtual meetings a
success is for board members to come fully prepared, having read the materials
and being ready with smart questions that are relevant to the crisis. He is
having weekly calls for his boards, and one company will have both a virtual
board meeting and a virtual shareholder meeting this May.

Babiak stresses the need for board member flexibility, such as adding calls to her calendar on short notice (including the call with me). She has also seen management teams that cannot go fully virtual split into “red teams” and “blue teams,” working on different floors and never crossing paths in person. “If a leader gets sick on one team, then we have a second team that is already up and running,” she said.

Now is the time to live company values. “People are our number one priority,” said Sandfort of the companies he serves. “And our people will remember how they were treated when this is over.” His companies continue to pay staff in the United States and abroad, including in China, even in cases where workers are unable to be present onsite because of pandemic-related restrictions. They have also looked at issues such as health insurance coverage for virus testing.

Babiak likewise sees “a lot of heart” in what is happening during
the COVID-19 pandemic and is doubling down on sensitivity. “I noticed a CEO was
struggling on a subject during a recent board call,” she said. “Instead of
saying something at the time, I reached out to a fellow board member with
expertise in the area and suggested that he call the CEO with an offer of
support. Now is not the time to undermine management.”

Cash (or access to it) is king. Both Babiak and Sandfort mentioned that access to operating cash was an early concern during the pandemic. One of Sandfort’s companies pulled in a revolving line of credit despite a strong balance sheet. According to Babiak, who serves in the banking sector, banks are—in a sense—fortunate to have lived through the 2008 financial crisis because they have been through stress tests and now operate under significant capital requirements. They have also moved beyond single debt models, which is a stabilizing factor.

Challenges may overshadow opportunities right now, but keep your eyes
peeled. “Opportunities” seems like an odd word to be associated with the
current state of the world, but they do exist. Internal opportunities such as
improved information technology connectedness and communications are bright
spots, according to Sandfort.

Also, the need to be
flexible during this time can benefit employees and customers alike, leading to
innovation and perhaps enhanced online revenue. “I serve on the board of a
company that is a needs-based business for customers, and our suppliers will
run trucks if our stores are open,” he explained. “So, the company shortened
store hours, using the evening hours for deep cleaning. And the company is
offering curbside pickup for online orders.”

Babiak also believes the
board should be proactive in thinking about possible mergers and acquisitions and
about senior talent acquisition opportunities to help ensure companies are
ready when the time is right to act. “The board should be monitoring weak competitors
as we keep an eye on the horizon,” she said.

Experience counts.
Babiak firmly believes in the value of experience and of being on multiple
boards. For example, during this time she can, with permission, share best
practices from one company to another. As an experienced audit committee chair,
she sees audit practices across multiple companies, while each company’s chief
financial officer may only see them once in practice.

With her background, Babiak is confident in being flexible.
“One head of internal audit called me to ask if we could redeploy internal
audit staff to help the finance and operation staff during the crisis,” she
said. “After determining how to ensure we do not create an issue around self-audit
on the other side of the crisis, it’s all hands on deck right now, and I was
fine with that.”

Foresight can be
20/20. Two years ago, one of the companies Sandfort serves developed a
crisis plan that assumed the entire corporate office was wiped out. The
disaster plan was tested at the time and has now been put into effect with
modifications for the specifics of the COVID-19 pandemic. “The company was very
fortunate to have that plan in place,” said Sandfort. Other companies may not
be so lucky, but foresight for the next crisis begins now.

In these troubled times, it is clear that compassion and
common sense are hot commodities in the boardroom, standing shoulder to
shoulder with strategy, risk oversight, compensation, and the like. Let us hope
that exemplary crisis-time governance will be seen at levels just as
unprecedented as the spread of the microscopic adversary we all face.

Kimberly Simpson is director of strategic content for NACD, leading NACD’s credentialing programs (NACD Directorship Certification and NACD Fellowship®), coleading the organization’s Fortune 500 advisory councils, and routinely contributing to NACD member education through blogs and articles. Simpson, a former general counsel, was a US Marshall Memorial Fellow to Europe in 2005.

COVID-19. Uncertainty. Fear. Recession. Fiduciary Duties.It’s essential that directors know what to focus on and when.

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