Redefining ‘Business as Usual’ in the Boardroom

In May and early June, the KPMG Board Leadership Center surveyed more than 300 directors to gauge the near- and longer-term implications of COVID-19 for board oversight and business operations, strategy, and priorities. Five major themes that may be useful for board leaders to keep in mind as they help guide their boards and companies in the months ahead emerged from the survey results.

1. Understanding the scope of COVID-19, its impact on the company, and management’s response plan has required boards to bring a new level of intensity to their oversight. Boards are rethinking how they should exercise their oversight—for example, through the frequency of communications with the CEO and management, the use of virtual meetings, the use of board committees, and the role of the lead director.

While ultimate responsibility for overseeing the company’s response to COVID-19 resides with the full board, 23 percent of directors said that their boards established a special committee or tapped a standing committee to focus on the company’s response. The committees most commonly tapped were the executive committee (40%) and audit committee (20%). Nearly half of surveyed directors reported that their boards spread responsibility to oversee the company’s response to COVID-19 across all of their standing committees, based on the committees’ areas of responsibility.

More than a quarter (27%) said that their board has held formal (virtual) monthly meetings during the pandemic, with 17.5 percent holding formal weekly meetings. Most directors reported an increase in informal communications with management, with 46 percent reporting weekly or more frequent informal updates.

2. During the immediate response to COVID-19, employees and business continuity were key considerations across management and the board. During the first six months of the pandemic, management’s updates to the board have focused on information around employee health and well-being, financial performance, changes in strategy, scenario planning, and the company’s changing risk profile. Directors cited employee and customer safety (90%) and financial performance (93%), including liquidity and access to capital, as top areas of focus at the board level. Seventy-one percent of directors said they’re focusing on scenario planning for the period of recovery and beyond. More than 40 percent reported that their boards are focusing on the company’s changing risk profile.

Those surveyed reported that human resource issues stemming from COVID-19 have been the subject of substantial discussion on their boards, particularly in the areas of employee safety (90%), employee engagement and morale (74%), and normalizing work-from-home arrangements (64%).

The most challenging operational changes during the immediate pandemic response, according to the survey, included employee health and safety (42%), business continuity (38%), and remote working (36%).

3. Management teams and boards are planning now for the longer term (12–24 months out) as companies and the economy begin to recover. More than half (55%) of directors anticipate that their companies will have to rethink near-term strategy, and 48 percent anticipate the same with regard to long-term strategy in a substantial way as a result of COVID-19.

When asked to identify the recovery path for their companies or industries, 40 percent of director respondents said that they will recover along a protracted path, requiring capital reserves to transform operating models and keep up with new consumer expectations. Forty percent also said that their companies or industries will suffer from the effects of an economic slowdown, but will recover more quickly as consumer demand rebounds. An additional 14 percent responded that their companies or industries have not experienced a downturn as consumer behavior shifted in their favor during COVID-19. Finally, 5 percent said that their companies or industries will struggle due to permanently lowered demand for their offerings, insufficient capital to ride out an extended recession, or poor digital transformation execution.

4. Business plans and processes as well as board oversight processes may need to be reassessed. Directors identified the following as areas that their companies and boards should reassess in a substantial way:

• Remote working and alternative work schedules (60%)
• Strategy—both near-term (55%) and longer-term (48%)
• Crisis readiness and response (39%)
• Supply-chain/third-party risk (33%)
• Labor force, including automation and artificial intelligence (31%)
• Balance sheet, use of capital for buybacks and dividends (28%)
• Company’s risk profile and ERM processes (27%)

When asked about which aspects of the board’s operations, engagement, and effectiveness the COVID-19 situation has highlighted as potential areas for improvement, directors responded as follows:

• Understanding the company’s strategy and risk profile (37%)
• Willingness to challenge management on fundamental assumptions regarding strategy and risk (33%)
• Need for more frequent meetings and informational communications (32%)
• Information flow and reports to the board (25%)
• Allocation and coordination of risk oversight responsibilities among board committees (19%)

When asked how COVID-19 will impact their board’s time commitment over the next several years, 13 percent of directors indicated that there would be a significant time increase, while 43 percent indicated a moderate increase and 40 percent a gradual return to normal.

COVID-19 will continue to have a significant impact on board oversight and operations, upping the need for greater time commitment, a deeper understanding of the business model and strategy, and a more intense focus on the issues that matter most to the success of the company.

5. Business leaders are considering more broadly the role of the corporation in society. When asked in which areas COVID-19 is prompting business leaders to rethink how their companies create long-term, sustainable value, 47 percent of directors identified the company’s commitment to stakeholders, including shareholders, employees, customers, supply chains, and communities; 36 percent noted corporate purpose and long-term focus; and 32 percent cited environmental, social, and governance issues most central to the business.

It’s important to note that the survey was launched before the death of George Floyd. The subsequent civil unrest protesting systemic bias and racism, coupled with the pandemic’s disparate impact on people of color, has caused leaders and their organizations to do some soul-searching and to take a closer look at the ESG issues that are most critical for their companies. How a company addresses employee issues (such as diversity and racial inequality, health and safety, sick leave, and work-from-home arrangements) and communicates with its supply chain and customers regarding their challenges related to COVID-19 are important factors of the S in ESG and in creating sustainable, long-term value.

Indeed, in light of the commitments business leaders have made to various stakeholders in response to the above events, companies’ progress on ESG matters—from employee well-being to addressing social justice issues and climate risk—will be front and center as businesses calibrate their strategies and board oversight in the challenging months ahead.