Reopening Business Brings Reputational Risk (May 9, 2020)

Reopening Business Brings Reputational Risk (May 9, 2020)

Board Lens

Reopening Business Brings Reputational Risk (May 9, 2020)

After two months of COVID-19-induced lockdowns, some state governments are preparing to reopen their economies. It’s a decision that demands walking a delicate line between acting in the interests of public health and further mitigating economic damage by suppressing consumer activity. Although infection rates continue to rise and public-health experts generally agree that effective testing is not yet widespread enough to better track the proliferation of the virus, the unemployment rate is at a level unseen in this country since the 1930s: 14.7 percent, according to the April jobs report by the US Bureau of Labor Statistics. For companies, reopening while the COVID-19 rages on poses reputational risks compounded by the continued erosion of public trust in business leadership.

In an update to The Edelman Trust Barometer 2020 published on May 5, the survey found that the general public does not think the business community has competently handled the crisis thus far. Only 44 percent of respondents say they think companies are doing well to protect essential employees who face increased risk of exposure to the virus while 42 percent think that businesses are doing well in preparing for recovery and figuring out how to restart business. In addition, only 38 percent of respondents said they thought that business is putting people before profits.

The lack of consensus among governmental and public-health authorities on how to approach reopening makes making a well-informed and confident decision even more difficult for businesses. The Trump administration and the Centers for Disease Control and Prevention (CDC) have yet to build consensus around guidelines. According to The New York Times, the CDC’s latest guidance was rejected on Thursday by White House officials on the grounds that it was too prescriptive and would continue to damage the economy. Revisions are underway as we go to press.

Implications for Boards: A company’s decision to reopen during the COVID-19 pandemic may carry heavy reputational risks. While some stakeholders may support the decision in the interest of preventing job losses and causing insurmountable economic damage, others may view it as a decision that endangers both worker and the public’s health.

Key Questions Directors Should Ask

  • What feedback have we received from various stakeholders about how the company has managed itself thus far during the COVID-19 crisis? What course of action would maintain high levels of confidence or improve low levels of confidence?
  • What are the current recommendations from federal, state, and public health authorities?
  • What reputational risks do we assume by reopening for business? How much risk are we willing to take to re-open?
  • How does management plan to monitor the success of reopening? What triggers or early warning signs is management looking for to decide if the business needs to close again before a crisis redevelops?
  • What protections does the company provide employees while they are on site? What support does the company provide employees should they contract COVID-19?
  • Is there a communications plan in place that effectively articulates the company’s rationale for staying closed or reopening?
  • Are there mechanisms in place that allow stakeholder concerns and responses to surface at the C-suite and board level? 

NACD Resources

Questions for Boards to Consider About Oversight of Reputation Risk is designed to help guide directors through the necessary questions to ask about reputation risk. In addition, "Assessing Management’s Effectiveness in Responding to the COVID-19 Crisis" is a checklist that can help directors evaluate the steps management is already taking to respond to the COVID-19 pandemic. The NACD BoardTalk blog Navigating the Pandemic: Risk Oversight Considerations from Fortune 500 Committee Chairs walks through risk considerations related to COVID-19 from the audit committee’s perspective.