You Should be Excited!

You Should be Excited!

Having a conversation with a Vistage member this week, he said, that while COVID was terrible from a point of deaths and financial damage, it was exciting. I agree! Business owners and CEOs don’t have to work on eking out an additional few points of revenue or margin in the same manner year on year. Whatever your business plan was on March 1st, that is now in the shredder. If you pivoted in December and invested in resources, those may be to use a economist’s term, sunk costs. You need a new business strategy and plan!

As Rahm Emanuel said, “You never let a serious crisis go to waste. And what I mean by that is it’s an opportunity to do things you think you could not do before.” COVID provides CEOs with many opportunities that were unavailable before. Organizations can:

  • pivot their strategy;

  • enter new markets that didn’t exist four months ago;

  • obtain talent that was once unreachable;

  • acquire companies that fit their strategic goals;

  • cut sacred cows, whether they are people, division, or products.

  • move quickly without some of the usual inbuilt restrictions

  • try lots of new things in a continuous A/B testing format.

For a great example, I look to Scott Cowen, President Emeritus and Distinguished University Chair of Tulane University who was President when Hurricane Katrina hit. A little like COVID, one day he was welcoming the class of 2009 to a university with 5,000+ students and thousands of employees, and three days he told the thousands of students and families to turn around and get out. A week later he students and employees all over the country, a city in disarray, a large amount of uninhabitable housing for students, employees many of the services needed by employees no longer available.

“In many ways, Katrina wiped the slate clean,” Cowen said. Cowen led a rebuilding and academic reorganization of Tulane through a rebuilding and academic reorganization, Many of his actions were criticized including the decisions:

  • to merge and eliminate Newcomb College wholly into Tulane, to form a new undergraduate college, Newcomb-Tulane College.

  • to eliminate several departments in the School of Engineering and merge its remaining departments with the science departments in the School of Liberal Arts and Sciences to form a new School of Science and Engineering and a restructured School of Liberal Arts.

Tulane also became the first and only major private research university to incorporate public service into its core curriculum. Many of these things were impossible without the crisis provided by Katrina. Also to house students during the cleanup he chartered a cruise ship and had them docked in the Mississippi to provide housing for students.

As I received my MBA and JD from Tulane, I had the opportunity to hear Scott talk a number of times as he developed and executed his new strategy for Tulane. His concern but excitement and vision during this period were amazing and I was in awe of him and what he had accomplished.

Right now many firms are living their equivalent of Apollo 13, the key to make it “our finest hour.”

 

Copyright (c) 2020, Marc A. Borrelli

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You Need a Peer Group, NOW!

You Need a Peer Group, NOW!

In 2007 the recession hit, and at the time, a partner and I owned a mergers and acquisition boutique that we had built up over three years. In December 2006 we closed our biggest deal yet and had a full pipeline as we moved into 2007. Then things started drying up, and by Q4, there was nothing. Looking into 2008, we figured a few deals would come back to life, but that was not to be the case.

As my partner and I talked through options to save the company and keep us moving forward, we exhibited some of the five dysfunctions of a team. We discussed some hair-brained ideas, including doing what we had done before, but just with more considerable effort. None of the ideas worked, and looking back; we weren’t thinking things through, looking at new markets, and holding each other accountable. Then we did what most of us do when stressed; we fell back doing the things with which we are most comfortable. My partner distracted himself with an executive Ph.D., and I, who was already distracted with the recent death of my mother, my divorce, and my children’s custody, reverted to doing financial analysis and modeling. These distractions enabled us to convince ourselves that we were swamped, which we were, but were not moving the company forward.

I did manage to get us some consulting work, but It was not until 2011, after joining a Vistage group, that we were back on track. However, looking back at that time, I would have given anything to be in a Vistage group from 2006. I needed a group of Peers to:

  • Challenge my thinking and assumptions;

  • Force me to accept what was happening and look for new opportunities;

  • Push me and hold me accountable for commitments;

  • Make me realize what I was doing was ineffective;

  • Challenge me about my concepts of the future and the status quo; and

  • Make me express my vision and strategy.

Not only that, but a Vistage group through its great speakers provides education on so many fronts that there is always something to learn.

As I reflect on this, it reminds me of a moment in 2004 when a Vistage Chair came to see me and tell me about Vistage. I was an overconfident, arrogant, young business owner who believed he didn’t need “no stinking help!” As I said, fast forward several years, and when a second chair proposed joining Vistage, it was like “Throw me a lifeline, I am drowning.”

Few business owners and CEO invest in themselves because they are successful, don’t realize they have stopped learning, don’t think anyone can understand their business, and don’t have time. Over my career, I have worked across many industries, and with many companies and never found a business model I can’t understand. The most significant issue is the confusion is over the myriad of TLAs ( three-letter acronyms) that a unique to a company and industry.” However, remember, as Marshall Goldsmith said, “What Got You to Here, Won’t Get You to There.” Regarding the lack of time, we all find time for what we deem essential. If learning and improving yourself and your business are a priority, then you can find the time. Furthermore, if your business cannot survive for a day without, you are failing as a leader.

Today we are experiencing a variation of 2008’s crisis. Our success as a leader is determined by how we emerge from the disaster. Many will emerge batted and beaten, some will appear as they went in, on a form of autopilot, and then some will develop more robust and resilient, and in a market leadership position.

To make sure you are among the latter, you need to be a member of a Peers Group, i.e., a Vistage Group:

  • where the members’ only price for helping you succeed, is helping them achieve their success;

  • to challenge your assumptions and prevent hubris;

  • to hold you accountable for your commitments;

  • to provide resources to help you and your organization succeed.

My groups are currently meeting weekly to:

  • Provide Emotional Support and Mental Health – We take time to discuss how we are all doing What is happening in our lives, with our families. This discussion occurs before we get to business.

  • Provide Information and Support – The members are helping each other with finding community banks that will provide PPP funds. Helping refer new business to each other. Advising in the areas that are the key competency to the others.

  • Charting the route forward – questioning each other about what the future holds and how they will be successful in the future. Who to keep and let go to ensure they have the right resources in the future. What clients need attention or cultivation and which need to be “fired” as they are too expensive to keep.

  • Employee Care – How to deal with employee issues from hiring in a virtual world to firing. We are discussing how to bring the workforce back safely and avoid litigation. Other topics are how to compensate them for extra efforts, promote those that have risen to the occasion, and what to do with those in leadership positions who didn’t.

Bart Garvin, Owner, and President of Garvin Industries expressed the benefit of such groups, “Because we’re all human, every business owner or CEO has multiple blind spots. Those blind spots often give us a distorted perception of truth inside our company, and it’s all based on our past experiences. [The group] forces me to step outside my business and be intellectually honest about my blind spots so I can change them.”

Looking back at the Great Recession, Vistage Member Companies outperformed their peers, as shown below. Vistage members grew revenue by 5.8%, while non-Vistage members saw a 9.2% decline. Many ask, “Is it the Chair, the peer advisory, the insight, the outside perspectives, the tools, the resources, the research, the speakers, the decision model……?”  No, it is all of them in a group like Vistage.

Vistage CEO member companies who joined in 2006-2008 and were active members in Feb, 2010. CAGR for Vistage member companies calculated for period covering year prior to joining Vistage through 2009. CAGR for D&B US companies based on 2005 – 2009 revenues, weighted to match Vistage company distribution per year during the same period. All companies had >=$1MM annual revenue, >= 5 employees. Vistage: 1,265 companies. D&B: approximately 1MM US companies.

A peer group is not an expense, but an investment and one, similar to a gym, if you go and use correctly, will pay huge dividends. Do you want to be a company represented on the left or the right of the above graph? Now is the time to get involved and push to make you and your organization stronger. Leave it too long, and those who do will have leapfrogged over you. If you want to learn more, contact me.

 

Copyright (c) 2020, Marc A. Borrelli

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The Ugly Duckling

The Ugly Duckling

I am sure we are all familiar with Hans Christian Andersen’s story of the swan that grows up among the ducks and is abused by the others until, much to his delight, he matures into a beautiful swan, the most beautiful bird of all. The story is beloved worldwide as a tale about personal transformation for the better.

It is irrelevant which you were a month ago; the issue to address is how you will emerge from COVID? A swan or just a duck? Thus, while many of my clients and other CEOs are, understandably, focused on cost reduction, you cannot cut your way to growth. Therefore, CEOs now need to determine how they will increase sales and take advantage of whatever opportunities COVID has provided? Now, as  Howard Marks said, no one knows what the outcome of this is and anyone who does it lying. However, CEOs need to start to try to conclude what they think will happen.

We have all lived through the lockdown for a month, and now some states are lifting the restrictions. But, as many commentators have mentioned, it is regardless of whether or not there are restrictions, as the critical issue is “Do you feel safe doing X?” where X could be going to a restaurant. Some individuals will say, “Yes,” and others, “No.” But that is a theoretical question. The real test will be, when you go into the restaurant will any of the following influence your decision to stay or leave:

  • Valet without masks and gloves?

  • No social distancing between tables?

  • Cutlery and glassware on the table all the time?

  • Unclean table or utensils?

  • Menus not wiped down after use?

  • Wait staff without masks?

  • Wait staff without gloves?

  • Kitchen staff without masks and gloves?

While some governors may issue the all-clear, the all-clear will happen when consumers feel safe for the activity.

While much of the current COVID-19 crisis is awful, it provides organizations a unique chance to experiment with radical new ideas and spur innovation. The innovation is essential as firms develop new methods to make existing products to overcome disrupted supply chains, or, as demand collapses amid self-isolation, create new ones.

Due to a lack of revenue, many organizations don’t have much capital available, and this is not the best time to tap the capital markets. So some organizations are changing the very way they innovate to discover ways to do things differently without huge capital outlays. A European food retailer has increased online fulfillment by over 50% without new money by all-night picking and packing. Other organizations are realizing the limits of insular development and turning to the Wisdom of Crowds approach. Examples of this are IBM, Microsoft, Ericsson, Tongal, and Lego, to name just a few. Topcoder sees a massive surge for its services, namely on-demand tech talent.

Also, COVID-19 is forcing organizations to innovate flat out and overcome “analysis paralysis.” Bain & Co. is urging companies to throw out old data, test quickly, and often, assuming you will be in testing mode for awhile. Long-delayed initiatives have suddenly been rolled out at scale overnight. According to the Economist, Sysco built an entirely new supply chain and billing system to serve grocery stores in less than a week. As the head of Fortune 500 firm recently put it, “We are learning more by testing than [from] months spent [with] analysts and endless meetings.” The crisis is emboldening managers to move faster, trying out risky new ideas on larger groups of customers. Learning from its experience in China with COVID, Nike undertook a digital pivot resulting in global internet sales of its sporting goods rise by over a third in the three months to February. Nike’s sweat-inducing masterclass is being streamed more than 800,000 times a week on YouTube.

Gao Feng, a consultancy, believes that autonomous delivery will be here much sooner than forecast, i.e., within 12-18 months. Companies are looking into automated cleaning robots and shelf stacking machines. Zipline, a Californian startup that delivers blood and medical samples by drone in Africa, is looking to do the same with coronavirus samples in America.

To emerge ahead, your team needs to work in sync and effectively, basically, make sure it is healthy.
Since COVID is an accelerant of all things positive and negative, a healthy organization is critical. As Pat Lencioni says, “If your organization is not healthy, then it doesn’t matter how smart it is, it will fail as the accelerant from unhealthy behavior will outweigh any benefits from Smart activities.” Until now, you may have ignored the health of the organization, but it never too late to start. Just make sure as the CEO you are modeling these behaviors, and that those in your leadership team and on your COVID response teams also model these behaviors. People who are behaving in a way that undermines the health of the organization have to go. At critical times like this, everyone needs to be working together to ensure the organization survives and emerges healthy. If negative behaviors compromise an organization’s health, it cannot arise healthy and in a strong position. Also, ensure that the leadership team is not exhibiting any of the five dysfunctions of a team.

With all the blocks in place, in addition to an emergency COVID response team, I hope every CEO has put together a cross-functional team to address the following:

  • Identifying the company’s unique skills and abilities, what does it do better than everyone, what is its competitive advantage?

  • What is happening to our traditional market? Nothing, some change, or dramatic change?

  • How should the company respond?

  • What new markets can the company enter with their unique skills and abilities that will give it an advantage?

  • Should the company change any of its processes? If we were starting again, would we do it this way?

  • Should we abandon specific markets? The future potential too low for resource commitments?

  • What can we implement now?

  • What should we get implemented to take advantage of the next wave of infections which the models predict are coming?

When looking at these items, as Bain recommends, look at testing often, throw out old data – before COVID, and implement changes quickly. Even consider A/B testing of processes to determine which is best. Now is the time to be creative. Look at things like Open Innovation.

This team should include a cross-section of the organization. As David Marquet says, “Move the decision making to where the information is.” With a cross-functional team including dynamic people from every level, the organization should uncover significant opportunities for growth and culling, With the right trust and conflict, the discussion around these questions should open up exciting areas for consideration and, once determined, a commitment by all to ensure they succeed.

If you can adjust your business model to take advantage of anything that is changing due to COVID, you could get an early start over your competitors or start a new market. Historically, those companies that emerge from any recession in a market-leading position hold onto for a long time. COVID is a huge disrupted in the business landscape and is leveling the playing field for many companies.

Do you want to emerge a beautiful swan or a duck? If the former, don’t waste the opportunity to take advantage of what COVID offers, and emerge stronger and in a leadership position in your market.

 

Copyright (c) 2020, Marc A. Borrelli

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To Buyback or Not Buyback, That is the Question?

To Buyback or Not Buyback, That is the Question?

As part of The CARES Act, Congress imposed restrictions on stock buybacks. There was bipartisan support for this idea. Billionaire Mark Cuban argued that the rule for any company that receives federal assistance is, “No buybacks. Not now. Not a year from now. Not 20 years from now. Not ever.” Senate Minority Leader Chuck Schumer declared on-air: “Our motto in this is ‘workers first.’ …. These buybacks, they infuriate me. We should not be allowing them to do buybacks, raise corporate salaries.” Sen. Elizabeth Warren said that any corporate recipient of government assistance should be “permanently prohibited from engaging in share repurchases.” President Trump joined the chorus arguing, “I am strongly recommending a buyback exclusion. You can’t take a billion dollars of the money and just buy back your stock and increase the value.” However, others have argued that this policy is The Worst Coronavirus Idea.”

 

How it Happened

The airline industry was the poster child for arguments against buybacks.  Airlines for America, which represents major U.S. passenger and cargo air carrier companies, requested government assistance because of (i) the coronavirus crisis, and (ii) several of the largest carriers had used the majority of their free cash flow on share buybacks over the last decade. Given that airlines have a propensity for going bankrupt with over 60 since 1991, and being unprepared for hard times including the Sept. 11, 2001, attacks and the volcanic eruption in Iceland in 2010 that disrupted air travel, building up cash for a rainy day hasn’t been part of their plan.

Airline Free Cash Flow ($MM) Share Buybacks ($MM) Buybacks/FCF
Southwest Airlines Co. 15,103 10,650 71%
Alaska Air Group, Inc. 4,948 1,590 32
Delta Air Lines, Inc. 23,186 11,430 49%
United Airlines Holdings, Inc. 11,526 8,883 77%
American Airlines Group, Inc. (7,935) 12,957 N/A
JetBlue Airways Corporation 2,347 1,771 75%

Source: FactSet

However, airlines weren’t the only ones spending free cash flow on share buybacks. As can be seen below, nearly 50% of the saving from the 2017 Tax Cut and Jobs Act went to share buybacks.

Arguments For Buybacks

Share buybacks are very popular. According to Federal Reserve data compiled by Goldman Sachs, over the past nine years, corporations have acquired more of their stocks – $3.8 trillion—than every other type of investor (individuals, mutual funds, pension funds, foreign investors) combined. So why do they do it?

  • An efficient way to return money to shareholders. By reducing the number of shares outstanding in the market, a buyback lifts the price of each remaining shares.

  • A Valuable source of cash. Donald L. Luskin and Chris Hynes made this argument in a Wall Street Opinion Editorial. It has to be the worst reason I have heard. If people need cash, they can sell their shares on the market; they don’t need the company to repurchase them.

  • More tax-efficient than dividends. If the shareholder has held the shares long enough to qualify for long term capital gains treatment, this is true. Dividends are taxed at 22% while the tax rate for capital gains is 0%,15%, or 20% depending on the taxpayers’ level of income.

  • Management captures the share bump. An analysis by the SEC revealed that executives, on average, sold five times as much stock in the eight days following a buyback announcement as they had on an ordinary day. According to SEC Commissioner Robert Jackson Jr., “Thus, executives personally capture the benefit of the short-term stock-price pop created by the buyback announcement.”

  • Boost management’s compensation. Following the adoption of Milton Friedman’s idea of “creating shareholder value,” more and more companies granted CEOs large blocks of company stock and stock options to align management with the corporate goal. However, with large portfolios of their own company’s stock, the desire to manipulate the share price with share buybacks was a temptation few CEOs could resist. As a recent article noted, “Today, the abuse of stock buybacks is so widespread that naming abusers is a bit like singling out snowflakes for ruining the driveway.”

Arguments Against Buybacks

  • Deprives companies of liquidity. As a recent Harvard Business Review article noted, when companies undertake buybacks, they deprive themselves of the cash that might help them cope when sales and profits decline in an economic downturn.

  • The share price boost is short-lived. A study by the research firm Fortuna Advisors found that five years out, the stocks of companies that engaged in substantial buybacks performed worse for shareholders than the shares of companies that didn’t.

  • The propensity to buy when the price is high and not when it’s low. Companies tend to overpay for their shares, diluting return to shareholders. The is overwhelming evidence that substantial buyback companies usually create less value for shareholders over time.

  • Lack of investment in things that grow shareholder value. Those companies that reinvested a higher percentage of their cash generation into capital expenditures, research and development, cash acquisitions, and working capital delivered substantially higher total shareholder return than those that reinvested less.

  • Lack of Imagination by Management. If the best use of the company’s money is share buybacks, then unless the shares are undervalued (20%+), management has effectively given up on planning to grow the company in new markets or products, through acquisition or investment. Such a strategy is a reflection of failed management.

 

Conclusion

 

From the above, it is apparent that there are few good reasons for share buybacks other than to boost management’s earnings. Hopefully, the current environment will cause management to reflect and do their jobs more efficiently so that there is real shareholder growth. As the Atlantic article pointed out.

“Craig Menear, the chairman and CEO of Home Depot mentioned on a conference call with investors in February 2018, their “plan to repurchase approximately $4 billion of outstanding shares during the year.” The next day, he sold 113,687 shares, netting $18 million. The following day, he was granted 38,689 new shares and promptly sold 24,286 shares for a profit of $4.5 million. Though Menear’s stated compensation in SEC filings was $11.4 million for 2018, stock sales helped him earn an additional $30 million for the year. 

By contrast, the median worker pay at Home Depot is $23,000 a year. If the money spent on buybacks had been used to boost salaries, the Roosevelt Institute and the National Employment Law Project calculated, each worker would have made an additional $18,000 a year. But buybacks are more than just unfair. They’re myopic. Amazon (which hasn’t repurchased a share in seven years) is presently making the sort of investments in people, technology, and products that could eventually make Home Depot irrelevant. When that happens, Home Depot will probably wish it hadn’t spent all those billions on buying back 35 percent of its shares. “When you’ve got a mature company when everything seems to be going smoothly, that’s the exact moment you need to start worrying Jeff Bezos is going to start eating your lunch,” said the shareholder activist Nell Minow.”

 

Copyright (c) 2020, Marc A. Borrelli

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During a Crisis, You Need A Different Board

During a Crisis, You Need A Different Board

When a company is in a crisis, you need to make sure you have a board that can meet the task. Some crises develop over time due to shifting markets, deteriorating profitability or lack of access to capital.  As we are seeing today, the other form of crisis can be characterized as a Black Swan Event (low-probability, high-impact).  In either event, the crisis threatens the survival of the organization and is characterized by obscure causes, effects and a lack of apparent solution.  There will be a demand for fast track decision making as a crisis creates moments of truth for an organization and is often existential.  It is important that the C-Suite and the Board acknowledge that the company is in crisis, which threatens the company’s viability, and have a plan for dealing with the challenge.

Boards often fail to have the right complement of directors with crisis expertise for fear of sending stakeholders the wrong message: that there is something wrong.  However, a crisis is the ultimate test of resilience for any institution, its board, and its top executives. Senior executives and directors have exposure to continuous external scrutiny from the media, the legal profession, regulators, and other stakeholders for months or even years during and after a crisis. These compounding pressures force boards and senior management to act quickly to appease anxious or angry stakeholders. However, uncertainty compromises the ability to respond promptly due to the lack of information regarding the cause and the effects of any action.

If a board does not have directors with the right skills to address a crisis or there are conflicts of interest that may interfere with addressing a crisis, it becomes critical to add independent directors with those skills and who are free of conflicts.

McKinsey identified four critical fault lines that pose a severe threat to a board’s effective crisis response.

  1. Overreliance by the board on the CEO or senior management. A board that is unwilling to check or challenge senior management for fear of crossing the line into operational activities is failing in its governance. Candid, or as some call “Carefrontational,” conversations enable the directors to avoid poor judgment calls by management and better able to take an independent stance when a crisis comes.
  2. Micromanagement by the board. An equally significant and opposite problem is micromanagement by the board. Board members seeking a direct say in the management process because of their prior executive positions can cause chaos in the organization. While there is pressure to act quickly and decisively, a board’s role is one of oversight and not management. If it is apparent that the leaders are not up to the task, the board members must reserve the right to step in and steer the organization. In such circumstances, boards will take on some operational responsibilities and make decisions that would otherwise fall within management’s purview.
  3. Complicated dynamics within the board. Crises are an accelerant to all relationships. Thus, a crisis can expose an existing board dysfunction or lack of clear leadership. Boards tend to spend too little time addressing such issues before a crisis hitting. Given the few times that directors meet, there may be a lack of trust and questions of everyone’s different strengths and weaknesses. If the CEO is the leader of the board, rather than one of the directors, it worsens board dynamics.
  4. Imperfect information flows between management and board. 
    During a crisis, there is a conflict between the board and management. The board wants more data to meet their fiduciary duty of staying informed to make decisions and demonstrate a duty of care. Management, who are seeking to fix the problem and minimize distractions, don’t to commit the time and energy to meet the board’s demands. Too many board demands stop management performing, and too little information for the board damages trust.

Assuming that your board doesn’t have any of the above potential fault lines, the next issue is dealing with the crisis.

While many boards and C-Suites have crisis plans in place, the problem with Black Swan events is that by their nature, they are unpredictable, and as Mike Tyson said, “Everybody has a plan until they get punched in the mouth.” Crises fundamentally change the terms of engagement between boards and senior management, forcing both groups to make difficult decisions, including whether the senior-executive team or the board itself requires significant changes.

In a crisis, some of the tough calls that the board needs to make are:

  • Who should lead the nuclear crisis response team?

  • What decision authority should the crisis-response team have to ensure the right balance of speed and oversight?

  • Is the senior management team up to the task, or are significant changes necessary?

  • Is the board’s broader composition right? Should members who can’t add value leave? Are additional, independent member(s) to help the company respond and recover required?

  • What are the immediate shifts required within the board’s composition and roles?

  • Does the board need to establish the principles to guide the organization’s response and recovery?

To manage these calls and other tasks, Boards need to consider the following.

  • The Buck Stops with You. Responsibility for proper crisis response rests squarely on the shoulders of the board and the management. If heads roll, not only will management heads roll, but the board’s will as well.

  • Does each director understand their fiduciary duties?  The primary duties here are Duty of Care and Duty of Loyalty.  Legal counsel should be consulted if only to remind directors and help avoid problems down the road.

  • Proactivity is needed. The board must get out in front of the problems on their own. It looks and is terrible when the board is only reactive.  Reactive boards are failing to exercise their proper governance function. To be proactive, board members need experience in dealing with a crisis similar to the one the organization is facing. A PR crisis is not the same as dealing with a financial crisis. Thus, the board needs to ensure that among its members, it has supply chain, HR, turnaround and restructuring expertise.

  • Determine levels of intrusiveness vs. hands-off governance. The old governance mantra used to be “noses in, thumbs out,” no longer applies. Every board must find its new balance with management on how to increase its oversight to appropriate levels and provide expertise where needed.

  • Risk committees are insufficient. Boards need to look not only at-risk metrics but include room for anecdotal data and information that percolates up through the org
    anization. The committee must be open to all these data sources, rather than be guided only by management’s statistical reports and data.

  • Monitor emerging risks. Reporting on emerging risks is essential not to be caught flat-footed, and thus appropriate expertise is critical. A CFO that has not experienced a financial crisis can better respond with input from a “restructuring” expert on the board.

  • Timing: Immediacy is the rule. In this new world, boards and management aren’t allowed the luxury of time to make decisions. Responses have to quick, even if only “We don’t know yet, but are doing everything in our power to find out immediately. We will stay in close communication with you as we do.” Besides, direct experience is essential during a crisis, as the time element is now critical. Having resources that have real-world experience can make the difference in executing plans and knowing what is time-critical and what is deferrable.

  • Provide a firm moral center for the organization. The board can inspire the right kind of action and attitude throughout the organization, and help the organization recover from the crisis not only with its reputation intact, but more robust than ever. Laying off employees and not paying suppliers raises issues. The manner with which the organization handles this is critical for the firm’s reputation. Mishandling it may result in the inability to attract start talent in the future, or obtain exclusive deals from critical suppliers.

  • Expertise. The board is not to step into managements’ role but to: carefully question management regarding the reliability of known facts and its plans, assess and advise management on its handling of the crisis, and provide assistive feedback to management as appropriate. If the board lacks experience in dealing with the impact of the crisis, it cannot fulfill these functions. Only with experience can the board probe management to discover hubris and blind spots.

So, does your board have these qualities? If not, consider adding independent directors with the right skills and experience.

 

Copyright (c) 2020, Marc A. Borrelli

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