Board of Directors

Covid: Lessons learned by boards

What lessons can be learned for Luxembourg boards from the covid crisis? The country appears to have weathered the first wave of the economic shock, thanks to flexibility of staff, businesses, regulators and the government. How can this experience be used to built further resilience?

The last three months have shown that the role of the board does not change during a crisis, but directors have to be more present and communicate more to give the executive team the support they require. When problems are piling up during the heat of the moment, with staff and clients becoming agitated, the chair can help managers keep a cool head and remain focused on the big picture. More than ever, the management board needed someone to offer wise words either of encouragement, reassurance, praise or suggestions for improvements.

Chair-CEO relationship

The ever present debate around corporate governance is the extent to which the chair and the board should seek to work with the executive team. Not only does this depend on the human dynamics between the individuals, but the board also needs to keep an eye on potential long term reactions from the regulator. When it comes to the final reckoning, it may have proved to be better for all if the board is seen to have been too activist rather than insufficiently so.

Two central priorities as the crisis struck were ensuring business continuity and staff health. Teams needed to be sent to different locations to minimise the chance of the whole workforce becoming incapacitated. The same principles applied to the board and management. Some firms decided early that the CEO and chair should no longer meet in person, and that virtual boards and executive meetings should go online.

Increased communication

Ensuring financial stability was the third key priority for boards as the crisis raged. The CSSF increased its reporting requirements on financial services companies, particularly around liquidity, and many firms adopted similar disciplines by increasing internal corporate governance reporting. Keeping boards in regular contact with the evolving situation was important, with some local players implementing weekly reporting to ensure they were aware of important business details. This might have been about the number of loan moratoria granted by banks and redemptions by funds. All businesses needed to understand about staffing and liquidity, particularly those which had been forced to close.

Other boards took the option to communicate daily. An hour was booked each day when directors could be expected to be called upon. This meeting didn’t always take place, but it ensured full virtual attendance when it was needed. Many Luxembourg funds don’t have staff as such, so the board’s role was to ensure that service providers had implemented their business continuity plans to enable work to continue as normal.

Sometimes the focus on this one topic could become an excessive mental burden, so some boards decided to clear their minds by debating a completely different topic after the initial panic had calmed. This might be a discussion about strategy or ESG policy – anything to break the cycle of Covid related thoughts, and have a chance to think afresh about long term goals.

Managing virtual meetings

The holding of meetings was another challenge. It was already permitted in Luxembourg (if frowned upon in normal times) to conduct purely virtual board meetings. The video calling itself is easy enough, but working on documentation online is tricker. Zoom and Webex enable files to be viewed online, but managing different versions can be complicated.

Diligent’s Governance Cloud is designed to minimise such difficulties. Materials are managed in a dedicated space, where documents can be annotated, with comments added and notifications made in real time. As well, this package enables virtual voting, the completion of questionnaires, and the ability to sign minutes. This is on top of the ability to manage board packs virtually .

As for annual general meetings, the law was changed quickly in Luxembourg to allow these to be conducted by video link, by proxy or in writing. For smaller operations such as funds, a video link with the handful of key people was generally sufficient. However the law stated that this process had to “guarantee effective participation” so for private and public companies with more diverse ownership structures there was the concern that some shareholders could miss out. Hence several of Luxembourg’s larger firms opted for meetings in writing. All documents and resolutions could be downloaded from an intranet, with voting conducted accordingly. The chair might also contact larger shareholders in person to talk things through.

Future challenges

The European Central Bank and European financial regulators asked firms to not pay dividends, with a recommendation to at least delay staff bonus payments while liquidity questions play out. These questions will need to be revisited later if the emergence from lockdown is achieved easily.

Of course, this might just be the first wave of the crisis. As the economy emerges from state-funded life support many business models may run into problems if liquidity becomes tight. Virtual boards might once again need to be nimble as they work to support their business.

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