Crisis Management

Big Changes Ahead for Boards

Reduced frequency, increased cybersecurity, and COVID-19 committees are all on the horizon for corporate boards.

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FEI Daily spoke with Claudia Allen, a Senior Advisor with KPMG’s Board Leadership Center, about how to reinforce the board’s cybersecurity protocols and the rise of COVID-19 committees.

FEI Daily: What are the biggest challenges boards are facing today?

Claudia Allen: The board is responsible for oversight. In this environment where directors can't be in the same room, one of the real issues is how they get the information they need in an efficient way -- so that they are discharging their oversight responsibility but not unduly overburdening management. Most budgets no longer are relevant because things have changed so much. So how do you forecast? How do you see where the business is going? Do you use a rolling forecast? Do you just look a couple of quarters out? It’s a very different paradigm. Directors are trying to figure out how to do this and how to support management while also being constructively skeptical and keeping an eye on the future.

FEI Daily: What do board meetings look like today and how do you think they’ll look a year from today?

Allen: Until now, boards typically met in person. They would sometimes meet telephonically for a major transaction or other major development. Now you can't meet in person. A lot of them are trying to use secure virtual platforms so they can see and hear each other because body language and other visual cues are important.

Boards are meeting more frequently and some of those meetings are shorter. A lot of directors would say meetings are more efficient right now. I think over time, we may see some virtual meetings mixed in with regular in-person meetings. It reflects a move toward more real-time interactions between the board and management.

FEI Daily: With the increased reliance on technology platforms for virtual meetings, how can boards protect themselves and the companies they represent from malicious cyber activity?

Allen: It’s important to ensure that any platform boards are using is secure. Security should be a top concern when using a portal.  Among other things, directors are being targeted by malicious actors and possess a lot of information that could be valuable. In addition to using a secure platform, it's good practice for directors to use corporate email addresses for their board work, rather than personal email addresses, and ensure they're using secure networks for communications. And sometimes it may be a good idea to just pick up the phone when they have something sensitive to talk about.

A lot of what's happening right now is fairly sensitive for many companies. They're in the middle of upheaval. There are more discussions between meetings than there would have been in the past and meetings are more frequent. There are also updates from management between meetings. It's an important way for the directors to stay up-to-date on what's happening. Updates should be provided by secure means and can take a number of forms such as a letter or email from the CEO or a call with the CEO to discuss current developments.

FEI Daily: You mentioned that the meetings are becoming a little bit more efficient in some cases and shorter. How about the frequency of board meetings? How do you see that changing over the next year?

Allen: Right now, a lot of boards are meeting more frequently since the situation is so dynamic. I think the frequency correlates with what's happening in the world and its impact on companies.  Business models are changing, strategy may no longer work, and there are huge issues relating to the workforce. Additionally, many companies are addressing liquidity and other financial issues. All of these are major issues that the board needs to oversee. Companies often had six to eight regular meetings per year, plus the occasional telephonic meeting if something major was happening between meetings. But the current environment may be part of an overall shift.  I was a commissioner for last year's National Association of Corporate Directors’ annual Blue Ribbon Commission Report, which discussed boards having more real-time interactions. Those interactions could involve meeting via technology along with regularly scheduled board meetings.

FEI Daily: One recommendation in the report is that boards may want to consider forming a special committee to oversee the company’s response to COVID-19. Who should make up this committee? What kind of expertise is helpful?

Allen: Necessary expertise is often tied to the issues a company is facing. Oversight is a full-board function. Boards have a number of standing committees, and some are using their standing committees, which have been allocated areas of risk oversight. They might adjust those a little bit in connection with the current situation. Others are moving toward an ad hoc special committee that can help oversee the crisis, interact with management more frequently, and report back to the full board. But the skills on such a committee should be tied to the nature of the challenges a company is facing. For example, a tech company, may use different types of expertise in connection with the current situation than companies in other industries. Companies with a liquidity crisis may want directors with experience in workouts and restructuring. So I think it is situation-specific.

Also, many boards have a lead director. For boards that have a combined chair and CEO (or a chair that is not independent), the lead director is essentially the representative of the independent directors and serves as a counterweight to the combined-chair CEO. The lead director (or an independent chair) can be a very effective conduit for communication between management and the board in a situation like the current one. In a very difficult, fast-moving landscape, the lead director can serve as a central point of contact so management is not getting calls from a number of directors. The lead director then reports back to the other directors, receives questions from the other directors and can address those questions with management. It can really help with efficiency.

FEI Daily: What other recommendations do you have for boards in the coming year?

Allen: The COVID-19 situation heightens the importance of having both temporary and permanent succession plans in place for the C-Suite, as well as board leaders, including the lead director or independent chair, and committee chairs.  And because there's a possibility that more than one individual could fall ill at the same time those plans should contemplate filling more than one vacancy at the same time.

Companies should also look at whether they have emergency bylaws or emergency powers under state corporate law. For example, if the board needs to meet on very short notice, and can’t achieve a quorum or satisfy notice requirements, emergency bylaws or emergency powers under state corporate law may allow the board to meet – which is particularly important when there is an emergency. I think when the statutes were written, they often contemplated emergencies like a nuclear disaster or war. But a pandemic may satisfy the criteria.

Also, directors need to have the bandwidth to be able to spend the time necessary to help companies as they're addressing multiple issues simultaneously. Some institutional investors are now saying that the pandemic brings home their point that director overboarding is a problem – because the time commitment now for directors