Support Learning and Insight

It’s more important than ever to understand the challenges facing financial executives. Support the Financial Education & Research Foundation today.

Crisis Management

Emerging from Crisis: Inside Boardroom Discussions Right Now

FEI Daily speaks with Paula Loop, leader of PwC's Governance Insights Center on what's top of mind for directors as companies emerge from the crisis.

©wichaileesawatwong/iStock/Getty Images Plus

FEI Daily: What are some of the challenges that audit committees are having right now? 

Paula Loop: I think that this is one of the most challenging financial reporting periods that companies have been through in a long time. Because of that, there is a lot on the audit committee’s plate. Companies are potentially facing accounting issues that they haven’t faced in a long time. They haven’t had to think about looking at debt covenants, having a liquidity issue, or having their cash flow forecast being less than anticipated – so they have to think about the potential for an impairment. There are a lot of accounting issues that are big topics for companies and the audit company needs to understand those issues.

On the other side, it’s not just what they’re dealing with but with whom they are dealing. In some cases, you have team members in the finance organization that are out on sick leave or have childcare issues because schools are closed – so they are working part time or half time. Also, people are working virtually, so they are doing things differently. This means that they can’t just go down the hall to get information. It’s really a question of who is doing what, how things are being done, and what employees are faced with – all of these things are coming together making the financial reporting process more time intensive than normal. As a result, audit committees have to get up to speed quicker and be more on top of the time frame.    

FEI Daily: Governance as a topic has become increasingly important over the years. Yet it feels like we are at an inflection point, and companies might start to really refine their governance. What, if any, long-term changes do you think will emerge related to governance as a result of this public health crisis? 

Loop: As far as board composition goes, I think directors are going to look around and ask, “did we have the right people in the room?” Depending on your current board composition, this could mean different things for different boards. One of the key questions will be whether a board had the right mix of sitting and retired executives? Boards are usually made up of both of those components, but I think in the COVID-19 crisis that boards that had at least one sitting executive really got the chance to leverage the executive’s experiences. If you had a board that was made up of retired individuals, those that were not currently in the workplace, you didn’t get those insights. That is just one example. There could be other examples related to supply chain experience or other things that were found to be important to the company, and it would have been more helpful to have had that expertise in the boardroom.

In addition to board composition, we are going to see continued focus around ESG. This is just another example on the spectrum of risk oversight and its importance as a topic. Investors will look back and consider whether there are elements of environmental risk that could become more important after this crisis. Are companies prepared for these environmental issues? Investors are going to look back at how companies treated employees and dealt with talent during this crisis.

So, some of the things that we were already focusing on are going to be more highlighted as a result of this crisis. One big example is the ‘S’ in ESG, which represents social issues. I think that companies that didn’t really understand the impact and the importance of ESG prior to the public health crisis have probably learned a lot from this exercise. COVID-19 has really highlighted some of the importance of ESG, especially the importance of messaging to employees and the broader stakeholder group about how you are taking care of employee’s health and wellbeing.

FEI Daily: Have board priorities changed as a result of the public health crisis? 

Loop: Boards have always had to manage the short-term and the long term. They put emphasis on what’s going on in the short-term while keeping their eye on long-term value creation. Right now, they are weighting the two-time horizons differently. They are more concerned with the day-to-day, getting weekly updates. As a result, they are probably spending a little bit less time thinking about long-term positioning right now.   

FEI Daily: With stay-at-home orders being lifted in certain parts of the country, many companies are considering how to bring people back to work safely. What are some of the things that you have heard about this topic? What things should companies be considering?

Loop: Directors are spending a lot of time on this topic. In many ways you would think this is a management topic. The reason it is getting so much oversight attention is because it is something that the management team is spending so much time on. If you think about the efforts you are going to have to put forward to bring people back to the office, there will be costs associated with cleaning and managing the process of bringing people back. People are expecting an uptick in ethics and compliance site calls with worries and concerns. Also, there’s liability potential. Bringing people back to the office is a big management issue, so boards are getting engaged to ensure they understand the issues and can reasonably process all the decisions that management is going to have to make.

FEI Daily: As the crisis has evolved from public health to public health and economic, has this changed the things that boards are considering?

Loop: First of all, boards are talking less about the crisis and more about emergence. How do we come out ahead? How can we have a resilient company that can both internalize the lessons learned and come out stronger in the future? So, I think the economic situation is making people wonder whether we will see a “U-shaped” recover or even a “W-shaped” recovery. Everyone is playing out different scenarios and timelines. People are fairly that certain that there won’t be much recovery this summer, they are looking to fall or early 2021. So, they are looking at how they can best position themselves and manage cash flows and liquidity to be ready on top when the economy does come back.

FEI Daily: Any concluding thoughts or advice? Additionally, what might be the next things boards tackle? 

Loop: Boards are still meeting fairly frequently. We are no longer in the middle of the crisis, but we are getting more and more insights every day. There is a lot of activity that is still going on, and until we get over getting back to the workplace – there is a lot for boards to discuss.

The next things to consider really depends on your company’s circumstances. If your company is in a good position, the next discussion is how you take advantage of the situation. Is there an M&A opportunity? Is there something you can do because you are in better shape than others? That is going to be a big topic. Of course, companies that aren’t in good shape are going to have to focus on how they can make it until the recovery hits.