Lessons Learned from COVID-19: A Discussion for Board Members

Jim DeLoach, Managing Director Host, The Protiviti View

The COVID-19 crisis threw companies for a loop as an economic downturn that to many may have looked like a manageable possibility in the beginning, unfortunately became a full-blown economic crisis and human tragedy. For many boards, this meant working closely with management to revisit the strategy to address new risks on top of existing ones. In the chaos, the companies that were most successful in navigating the choppy COVID-19-lockdown seas were those able to transition seamlessly to a virtual work environment and connect with customers and service them in a mutually acceptable manner.

With that backdrop, I was privileged to participate in an online discussion, hosted by Protiviti, with Evelyn Dilsaver, a member of Protiviti’s Advisory Board. A former President and CEO of Charles Schwab Investment Management, Evelyn is an experienced director who has served and continues to serve on many boards. During the webinar, Evelyn and I addressed many questions relating to such topics as the market forces that are altering boardroom discussions, the implications of a remote work environment as a critical differentiator going forward, the board’s primary focus at the present time, conflict resolution in the boardroom, leadership qualities needed in a crisis and how a virtual workplace affects relationship-building at the board level, among many others. To hear our discussion of these and other topics, login to the recorded version of the event here.

There were many terrific questions from our audience and Evelyn and I answered as many as time allowed. As for the remaining questions, I have taken liberty to respond to them below. 

Q: Regardless of technological evolution, business has been run successfully based on relationships. If the work world will permanently be conducted in a more virtual way, how will that effect relationship building and cultivation going forward? (Boards interact best though developed relationships…)

I agree completely. Business will always be based on relationships. Our view is that no matter what role technology plays in advancing business models in connecting with customers, suppliers and ecosystem partners, it will never exceed the importance and impact of people and a trust-based culture. Yes, there are forces driving the trend toward a virtual environment, including consumer behavior, employee expectations, employer assessment of real estate requirements and other factors Evelyn and I discussed during the webinar. But this doesn’t mean that face-to-face interactions will be eliminated. Depending on the extent to which virtual work takes hold going forward, business will have no choice but to adapt.

Q: Isn’t it too soon to be discussing lessons learned for any industry? We are still in the middle of the COVID-19 pandemic, and most organizations could scarcely predict immediate implications, let alone long-term impact on operations and  strategic objectives.

I agree it is difficult to predict what the world will look like going forward. This is why in Issue 7 and Issue 8 of The Bulletin, a two-part discussion of “Getting There Eventually: Finding Equilibrium in Uncertain Times,” we talked about the search for equilibrium as the market evolves in a phased transition from “now” to “next,” “soon” and the eventual “new normal.” The message is that while we cannot predict exactly what is going to happen in the future, we can take definitive steps to make our organization more agile and resilient to compete and win in whatever market conditions we face, including the possibility of another COVID-19 resurgence and lockdown.  

Q: I would be interested in the panel’s thoughts on the “going concern” point. Also, any new risk related to insider trading like we saw with the Equifax security incident.

There is no question that the viability of some industries is under threat, particularly those dependent on physical gathering and concentration of people. If losing access to customers weren’t enough, COVID-19 has disrupted supply chains and created liquidity exposure from uncollectible customer accounts. For affected public companies, the pervasive impact of COVID-19 necessitates that management and the external auditor assess whether a going concern issue exists and determine whether appropriate disclosures are needed. And, yes, insider trading windows should be emphasized and enforced. General counsel of companies that have potential issues should remind employees of their responsibilities under the securities laws.    

Q: Mr. DeLoach commented that he doesn’t envision things going back to the way things were. Could he expand upon this comment?

During our discussion, Evelyn and I made a number of comments that are pertinent. For starters, there is evidence that many who worked remotely during the lockdown were productive. For example, in a poll taken during a Protiviti webinar, 78% of the participating executives indicated they were at least as productive, if not more, as when they were in the office. We also see evidence of many employees expressing a preference for working from home. Video technology has shrunk the world, and we can expect a higher bar for the business case justifying business travel, conferences and meetings. Given these factors, it is not a stretch to imagine more flexible work environments, perhaps the blending of a centralized and distributed workforce to create an engaged work environment.

In addition, there is evidence of changing consumer habits, necessitated by the pandemic, driving new and innovative customer engagement and fulfillment processes. It is not unreasonable to expect some, if not most, of these behaviors and processes to continue. More organizations have discovered, and are continuing to discover, the power of technology in re-imagining and automating processes that underpin hyper-scalable business models with a lower fixed-cost base. The reduction in pollution levels in urban environments during the pandemic and increased emphasis on environmental, social and governance (ESG) metrics by institutional investors and asset managers could spur even more pressure on businesses to reduce greenhouse gas emissions. These developments could drive potential shifts in real estate needs, reductions in business travel, demand for virtual conferences, and other behaviors that sustain reductions in general and administrative costs straight to the bottom line.

The confluence of all of these and other factors suggests that we are much more likely to experience a different world going forward than return to the world we once knew.

Q: I recently facilitated a $100 million privately held company management team and board through an ERM exercise but a “top 15 risk” of a pandemic was dismissed.  My sense is that no one could envision what a pandemic would look like and therefore dismissed it. How do you respond to this?

I don’t think it will be dismissed now. But you’re right: Many high-severity, high-velocity and high-persistence risks with a low probability – those in the upper left hand corner of a risk or heat map – get disregarded because of a leap of faith that they are unlikely to happen. Thus, the emphasis on probabilities creates a false sense of security. But “Will it happen?” is the wrong question. When evaluating so-called extreme but plausible events, the correct question is, “What will we do if it happens?” Response readiness is the key and should be emphasized by directors and executives seeking to make their companies more resilient organizations. I think that ERM programs should focus more on this opportunity.

Q: From a board perspective, how can Internal audit add the most value during this time?

Great question, but tough to generalize an answer because of the varying circumstances at each company. Protiviti’s Enterprise Resilience Webinar Series addresses many topics that pertain to internal audit adding value in this environment, with the objective of helping the company become a more resilient organization. Relevant webinars might include: Focusing on the Risk Assessment Process in a Dynamic Environment; For Auditors: Rising Risks, Remote Teams and Real-time Testing; Planning for Emergence: Using Process Mapping to Adapt to Operational Change; and many others. Go to our webinar series page on the Protiviti website and select the relevant webcasts that could most benefit your internal audit function and company.

Q: I believe this current crisis highlights the importance of cognitive diversity on a board. In this scenario a group that comes to mind are senior military who would add many of the skills discussed to a board. Thoughts on board makeup?

Senior military leaders are great at addressing scenario planning. Other skills and qualities include digital savviness, gender diversity and, of course, industry knowledge. Depending on the company’s strategy, business model and industry, it may make sense to identify the board’s current talents, the talents needed and the related gaps. Such assessments inform the nominating committee in setting search criteria for candidates.

Q: How will governance models of multi-business, multi-market firms likely change going forward? More or less centralization of decision-making authority in business units and geographic markets?

Good question. One thing we learned during the lockdown is that the organizations that persevered best did so through a more innovative, empowering and “get it done” culture. New innovations, revenue sources and technologies as well as flatter organizational structures led to increased connectivity with customers, employees, suppliers and ecosystem partners that may not have existed prior to the pandemic. More importantly, changes were implemented in much shorter time frames than in the pre-pandemic period. So the governance model decision boils down to a series of questions: “How resilient are we? Are we embracing change? Are we taking appropriate risks to spur disruptive innovation? Are we making decisions at the pace of change? Are we thinking and acting digitally at the core?” Negative answers to these and related questions suggest that the organization may not be in touch with its customers, regardless of its structure. 

Q: How can someone be more prescient so it’s more about change preparedness versus change management?

Great question. We think it means being more resilient and agile. The organization should evaluate its processes, given the speed of change in the market and within the industry. Is the company connecting with customers in its core engagement and fulfillment processes? Is it keeping pace with competitors or is it a laggard? Is it able to aggressively pursue important challenges and innovation opportunities at speed by freeing up resources that are otherwise locked down to service the core business? Can it compete with digital leaders in the industry? Some ideas for directors and executives include focusing relentlessly on improving the customer experience and maximizing the company’s reach to as many customers as possible, setting the tone for speed and innovation and inculcating a culture that drives that tone from the top down, focusing on high-velocity and high-quality decision making, establishing an organizational structure that directly supports lean behaviors, selecting the talent who will lead to success, and staying in touch with external market trends.

On behalf of Evelyn Dilsaver and the Protiviti team that helped organize and host this webinar, I extend my thanks to everyone who joined us for this discussion. And a special thanks to those who raised some great questions, as discussed both above and on the webinar itself.   

The free on-demand version of the webinar is available here.

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