How do I discharge my duties as a director in the current crisis?

A guide for directors on what to consider in these challenging times

Flex your leadership style

Directors need to acknowledge that the pandemic poses great emotional challenges as well as practical ones. Employees are bound to look to board directors for stoicism, and the best approach is deliberate calm coupled with bounded optimism.

Get close

NEDs will want and need to get closer to operational management than usual. For example, they will want assurance around contingency plans for any sickness absence, including the absence of the CEO or other key personnel.RemunerationExisting remuneration structures should already encourage everybody to pull together, but if not, then consideration should be given to revising or suspending discretionary incentive and bonus plans. However, contractual changes can only be made with the agreement of the beneficiary.

AGMs

Initial and supplementary guidance has been published about AGMs and the Stay at Home Measures.  Companies should check their Articles of Association and other relevant matters, and coordinate with registrars and venues. Subject to that, the guidance outlines the following options for companies: adapt, delay, postpone, adjourn or conduct a hybrid AGM (a combination of electronic and physical).

Risk management

Operational considerations may require a variation in financial controls. Companies should also be alive to cyber risk. Highly regulated companies need to stay vigilant to compliance risks. The usual reporting mechanisms and protections for whistleblowers must be maintained as their insights could be particularly valuable at this time. 

Activists and others may take advantage of the situation. Well-capitalized activists could attempt to exploit the enhanced vulnerability of target companies. Companies should monitor for changes in stock ownership. 

Insolvency

On 28 March 2020 the Government announced that wrongful trading provisions will be temporarily suspended from 1 March 2020 so that directors would not be personally liable for continuing to trade under those provisions.  

Directors’ duties

Directors have a duty to consider or act in the interest of creditors. The seven general duties of directors continue to apply. First, when promoting the success of the company, directors must have regard to the following: the likely consequences of any decision in the long term; the interests of the company’s employees; the need to foster the company’s business relationships with suppliers, customers and others; the impact of the company’s operations on the community and the environment; the desirability of the company maintaining a reputation for high standard business conduct; and the need to act fairly as between members of the company.

Directors must also exercise independent judgement; exercise reasonable care, skill and diligence; avoid conflicts of interest; not accept benefits from third parties; and declare any interest in proposed transactions or arrangements. 

Although legal remedies can be applied to directors who breach their duties, directors should bear in mind that courts always decide cases on the specific facts and the circumstances generated by Covid-19 will be highly relevant. 

Reporting

Companies which has recently added s.172 reports to their Strategic Reports, or which have added reports on employee, supplier or customer engagement  to their Directors’ Reports,  will be mindful that boards’ discussions and decisions during the Covid-19 crisis will be disclosed in due course.  

Why directors should use social media

Thoughtful and calm external and internal communications are needed. A ‘message from the CEO’ is low-cost but invaluable for boosting employee morale and customer confidence in the brand. Other directors may be wondering what they can do to help, and for some directors the answer will be social media. 

What we’ve learned and what we want to continue

In the aftermath directors and companies should reflect on lessons learned and what should be continued. 

Get the full know-how.

Author
Elizabeth Richards
Head of Corporate Governance, ICAEW
Elizabeth.richards@icaew.com