ANALYSIS: CHOLA MUNTHALI
THE purpose of organisations, to a very large degree, is to create value, and this is achieved through the strength of an organisation’s business model. On the other hand, the purpose of governance is to ensure that the value created by an organisation is not only protected in one respect; but is also safeguarded from being destroyed in another. With the COVID-19 pandemic and the ambient anxiety that surrounds it, the need to protect and safeguard the value that organisations create has now – more than ever – become so paramount. Discovered in China in 2019, the virus has long since spread to every part of the world. With the first, second, and third wave – each leaving a history of its own – many lives have been lost and businesses shut down. Despite the various measures that have been put in place to curb the virus by organisations like WHO, the virus has not shown any signs of relenting, and this is evidenced by the advent of the fourth wave. The virus has changed the face of the world in various respects; and has forced humanity to transition from steady state, crisis and, ultimately, the new normal. Corporate and business organisations have not been immune to the changes that the pandemic has brought forth, and it’s during this transition that corporate and business organisations might consider reconsidering their purpose, the purpose of their board, the role of the management team, their positioning in the industry, and their long-term sustainability. Also, one, if not the most important, role of the board and management is to take high-quality strategic decisions which move the business on towards a future of sustainable success. Therefore, it’s quite imperative for organisations to realise that the decision-making process which was deployed under a steady state might not be effective under a crisis. And, as such, this could merit that corporate and business organisations take decisions differently. How will decisions be taken differently?
The following are some of the corporate governance considerations that organisations might consider taking into account during the COVID- 19 pandemic. Directors’ commitment Levels of director commitment might need to change, there might be need for people to turn up; not just physically – but mentally as well, and tune up. Directors might need to become more intense about keeping the business on the road, which might translate into directors, management and staff working longer hours and to hold board and management team meetings more frequently. Putting resilience at the top of the agenda Resilience is not only an organisation’s capacity to anticipate disruptions, adapt to events, and create lasting value; but is also the ability to withstand changes in the environment and still function, enabling the organisation either to endure environmental changes without having to adapt permanently or to adapt a new way of working that better suits the new environmental conditions. Resilience issues are not necessarily what the board will have at the top of the agenda during a period of steady state. During a crisis, however, organisations might consider revisiting their resilience model and make alterations where necessary. It might also be necessary to change conversations at management and board level, and start discussing – in great depth, issues that are predominately predicated on the future survival of the business. This will therefore entail putting issues of resilience at the top of the agenda. Strategy and risk Strategy and risk are part of value creation and value protection, and it is the board’s role to define the organisation’s strategic vision and risk appetite. Risk appetite is the essence of strategy – the level of risk that an organisation is prepared to accept in pursuit of its objectives, and before action is deemed necessary to reduce the risk. The correct strategic vision, coupled with the appropriate risk appetite, provides the balance between the potential benefits of innovation and the threats that change inevitably brings. In a crisis, most organisations (if not all) are left in a precarious position of addressing two critical questions, and these are: firstly, to what degree should the organisation improve its strategic vision? And, secondly, to what degree does the organisation change its appetite for risk? And ultimately marrying the two. The quality of the answers supplied, and to what extent these two questions are addressed, has a bearing on how the organisation will cope in a crisis. In a nutshell, Andy Grove, former CEO of Intel, once said: “Bad companies are destroyed by crisis, good companies survive them, great companies are improved by them.” Therefore, if an organisation is to survive or be improved by this crisis, it needs to establish how best to organise itself differently and what needs to change. The two key strategic objectives are survival and repositioning going forward. Organisations need to establish how to survive the next two weeks, two months – or however long the virus takes and how to emerge healthy on the other side.
Organisations also need to position themselves properly, both in society and the markets, so that after the crisis, they can continue to take advantage of opportunities and still be relevant to their shareholders and stakeholders. And this is what the governance system should be supporting in terms of the way management spends its scarce and important time in coping with the crisis. The author is an accountant.
Corporate governance: Considerations during COVID
ANALYSIS: CHOLA MUNTHALI