How do Boards Add Value Amid Covid-19 Challenges?

    Posted by Apr 1, 2022 4:24:00 PM / Roy Ling
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    COVID-19 created stress in financial markets not seen since the global financial crisis. In 2020, financial markets were disrupted as the U.S. Treasury market, corporate bond and money market funds experienced unprecedented stress.

    Corporate Finance professionals transitioned to remote-work models and worked around the clock to counter the COVID-19 disruption. Businesses that responded quickly were better able to deal with the disruption than those that were slow to react. However, significant uncertainty remains for the months and years ahead; global vaccine inequity or new strains of the virus create an environment where businesses have to expect the unexpected.

    The role of the company board has never been more crucial to provide leadership and deliver long-term shareholder value: the board has overall responsibility for the management and oversight of the group, providing leadership within a control framework. It governs the company’s values and standards and ensures these align with its strategic aims and organisation culture.

    Professor Roy Ling has served on over 20 public and private corporate governance boards in the last 16 years. In this article, he draws on his experience to offer valuable insight on how corporate boards can lead effectively in uncertain times.

     

    Boards learned difficult lessons from Covid-19

    While many boards may be tempted to refocus from long-term growth to short-term survival due to Covid-19, this would be a grave mistake. Instead, they should capitalise on the Covid-19 opportunity to reposition and pivot the company to strengthen its positioning and come out ahead.

     

    Boards should be aware of three things:

    1. Resilience comes through speed. Covid-19 gave rise to many unknown certainties and fluid changes. But boards need to guide management processes for fast responses. The point isn’t to have the right answer but to build organisational capability to learn quickly why your answer might be wrong and pivot faster than your peers do.
    2. Beware of a gulf between board and management and workers: while it is easy for board and management to switch to remote working and they see it as efficient, people in the trenches may not feel the same.
    3. More than ever, a bias to action is essential. And this will frequently mean getting comfortable with boardroom disagreement.

    Covid-19 lessons helped reposition board thinking for digital transformation and ESG reporting – the two crucial topics for boards today.

     

    Risk management: discern between opportunity vs. threat

    In today’s active global economy, the lines between competitive markets have never been more blurred.

    For example, is Amazon a consumer company since it sells everything from groceries to garage door openers? Or is it a technology company, since it owns and operates the legions of computer servers that make e-commerce possible? With all the crossover, it’s difficult for board members to assess whether all the disruptions are accelerators to the organisation’s growth or roadblocks.

     

    Information overload: learn how to connect the dots better

    Access to information used to come at a tremendous price for businesses – today, that cost has drastically reduced. Now, the real questions are: what does the information say? What does it mean? And how do we use it?

     

    Entire businesses are changing, and boards must adapt. What boards must do is anticipate what will create value, how that impacts the organisation, and evaluate if the right leadership is in place to make those pivotal operating decisions on a day-to-day basis.

     Boards of the future must look forward in a different way and think with a different level of expansiveness, involvement and opportunity building.

     

    Talent alignment: close the gaps between strategy and talent

    In the end, it all comes back to talent and succession, which are tightly aligned. This is a huge topic because of the rapid pace of change in digital transformation. Talent starts with the board and permeates throughout the company; boards need people from a variety of backgrounds to accentuate nimbleness in thinking and diversity of perspectives.

     

    To be successful at creating value boards must:

    1. Spend an average of 20-30 days a year on board work and ensure the time spent results in executing board mandates effectively.
    2. Maintain a well-rounded team with a culture of trust and respect, where directors and management challenge each other in constructive feedback.
    3. Appoint an effective chairperson who runs meetings well. Good leadership sets the tone for the board as a whole and sets the stage for a value-enhancing board.

     

    My experience suggests that the more time directors spend on oversight and strategy and the effectiveness of that output, the more this drives value creation.

     

    How to Assess the Effectiveness of a Board

    A review of the board’s agenda is a good way to measure effectiveness. If the same items appear on the agenda again and again – with no resolution – that is likely an indication that the board lacks the necessary expertise to deal with the issue.

    Boards must undertake regular self-assessment across three areas; (1) Board composition and dynamics, (2) how the Board perform specific tasks, and (3) how the Board operates.

    Two evaluation formats are available in practice: questionnaires and interviews. Questionnaires take less time than interviews and are more popular, but directors can be reluctant to make contentious points in writing. While interviews are time-consuming, they can elicit more candid responses.

    However, the feedback process cannot be entirely inward focused. An external perspective, such as from senior management with close involvement with the board, is valuable. The board may also wish to periodically engage an external board consultant for a ‘health check’ to evaluate the feedback process and to more thoroughly interpret the responses solicited.

     

    How boards members can remain updated and better engage in strategy formulation

    1. Engage between board meetings. This is not just about spending more time on board strategy, it’s also about being able to connect with management in between meetings and stay current. Boards should experiment to figure out how often they should meet, but the key is to remember that boards are only as good as the information they have access to.
    2. Engage with strategy as it is forming. I like to participate early in the formation of strategy and stress-test it along the way, as opposed to reviewing a strategy that’s been fully thought through by management.
    3. Engage on the tough questions. I believe that the importance of asking uncomfortable questions extends beyond strategy sessions to a wide range of issues. Every board member does not necessarily need to have industry experience, but you must have the courage in the boardroom to ask the difficult questions.

    If you'd like to learn more about this topic and enjoy a lively and easy-to-follow course that will bring you up to date with the latest specialist industry knowledge, don't hesitate to contact us. We help professionals like you excel in their career.

     

    Related Courses

    Digital Finance: Value Creation

    ESG Investing

    M&A Corporate Finance

    Written by Roy Ling

    Prof. Roy Ling is currently the CEO & Founder of FollowTrade. Concurrently, he is also an Adjunct Professor in Finance at the SKEMA Business School, an Academic Program Director at SMU Academy and an Independent Board Director on several listed companies in Asia. Prof Ling is also a corporate trainer with London Financial Studies. Prof. Ling spent more than 20 years in investment banking and held senior positions with JPMorgan, Lehman Brothers, Goldman Sachs and Salomon Smith Barney. His expertise is in Asia real estate, REIT IPOs and SPACs, and he has worked in New York, Hong Kong, Tokyo and Singapore. During his investment banking career, Prof. Ling had originated and executed a broad range of advisory and capital market transactions including some of the most high-profile transactions in the region. Prof. Ling was a former Board Director of the CFA Society of Japan. He was honored as the Real Estate Executive of the Year 2016 by Singapore Business Review, and as one of 20 Rising Stars in Real Estate 2008 by Institutional Investor. Prof. Ling graduated from INSEAD with a Global EMBA and from the National University of Singapore with a BBA (Hons).

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