Articles and Commentary
May 2020 - TMG
The Role of the Board in the New Abnormal
Stephen Miles, Founder/CEO, The Miles Group
Ram Charan, CEO Advisor and Best-selling Author
Effective Board Leadership in a Crisis
COVID-19 (CV-19) has induced a generational crisis that has globally impacted all organizations and individuals. Even though economies are beginning to re-open, there is still a long, rocky road back to “normal,” and we must recognize the future normalcies of business will forever be different than the realities of January 2020. And just as CEOs and leaders need to adjust their approach to navigating through the “New Abnormal” (see our previous notes on the CEO role), boards must recognize that success in this unprecedented circumstance will take a different approach: both in the subjects and content they focus their attention on and in the ways the Board intervenes with the CEO and management. The Board’s value-add is to help guide management in navigating the rocky road ahead with a balance of optimism and caution. Below are six points of consideration for the Board and senior management members considering the Board’s role:
The Board Needs to Know Management’s Playbook
The Board needs to know and be aligned with the strategic playbook management is designing for the next twelve months, at minimum. This playbook must account for how management intends to operate through the New Abnormal to reach the New Normal. The difference today is that no management team has a “normal” level of confidence in potential outcomes as they would in a traditional environment. Management is working in an environment of extreme volatility and flexibility. The Board and management must remain hyper-aligned as it relates to the “ultimate destination” and strategy of the firm, but also agree to processes that allow management to act quickly when appropriate in the best interest of the Company. The pace of decision-making matters in each phase of a crisis, and management must understand the discretion available to make critical decisions in a timely fashion, with or without the Board’s explicit approval.
Opportunity & Challenges for the Company
On the rocky road to the New Normal, companies will go through moments of intense excitement and challenging disappointments. This is going to require the CEO and the Board to align around core aspects of the business, determine which parts of the business must be downsized or re-aligned, and analyze new opportunities to reach and serve customers, including new potential products or services. The Board must empower management to continue driving the Company forward, while also ensuring management understands the core business will not be the same. New customer habits, effects within the supply chain, and changes in competition will impact how the Company drives toward the New Normal, and the Board must be prepared to help guide management through these opportunities and obstacles. Bringing an “outside-in” perspective has always been an important role of the Board – and never so important as in times of crisis. In particular, as this crisis provides many businesses with an accelerant to digital transformation, the Board can play a valuable role in sharing with leaders how other firms are driving digitization and in pushing management to make the most of the opportunity today.
Compensation Committee Must-Dos
The compensation committees of boards have the urgent task of clarifying and re-calibrating expectations for short-term and long-term executive compensation. To do this, the compensation committee must first align with management around the fact that previous expectations, financial targets, and reach goals are no longer relevant to performance evaluations due to the widespread effects of the crisis that have drastically changed operating circumstances and rendered future outlooks irrelevant. Next, the compensation committee must make clear that they will partner with the CEO to fully evaluate the whole spectrum of executives’ performance against newly developed (and predetermined) criteria that account for performance throughout the entirety of the CV-19 crisis. Leaders’ roles have evolved into effectively managing the Company through the crisis, and performance should be evaluated against this foundational element of their current role, not previous expectations.
Effective Interface with Company Leadership
The Board must immediately apply structure to drive effective interface with management. While Board members have good intent, requesting or inundating the leadership team with too much information can create unsustainable chaos and hinder management’s ability to focus on leading the Company through the crisis. During times of crisis, management is already handling a high number of extraordinary issues above and beyond “business as usual.” This crisis—and the accompanying work-from-home dynamic—are also burdening the personal lives of every leader. The Board needs to recognize these additional draws on management’s time and emotions to make sure they don’t “pile on.” To do this, the Board should compose an executive committee that takes responsibility for interfacing with the CEO and management on crisis-related matters. The committee can include the Chairman or Lead Director along with the subcommittee chairs, and collectively they can streamline information flow through frequent but process-oriented check-ins with management, followed by sharing key information with the full Board. This also allows the Board to inspect management’s response throughout the crisis and provide feedback as necessary. Additionally, transparency is critical to successfully navigate the rocky road, as tough decisions will need to be made around the business, and full alignment between the Board and management is necessary to drive the best outcomes for the organization.
Companies must recognize that governments will play a fundamental role on the rocky road back to normalcy and must actively work to anticipate and understand the impact of government decisions before they unfold. Today is different in that the level of integration with the federal government will likely be more significant than in the past, as will collaboration with state and local governments. Many companies will need to re-think their “top-down” approach to government relations, and boards can be terrific guides to this aspect of the new normal. These decisions will impact all companies, so it is critical to work with peer companies to collectively drive greater influence when possible. Management will need to focus their undivided attention on running the Company internally, so this is a critical task that the Board can drive by leveraging their connections across industries, within the government, and at the competitor-level to drive greater collaboration and alignment across the most pressing issues.
Cash and the ability to digitize successfully will be two critical elements of operating strongly throughout the coming months. For companies that are well-situated, the rocky road will be an incredible time to gain assets at a discount through M&A activity. However, it will be critical for the Board to assess and ensure management has the bandwidth to lead through M&A activity before any transactions actually occur. On the opposite end of the spectrum, companies low on cash will have to plan week by week, understanding they are vulnerable to potential takeover activity. To prevent this, the Board must ensure the Company is taking steep measures to preserve cash as well as considering options like raising external capital through various channels.
Ultimately, the Board is positioned to help guide the Company, and during the coming months, the six points above can help the Board smoothly guide management through the New Abnormal and to the New Normal. The rocky road will be difficult, but a strong Board that acknowledges the need to interface differently than in usual times can play a critical role in helping management navigate
the crisis effectively and enable the Company to emerge stronger.
Stephen Miles (email@example.com) is a distinguished C-Suite executive coach and global
adviser to Boards, CEOs and CHROs. He is a renowned authority in leadership development, author,
and Founder / CEO of The Miles Group.
Ram Charan (firstname.lastname@example.org) is a world-renowned business advisor, author, and speaker who
has spent the past 35 years working with many top companies, CEOs, and