As corporate leaders return from the long Thanksgiving weekend, they’ll be immediately confronted with multiple questions on their organization’s potential response to the emerging “Omicron” variant. How they collaborate in the development of such a response will have far reaching implications for the organization and its stakeholders. And given the results of a recent survey of CEOs, the effectiveness of that collaboration may be in question.
At this early stage, little is known about the Omicron variant other than its nation of origin, that it is a development “of concern” to the WHO, and that it is prompting travel restrictions across the globe. There is still much uncertainty surrounding questions of its contagiousness or lethality, or its interaction with existing Covid-19 vaccines. It has, however, had a negative impact on the financial markets, prompted some states to adopt emergency measures, and triggered a resurgence of pandemic “fatigue” and worry worldwide.
And to most boards, Omicron is more than just an extension of Delta; it’s not “same old, same old”; it’s not “we’ve got it down”. It’s different. And its different because of its uncertainties; it’s different because of its mysteries, and it’s different because of the accumulating pandemic weight on seemingly everything and everyone.
So there’s too much at stake for corporate leadership to ignore this new development or to delay a response until greater clarity becomes available. Plans need to be developed to address concerns with their internal and external constituents. Indeed, as The Wall Street Journal has reported, many companies are already taking steps to evaluate the threat, consult with health advisers and introduce interim safety measures.
But for responsive measures to be truly effective, management and its board of directors need to be on the same page; to be joined in an active and supportive partnership that is respectful of their respective duties, obligations and fiduciary responsibilities. And that may be particularly challenging, given two competing factors recently arising on the corporate governance scene.
One such development is an important new survey on how corporate CEOs view the effectiveness of their boards of directors. Conducted by the consulting firm PwC and the business membership and research group The Conference Board, the survey reflects the input of over 550 public company CEOs. The survey results suggest a certain lack of CEO confidence in corporate governance that is unsettling in this period of renewed pandemic crisis.
In particular, the survey indicates that the responding CEOs had a generally unimpressive view of their board’s performance. Only 29% of respondents awarded their directors a grade of “good” or “excellent”, while 55% viewed their boards as performing at only a “fair” job overall. Of more concern was the percentage of CEOs who suggested that their boards lacked the necessary preparedness, level of engagement and expertise necessary to help guide companies through crisis and challenge.
Another such development is the series of Delaware decisions that have worked to limit the traditional protection afforded governing boards from liability under the Caremark obligation to maintain an effective management-to-board risk reporting system. The most recent of these decisions have underscored the priority that the Delaware courts place on a formal, detailed mechanism for providing directors with information on “mission critical” risks, such as regulation, and product/consumer/worker safety.
These cases, and their expectations for management-to-board reporting, suggest that boards will be motivated to exercise more in-depth oversight of management’s response to mission-critical risks than they would have been in the past. This is principally because the topics now considered to fall within the scope of governance oversight have expanded to cover a broad range of matters that an interested third party considers material to the company.
Leading governance principles make clear that the board is expected to be sufficiently engaged with corporate affairs so as to serve as a useful resource to the senior leadership team. The board is also expected to be capable of addressing crisis situations (e.g. the pandemic and its waves) and to work closely with management in the development of solutions.
In developing a response to the Omicron variant, there is much for the board and management to discuss: information flow; return to work plans; workforce safety measures; adjustments to business resiliency plans; responses to government guidance and mandates; employee retention; supply chain concerns; changes to strategic plans, and more.
A working partnership between the board and the senior leadership team is critical to resolution of these issues. Yet that partnership may be difficult to maintain if, on the one hand, the executive leadership does not respect the contributions of the board, or, on the other hand, the board regularly immerses itself in duties more typically the responsibility of management. Those are potential conflicts that must be resolved if corporate leadership is to effectively respond to the Omicron variant and other future risks and threats.
One way to reduce these conflicts is to address them head-on in the context of the company’s Omicron response. At the incipiency of the Omicron planning process, involve the board and senior leadership in a dialogue on the critical issues of fiduciary responsibility in crisis situations, and executive expectations of director engagement. There’s no time for some form of formal facilitation; the virus won’t wait. Working together, the chair and the CEO can push the parties to a common understanding that could allow for a unified Omicron response.
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November 30, 2021 at 07:00PM
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Omicron’s Impact On The Board/Management Dynamic - Forbes
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