COVID-19 AND CORPORATE GOVERNANCE KEY CONSIDERATIONS FOR THE BOARD OF DIRECTORS

COVID-19 and Corporate Governance: Key considerations for the Board of Directors

The global COVID-19 pandemic has hit entire country and as of this writing, the number of cases is rising

every day in India. Everyone is now well acquainted with the economic downturn and how COVID 19 has

impacted our lives. While India and others have been working around the clock to flatten the curve,

corporates and business are facing different challenges during this crisis—some are reaching new levels of

growth with new opportunity, while others are struggling to survive.

As the executive management of the companies are busy in the day-to-day handling of this crisis,

what are the board’s responsibilities during this crisis? It’s a question that directors should understand

clearly and quickly — because after the pandemic ends, while examining the significant financial losses,

stakeholders and Investors will start asking the inevitable question: “Where was the board?”

Oversight of risk management, business continuity and good governance of the company in the short,

medium and long term is a key role of every board. The current COVID-19 pandemic has many directors

wondering about how best to discharge their fiduciary duty as defined under Companies Act 2013 — (i) to

act honestly and in good faith with a view to the best interest of the company(ies) and stakeholders and

(ii) their duty of care, diligence and skill that they would exercise in the comparable circumstances. While

there is no one-size-fits-all answer for what a board should do, the board should be thinking strategically

about gradual business resumption and ensure that the decisions taken by management are in line with

the culture and core values of the organization and to provide practical input and giving critical,

independent and constructive insight to the situation.

In this article on corporate governance during a crisis, we have highlighted below steps which we believe

that the board should consider and adopt in the current context, without losing sight of the post-COVID-19

outlook would include:

1. Effective reporting system and Committee: The Board should insist on a reporting and information

system from the management where they can receive relevant communication in a timely

manner to monitor COVID-19 issues and their potential risks to and effects on the company so

that it stays informed of material business risks and red flags resulting from the COVID-19

pandemic. The company can form COVID-19 committee or similar task force that reports to the

board of directors on a regular basis to discuss all COVID-19-related issues that are affecting, or

could affect, the company and it should include members of management, legal, finance,

compliance, operations, HR, and IT. Such reporting system (unless implemented earlier) should

be considered permanently for effective communication between Board and its management.

2. Communication with the Company’s management:

 The Board should consider open dialogue with the company management and its

committees on both, the business risks and the workplace health and safety issues posed

by COVID-19. Collectively they should review legal and regulatory developments regarding

COVID-19 at both the State and Centre levels, understand the impact on the company’s

operations including risks arising from COVID-19 across various geographies wherein

company has its business and human resources, review the company’s risk-mitigation

policies and protocols specifically accounting for the impact on various stakeholders,

including future health and safety measures of its Board and employees, the impact of

social distancing and travel bans on operations, available technology and financial reporting

and compensation implications for the executives and workforce and modify its policies as

necessary to conform to developing regulatory circumstances (especially if a particular

regulatory reform(s) relates to activities that are core to the company’s operations) and

meet frequently to discuss the foregoing.

 Further, to demonstrate the board's compliance with fiduciary duties in the wake of a crisis,

it is important and imperative records are taken that show a thorough assessment and

decision-making process conducted within the board and the management. Therefore,

board meetings, involving management, should be held via videoconference to the extent

possible with minutes duly taken. Board should ensure that important discussions and

decisions are well documented including by maintaining minutes of all board and

committee’s meetings to record their activities and evidence for an informed, deliberative

decision-making process.

3. Seek additional advice when needed;

 The Board and management together should communicate frequently with the applicable

regulators and other government agencies with oversight for seeking guidance on various

aspects of the regulatory disclosures, relaxations, governance norms issued by them from

time to time in lieu of dealing with the crisis to retain good corporate governance reporting

practice as required under applicable laws and regulations.

 Due to the speed of developments regarding unique COVID-19 issues and the limitation of

internal resources, a board should consider if the company needs additional assistance

and retain relevant outside advisors where necessary.

4. Disclosures requirements:

 The Board and Management should devise effective communication plan and reputation-

management strategy for engaging with multiple stakeholders like human resources,

external stakeholders like creditors, financial institutions, shareholders and Investors and

making timely disclosures with respect to the crisis as required under law or otherwise and

importantly, directors should help to manage shareholders and investor expectations in

light of financial decisions, such as financial losses, changes in the business plans, dividend

cuts, business continuity plans, material changes to business etc. that may draw negative

reactions.

 Consider holding Annual General meeting through video conference in consideration of all

relevant exemptions provided by the Regulator in current situation and devising a plan for

its effective implantation;

5. Business continuity plan and Risk mitigation efforts: The Board will need to review changing risks

that threaten the smooth running of operations, oversee the organization’s plans for long-term

survival and hence would also need to consider evaluating existing and potential disruptions to

the operations, supply chain interruption and business relationships basis the nature of the

business operations, revival of operations to fuller working capacity post ease of lockdowns,

market position during and post pandemic and evaluate risk mitigation measures undertaken by

the company to remain operational to the extent possible.

6. Commercial contracts: The Board should consider reviewing of existing critical commercial

contracts with the key customers, suppliers, financing sources and service providers and effect of

COVID in terms of enforcement from-both perspectives, i.e. from company and the counterparty

due to any potential legal issues relating to force majeure, triggers for defaults, breach of contract,

indemnity or other performance-related provisions, termination rights and related contract terms.

7. Finance, Liquidity, Debt and Insurance:

 The Board should consider review of financial contingency plans due to halted operations

and impact on liquidity including payment of dividends and interest payments,

compensation payments, emergency funds required, buy back requirements, stock price

decline, quarter business losses due to no continued revenue or meagre business etc.

 Negotiating with creditors and lenders on the restructuring of loans and debts, or

obtaining additional funds and consideration of the lender’s or creditor’s legal rights and

potential remedies.

 Check the adequacy of the company’s insurance coverage due to Force majeure and

whether proper steps are being taken to preserve any potential claims or litigation in

consultation with financial and legal advisors.

 Consideration of the company’s ability to access any government funds, schemes or

other programs initiated in the wake of the COVID-19 that have been made available to

support the economy.

 Ensure that decisions are focused on maximizing value for all stakeholders.

8. Work Force – Health, Sanity, Pay and Cyber Security:

 The Board should analyse relations with the workforce and seek update on health and

safety of the employees including any cases of infected resources, company’s response

to absenteeism rate, its impact on operations and mitigation measures undertaken by

Company, any retrenchment of employees due to halted operations etc and to ensure

that all labour laws and relevant compliances have been well adhered to avoid issues at

later stage.

 Board ensure that its company has been effectively communicating with all its

employees on all important announcements including regulatory pandemic alters and

strategic decisions undertake by the company during crisis and is implementing

necessary policies and procedures to assure the health of its workforce as much as

possible. This may include work-from-home policies, temperature checks, sick leave

policies for ill employees (or their family members) and contractors , extension of

medical and financial assistance to infected or laid-off human resources respectively

and other measures as may deem fit basis the nature of business operations.

 Board should check with its management to understand optimum and realistic utilisation

of employee work bandwidth in this crisis and managing cybersecurity and data privacy

issues (including company trade secrets), especially due to employees working remotely.

9. Progressive and defensive corporate Strategies: The Board should consider evaluating and

reassessing opportunities and corporate strategies for transactions with new alliances that are

made available due to the changed circumstances and consider opportunistic takeover

preparedness due to fall in stock/share price, if any considering the global financial turmoil as an

unwelcome by-product of the COVID-19 crisis.

10. The post-crisis reviews: The Board will need to work with the management to explore newer

opportunities for recovery and review along with its members (a) how the company navigated the

crisis and (b) the governance behaviours it adopted to identify best practices for ensuring the

continuity and survival of business in such unprecedented times through preventive action and

preparation.

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DISCLAIMER

The contents of this article should not be construed as legal opinion. View detailed disclaimer.

This article provides general information existing at the time of preparation. The article is intended as a news

update and Swift India Corporate Services LLP neither assumes nor accepts any responsibility for any loss

arising to any person acting or refraining from acting as a result of any material contained in this article. It is

recommended that professional advice be taken based on the specic facts and circumstances. This article

does not substitute the need to refer to the original pronouncements.

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