01 Sep Looking ahead post-pandemic
September used to be quite a predictable month. Students went back to school, holiday memories faded and we entered into planning mode to take us smoothly through year end. But this year is different. Very little is certain just now and we have had to challenge the “normal” way of doing things. So, as many enter the planning season ahead of year end, boards must be prepared to act differently. Objectives, timing, processes, tools…some innovation is needed in the way boards plan across strategy, targets, finances, reward… and around what they do themselves. Here are some good practices to think through, as well as ones to avoid.
Good practices to consider…
Make your virtual meetings as effective, efficient and enjoyable as possible. They’re very likely to remain a feature of board life, at least to some extent even if not as much as at present. So you need to get the most from them – which means sorting out those remaining technological frustrations.
Things to avoid…
Sticking with suboptimal technology or board logistics just because we all believe that we will be meeting in person again soon. (From what we’re hearing, that’s pretty unlikely for most.) Or allowing some participants to remain invisible. Being on video makes a big difference – so if some are still struggling it’s time to sort out the problem. And the Chair might need to be a bit pushy to make sure such meeting protocols are observed.
Good practices to consider…
Challenge yourselves on the rhythm of decision-making and forward-planning that once applied, even if you have now got used to operating well in a virtual world. The old ways may not be relevant anymore. There are new issues to confront and some once-routine decisions might take a few bites. Set aside some time in the board agenda to have this discussion with management and the company secretary. There’s likely to be some good practices you want to preserve but there are always improvement points that can be surfaced.
Things to avoid…
Dusting down last year’s forward planner for the Board, changing the year in the header and sticking with it for the year ahead. Don’t miss this opportunity to rethink how your Board is set up to carry out its role. There are new possibilities for boards to improve their efficiency and that is more important than ever before. It may seem like the boring stuff but the logistics, support and forward plan for the Board’s work make a real different to how well you are going to operate. NEDs, management and company secretary are all likely to have ideas about how things might be adjusted.
Good practices to consider…
Work out what you want this year from the budgeting process. How’s it going to be used, given the extreme uncertainties? How will “performance versus budget” help board oversight? What individual and business line targets will be meaningful? What other measures of performance need to be given greater weight? There are lots of questions, and the answers will need to differ across different organisations. But everyone who’s going to start a budget process needs to have a good idea of how they’re going to deal with the present levels of uncertainty. If the answer is that there’s too much uncertainty for budgeting to be meaningful, try looking at those companies that get along perfectly well despite not bothering with a budget process at all.
Things to avoid…
Sticking with the usual approach to budgeting because it’s what you’ve always done, and anyway everyone has to have a budget. (Not true.) If any plausible budget is likely to need revising by the time you’ve got to the end of Month 1, think about instead putting your time and effort into other things such as scenario and resilience planning. And don’t put all this off until the last minute. Boards won’t take kindly to last-minute, time-pressured discussions on forward-looking indicators and the extent of financial and operational capacity that should be held in reserve. Final decisions may have to wait but some anticipation of the bigger picture (not to mention the messaging) needs to start now, not when last year’s budget cycle would have started.
Good practices to consider…
Look at the different planning techniques in your armoury. Scenario planning, wargaming, reverse stress testing – what may have seemed like “optional” risk management tools a few months ago have moved mainstream. You should agree on the relevant scenarios and triggers for action in your business context. Most organisations can’t afford to wait until a second wave of COVID hits to start planning. Consider a wargame exercise with the board using the lessons learnt from the pandemic. You may even want to borrow additional tools from regulated firms and conduct a reverse stress test. It is likely to help focus your efforts on building resilience.
Things to avoid…
Presuming that you will manage the next crisis in the same way as you handled COVID earlier this year. Every crisis is different. Your organisation is likely to be in a different financial state compared to earlier in the year and with changed resource considerations. We have all learnt that the unthinkable can, and does, happen and your stakeholders will be less forgiving if your organisation has not prepared itself well for the next crisis. And don’t forget that there are also risks which no-one’s been thinking about for a bit, but which haven’t gone away. They have merely been biding their time, waiting for the opportunity to come back and bite. Brexit is a case in point…
Good practices to consider…
Revisit audit planning. The Board and Audit Committee need to keep their thinking on audit priorities up to date in a fast-changing world. Apart from conducting the audits differently in the new world, are there new risk areas or emerging concerns that need new or additional audit attention? And be prepared to revisit the plan during the course of the year depending on how things pan out.
Things to avoid…
Viewing the annual approval of the Internal Audit Plan as the main opportunity for the Audit Committee to give input. Think of audit as a continuing process that needs regular oversight and steer to ensure that resources remain deployed where they are most needed as the risks change. And think ahead about possible risk scenarios to ensure Internal Audit is prepared and will be able to play its part as rapidly-changing circumstances might demand.
Good practices to consider…
Start planning now for the remuneration and performance discussions. Most organisations set management objectives and performance criteria last, and almost all of them had to be thrown overboard some months ago. Investors too have shifted their ground – not always helpfully to management – and the Board must make sure it really understands the relevant external perspectives. (Not forgetting the political and media pressures too.) There are some very tough calls to be made by remuneration committees, including how to exercise discretion for 2020, whether the former remuneration policy remains appropriate in present conditions, and if it does, what targets are realistic.
Things to avoid…
Seeing this as a December activity because that is when you have done it in previous years. The effort management has put in to keep things running smoothly during the crisis is probably greater than ever before, but all the pressures from investors, employees, press and politicians are likely to go the other way. Last minute remuneration surprises will not be good for motivation. Difficult conversations can be managed better with transparency, openness and early signals of possible changes.
Good practices to consider…
Keep checking on the continuing relevance of the strategy. Most boards will have already had occasion to revisit their strategy and business models as a result of the crisis. But does the prolonged uncertainty mean your thinking needs to be reviewed again? Are there emerging opportunities the Board should be discussing with management? Does somebody in the management team have adequate distance from the day-to-day to be able to scan the landscape and think differently about the organisation’s future in the new world?
Things to avoid…
Waiting until a scheduled annual strategy discussion to address strategic shifts. In such a fast-changing world, this is unwise. When management is in fire-fighting mode it won’t have capacity (or inclination) for extensive strategy reviews of the traditional sort, but as the immediate pressures stabilise the Board is well placed to bring a different perspective and diverse experience to help keep the strategic thinking fresh.
Good practices to consider…
Bring Environment, Society and Governance (ESG) back towards the top of your agenda. Whatever kind of organisation you are, your Board needs to understand what ESG now means for you. The “environment” may not seem so relevant if you are a niche services company. Likewise, you may feel you have the “society” aspect covered if your goal is not for profit. But thinking around ESG has evolved considerably over the months since the crisis. The focus on these areas is not going away.
Things to avoid…
Being fooled into thinking that ESG is a niche interest that will go out of fashion. The tide has turned and, like it or not, ESG now has to be a priority for boards. Not just because it has media attention and hype – and therefore considerable reputational risk if you get it wrong – but because these are the right things for companies and boards to be thinking about. You need to be able to articulate your ESG story as part of your organisation’s strategy in a way that resonates with all your stakeholders: staff, customers, investors, donors, regulators, governments (both national and local)… And now more than ever.
Good practices to consider…
Revisit board composition and director performance in the light of what’s changed. The last few months might have shown up some gaps in the Board’s expertise. Or perhaps some directors have disappointed in their ability to contribute as much as the Board needs. Board Chairs should have those performance discussions with directors. Directors may need more input on what is expected of them individually and as part of the collective Board.
Things to avoid…
Failing to reflect on what the changes that have hit mean for the composition of the Board. That’s partly about how each individual has responded. But if the strategy has to be different or the organisation has been hit in a particular way, are some different skills needed? Is capital-raising now more of an issue? Cost management? ESG – especially around community involvement? Online retailing and delivery? It depends on what’s changed but, for many, some adjustments might be needed.
Good practices to consider…
Reconsider physical presence at work given the now evident opportunities. Many companies are talking about hybrid models. Nobody knows what the future of work will be but boards should be having the discussions with management on how they plan to keep staff healthy, motivated and working effectively. Workers want to have a voice on this issue and want to be able to plan other aspects of their lives around it. The issue can be emotional and difficult but it’s not to be avoided.
Things to avoid…
Waiting for guidance from others on how and when to plan for a return to work. You need your workers to know that their organisation is well led at the top. Few organisations have reached firm conclusions on what’s to happen next, but that’s a bad reason to not show your people that you are on the case. Can you trust them to understand what the options are, the pros and cons and the fact that nothing can yet be certain? You’re probably trusting them with even tougher things.
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