The SEC’s Corp Fin Staff is looking for disclosure that enables investors to understand how management and boards are analyzing current and expected impacts of COVID-19 on company operations and financial condition, including liquidity and capital resources. For this reason, in planning your company’s upcoming board and committee meetings, you may want to:
1) Incorporate COVID elements into briefing materials for standing agenda topics and/or
2) Add additional agenda topics in order to appropriately address unprecedented circumstances created by COVID.
Here are a few thoughts about how boards can do that effectively and how Foresight® can provide board agility in times of crisis:
COVID’s Impact on Company Finances: SEC guidance suggests that, as basis for disclosure, your board would address:
- Short- and long-term funding and liquidity risks
- Burn rate and ability to withstand sharp declines in sales or supply chain disruptions.
Perhaps your Finance team could prepare updated liquidity analyses taking into account such variables as COVID “high water” unemployment levels where your company does business and your company’s personnel actions (pay cuts or increases, furloughs, layoffs, and recall actions and plans). That can support board discussion of:
- Use of lines of credit and government support programs, access to capital markets
- Scenario planning for expected, faster, and slower recovery
- Cost savings (or increases) from COVID-related changes to your business
- Material changes to your company’s cost of capital.
Several Foresight® Agenda Topics lend themselves to board discussion of COVID-related financial information:
- Report of the Chief Financial Officer: The CFO could report on COVID-related impacts on the balance sheet, cash flow, financings, progress on strategic transactions, investor response to recent company announcements, etc. The CFO might also review COVID’s Supply Chain impacts, e.g., weaknesses, uncertainties, and workarounds.
- Report on financial reporting issues. Your audit committee will likely expect to hear how you are applying Staff guidance to company filings.
- Approve capital strategy and annual capital plan. Your board will likely look more closely at dividend policy, debt structure, working capital, capital needs/uses for the year (including accelerating or postponing specific capital projects).
- Approve debt. Your board may need to authorize the issuance of specific debt instruments or delegate authority to issue debt.
- Report on major financial risks: It is timely to review COVID’s impact on major financial risks, disclosure, and controls created to mitigate those risks.
COVID’s Impact on Sales: To the extent relevant, briefing materials and board discussion could cover:
- Lost, improved, or significant shifts in Sales and anticipated recovery
- New/modified customer payment terms – including financing that the company provides
- Revenue cycle days and accounts payable days
These Foresight® Agenda Topics lend themselves to discussion of COVID-related Sales information:
- Report of the CEO – Business Update: This is an opportune time to share significant COVID-related developments, including any regarding Sales.
- Report of the Chief Financial Officer: The CFO’s Report complement’s the CEO’s Report with updates on operating results, including Sales.
- Report on Operating Segments: It is useful for each operating segment to annually discuss the segment with the full board – this year’s reports would include COVID’s impact on Sales.
COVID’s Impact on Risk: Board discussion could address:
- Update of your Enterprise Risk Management (“ERM”) program to identify new COVID-related risks or uncertainties including material operational risks and uncertainties
- Cybersecurity Risk associated with increased numbers of employees “Working from Home” (WFH)
- Reputational risk from company COVID-related actions/inaction and, although not mentioned in SEC guidance, risk from company actions/inaction in response to recent protests
- Review enterprise risk management program: Annually, the board reviews the annual ERM risk assessment. COVID’s impact on your business may warrant an update to your ERM and report to your board.
- Review strategically significant environmental, social and governance (ESG) risks: Your company and investors may use environmental, social and governance (ESG) criteria assess risks from your products and business operations and practices. As it relates to COVID:
- Social: Company relationships with its employees, suppliers, customers, and the communities in which it operates, and the company’s health and safety policies
- Governance: Risk-based incentives.
COVID’s Impact on Information Technology: Board discussion can cover:
- WFH: Does your company need to invest in new equipment to address your company’s technical capabilities? How has WFH impacted productivity?
- Results of/lessons learned from new COVID-prompted tech initiatives
These Foresight® Agenda Topics lend themselves to discussion of COVID-related Risk information:
- Review company’s information technology capabilities: This year’s review could include assessment of capabilities versus post-COVID-needs.
- Review role of technology in the company’s business and industry: It is useful to review the role of technology in post-COVID strategy, including key aspects of tech-reliant processes and products.
COVID’s Impact on Human Capital Management (HCM): Board discussion can cover:
- Employee health and wellness, including retrofitting facilities (especially manufacturing facilities), procedures to ensure health and safety, and sick leave policies
- Plans for facilities use – short- and long-term – including WFH
- Return to work planning: accommodation and limits, and security measures addressing protests/looting
These Foresight® Agenda Topics lend themselves to discussion of COVID-related HCM.
- Review HCM programs including succession planning (below C-suite) During the HCM committee’s review of human capital management programs (e.g., recruitment, retention, evaluation, compensation, succession planning), it is good to consider the programs’ alignment with company values, culture, strategic direction, and compensation philosophy.
- Review diversity and inclusion: The HCM committee receives reports on the status of the workforce regarding diversity (gender and ethnicity), equity and inclusion efforts – and that reporting should include consideration of recent protests.
COVID’s “Silver Linings”: Some companies are finding business opportunities in COVID. (E.g., Remote meeting services have never had greater demand, but even they must significantly invest more in security provisions.) Board consideration of new opportunities is warranted.
- New innovations in processes or product/service
- New customer needs or perceptions
- Distribution improvements: e.g., moving to the cloud, increased on-line activity,
- Regulatory changes (albeit some only temporary) and regulatory advice to specific industries (e.g., COVID-related relaxation in pharma, banking, insurance)
COVID has changed how many many things are done – including how boards carry out their responsibilities. Foresight® provides boards agility in times of crisis, including tools for effective agenda planning and support for high-quality board discussions, decisions and disclosure.
To learn more about Foresight®, click here: https://www.corpgovpartners.com/
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