Board reactions to a crisis

by Reyhan Gulec

We have been going through rapidly unfolding events since the beginning of 2020. Now coronavirus has hit the world off guard for a while and it has its immediate domino effects. Most companies are stumbling with managing their ability to cope with the adverse impacts of the virus on their businesses. The boards still have their statutory and fiduciary duties in reacting to effects of coronavirus on their companies. 


Companies are adjusting their forecasts (future outlook and expectations), closing facilities, facing supply chain disruptions, employee concerns and liquidity problems. Different recovery speeds may be applicable for different sectors. Hence, boards are forced to act by circumstances in order to keep the financial well-being of companies, the reputation as well as to keep up with their strategic goals. Both financial and non-financial companies are under similar situation of the versions of themselves. 

Many executives are ready for short-term crises but not for their long-term impacts. It is important to prioritize what is urgent and what is important during a crisis like this. Below are some fundamental issues that the boards and managements shall consider as a part of their duties in management of this crisis:

Assessing the compliance with the statutory duty and fiduciary duty of boards

Reacting to the crisis in a timely manner requires a cause and effect analysis while decisions shall be made swiftly. Despite the fact that actions taken during crisis time may not be as successful as the ones taken under ordinary conditions, the responsibility of the boards to ensure the interests of the company continues. However, the criteria here is that the directors are honestly taking actions with a view to secure the survival of the company with a short and long term trajectory.

In terms of fiduciary duty, the duty to exercise reasonable care and diligence includes the long-term impact of decision-making as well as protection of interest of employees and stakeholders to the highest extent possible.

Revision of Risk Management Plan

The first thing that shall have been done was to have taken serious a potential crisis event. Hence, it is important to assess from time to time whether your board is high functioning before a crisis occurs in order to ensure pro-activity. Thus, boards shall already have in place or create swiftly a crisis management team and shall consult with their crisis team. 

One big scale crisis like this may lead to cascading crises if precautions are not taken in time. For this reason, a strategy for every other potential cascading crisis shall be worked through.

According to the report of Dun & Bradstreet(1) ; ”at least 51,000 (163 Fortune 1000) companies around the world have one or more direct or tier 1 suppliers in the impacted region, and at least 5 million companies (938 Fortune 1000) around the world have one or more tier 2 suppliers in the impacted region” of China. This means that most of the companies will be impacted in a minor or significant way directly or indirectly. Thus, it would also be useful to identify emerging issues and risks that could impact the productivity of operations, service provision or production line in time with a continuous monitoring. This would be described as a new part of board executive sessions. 

Business continuity plan

The business continuity plan is the key in a crisis, which continues for a long time and is especially ambiguous how long more it would take. It is essential to ensure that the basic operations are running smoothly and practical solutions are worked through taking in consideration also the regulatory compliance matters. Companies are going through, closures and cancellations and operation and revenue streams will be affected from actual and further potential disruptions.

A crisis task force may be created to conduct daily monitoring to review operations, procedures, gaps and solutions to those in a swiftly responding manner. For this aim, it is of importance to have internal and external communication in place for real time acknowledgement for ensuring efficient business continuity to the extent possible with reducing human contact. As a result of this daily monitoring a guide may be issued also for the whole chain.

A creative example of business continuity with a mix of use of new trends and technology emerged in China during this crisis. A cosmetic company, which had to close all 40% stores redeployed more than 100 of its beauty advisors in their stores as online influencers and used digital tools to engage customers via wechat and drive online sales. As a result sales in Wuhan increased 200% compared to last year(2) .


No doubt that IT infrastructure and security is the most critical matter for a remote workforce. The key personnel in IT departments also become the critical ones at this point given that employees need real time support in their IT problems.

Attention shall be paid to compliance with the GDPR, privacy and personal data when providing security and remote work access. Competence with technology is a key indicator for survival of a company during this crisis depending on the sector.

Liquidity Check

The exposed sectors are under high cash flow pressure. The butterfly effect may put the companies in insolvency risk and the boards shall take measures at the outset of the ringing alarm in order to prevent any breach. However, for the ones that insolvency is still in question the board members’ duty expands to observe the interest of the creditors as well. Robust financial information for monitoring and regular board meetings are required. 

Most financial institutions are trying to stretch deadlines for payments and help companies. Hence, communication with lenders pro-actively is an option to share the anticipations and discussion with lawyers of any further effects of covenants undertaken by the company in any lending arrangement would be useful. Furthermore, additional equity finance alternatives may be considered to bridge the cash flow constraints. In this case, professional financial and legal advice is important for assessment of the financial status and options for taking measures in advance or finding solutions.

Continues Communication with Stakeholders

Companies having strong partner and stakeholder orientations will get out of the crisis even stronger because they will gain local knowledge, share experiences, hearing expectations and hence, plan together. Continues communication covers the analysis of the status of the company against the crisis, informing staff, suppliers, clients, customers and other stakeholders.

This is a wake up call for many industries and the witty minds will take it as an opportunity not to do double work in the sense that such scale crisis may generate some new normals that companies need to adjust. Because this crisis will change individual, thus, collective behaviour in many ways, which will require adjustments in policies, plans and company behaviour.


Many of the businesses have insurance policies covering fire, earthquake, floods, terrorism etc. However, almost no one imagined a pandemic would cause such big scale economic and financial impact to include it in the nature and content of coverage of an insurance policy. Companies shall assess the ripple effect of the coronavirus and tick the boxes of the checklist whether the indirect effects are also covered or needs to be covered to this end.

In addition, litigation implications of existing contracts, notice requirements, anticipatory breaches shall be assessed to take positions or find solutions.

A swift reaction from insurance sector came from an insurance company who added coronavirus-related coverage to its products free of charge with consideration of customer loyalty. As a result, online promotion of policy sales soared 30 % in health insurance sales (3) . 

Supply chain management

Disruption in one industry ripples to the others, hence, the supply chain matter may also have a domino effect. From A to Z, employees, vendors, subcontractors, tax and audit service providers and logistics shall be assessed with a view to have a SWOT analysis.

Moreover, supplier and service contracts shall be reviewed to see whether a pandemic is included as a force major situation in case of a disruption in performance of the obligations and/or whether the general wording of the force major clause could be interpreted as covering a pandemic situation. Also all contracts in this line shall be analysed for legal consequences of disruption and insurance policies shall be cross-checked to this end as well. A higher reserve may be considered to allocate for this item in the balance sheet and forecasts may be adjusted, if necessary.

It is difficult to ensure every facet of operations works perfectly because the crisis is for everyone and not every member of supply chain perform as well as your company does. The boards may ask for the business continuity plans of the companies’ critical suppliers and may also consider alternative suppliers and/or dual-sourcing for critical components within the supply chain. 

The boards shall also keep in mind also to keep up with the International Organization for Standardization’s guideline no. 22301 in order to ensure that operations continue and that products and services are delivered at predefined levels and for responding to and recover from disruptions.

Reporting and disclosure obligations

Companies are under reporting and disclosure obligations depending the regulations they are subject to. For example, annual report deadline is approaching and this requires including the exposure level to coronavirus’s risk the company is subject to as well as the prospects for the short and long term trajectory.

Apart from periodic reporting obligations, certain disclosures may arise through the impact of the coronavirus on the businesses. For example, if you are publicly held company the boards may consider compliance with market abuse regulation in relation to inside sensitive price information. Moreover, if the company is an issuer, decline in financial well-being of the company and debt repayment issues may also be considered as a disclosure for informing investors. It should be considered whether any adjustments are required due to impairment to the balance sheets and forecasts.

Employment contracts

It is of the essence to make sure all employees and facilities are safe in first place. Apart from this, crises shall cause concerns for employees and such concerns shall be responded in a transparent and accountable manner. The isolation, stress and mental sadness need special attention to be actively worked on and employees may need encouragement to keep the spirits up by motivation. 

Guidance to reduce health risks in the office shall be created firstly. Besides, due to remote work requirement employment contacts shall be reviewed to ensure compliance with right and obligations of both the employer and employees are observed. Furthermore, sick leave, family leave and annual leave matters and illness policy shall be monitored in line with the rapidly changing legal environment in crisis.

Some solutions for both short term and long term success would be cross-training of employees and developing workflow protocols. This also may require empowerment of people on lower levels to make swift decisions.

Adjustment of policies shall be assessed given that the importance of face to face meetings will be less and less and companies may opt for more cost efficient virtual meetings as travel restriction is a natural result of the crisis. This is giving the opportunity of a good test period to monitor the efficiency and productivity levels. 

Provision of transparency and consistent information and making them feel they are a part of this process would develop the sense of belonging to the company more. This may be an opportunity to create trust based culture also with the engagement of the employees. The best leaders will use this as an opportunity to improve their workplace culture.

In the light of the foregoing, it would be advisable to have a detailed governance review through all facets and a vulnerability assessment of the company on all operation levels through a SWOT analysis. This way boards may help their companies to come out of this crisis stronger than before.


By Reyhan Gulec,  Member of ILA Board Composition Committee and Sustainability Strategy for Boards Committee - Investment Funds Lawyer