Reopening to a New Normal: Considerations for Boards

Andrew R. Brownstein, Steven A. Rosenblum, and David M. Silk are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, Mr. Rosenblum, Mr. Silk, William Savitt, David B. Anders, and Andrea K. Wahlquist.

As coronavirus infections begin to decline, a number of states have started to ease restrictions on public activity and permit businesses to resume normal operations. However, COVID-19 remains a threat that will likely persist into the remainder of the year and perhaps longer. Going forward, companies not only face an altered economic landscape but also heightened scrutiny on leadership, risk management and relationships with employees, customers and other stakeholders. While the development and execution of a “reopening plan” is a management function, boards of directors should be familiar with the major elements of that plan for their companies. Set forth below are some considerations for boards in preparation for a return to a “new normal”:

  • Employee, Customer and Supplier Health and Safety. While every company will face challenges specific to its operations and industry, boards generally can expect increased focus on the safety and well-being of its personnel and, where applicable, customers and suppliers. Companies will need to consider when, how and at what pace to bring employees back into the workplace, and the extent to which employees should be encouraged to continue to work from home, where possible, even after government regulations permit their return. Before employees (and customers, suppliers and guests) start to return to work spaces and company properties, companies should review their health and safety policies and procedures, including with reference to any applicable federal, state, local or industry guidelines.
  • Regulatory Compliance. The pandemic has prompted a slew of regulatory responses from all levels of government globally. Companies and boards should ensure that compliance and oversight policies have been reviewed and, if necessary, updated to cover any new regulations and that management is prepared to deal with a potential increase in regulatory scrutiny.
  • Scenario Analysis. Boards should review and understand management’s plans for operating while the pandemic continues, including under different assumptions as to duration and severity.
  • Capital Allocation Review. Liquidity remains a key concern and boards should continue to evaluate different strategies for preserving liquidity. For companies that remain well capitalized, boards may wish to consider strategies for enhancing financial stability and to review contingency plans for addressing potential shortfalls in a worst-case scenario.
  • Medium and Long-term Strategic Planning. Although the pandemic has thrown many long-term strategic plans into disarray and much uncertainty remains, to the extent possible, boards should continue to consider medium- and long-term outcomes when making short-term decisions. Longer-term plans should be reassessed over time as the impact of the pandemic becomes more clear.
  • Stakeholder Engagement and Transparency. Investors and stakeholders are keen for insight into how companies are performing during the current crisis. Recognizing this, the U.S. Securities and Exchange Commission has called on companies to provide “as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning.” As companies reopen, unexpected issues may arise. Boards should work with management to develop a general approach to communications with shareholders and other stakeholders, oversee timely disclosures and remain prepared to respond directly and in a cohesive manner to rapidly developing events and stakeholder concerns.
  • Revisiting ESG. Certain ESG concerns, notably climate-related risks, have taken a back seat to social concerns in recent months. However, boards should continue to identify the ESG risks that affect their company and devise long-term solutions. Major investors including BlackRock and State Street have indicated that they remain concerned about sustainable long-term value creation, including how companies address climate-related risks. Diversity and human capital management issues also remain major concerns for many investors. Boards should seek to understand and, where necessary, oversee management’s steps to address any outsized impact of the crisis on stakeholders.
  • Activism and Takeover Preparedness. While some activist investors have opted to settle or postpone their campaigns until the pandemic passes, continued stock price volatility means many companies remain vulnerable to activist campaigns. Boards should remain prepared for a resurgence in activism as the threat of COVID-19 recedes. Board actions and performance during the pandemic will be among the items subject to activist scrutiny. Takeover activity is also likely to increase as companies emerge from the pandemic, particularly if valuations continue to be depressed and do not reflect the full value of the company’s future. Companies should be prepared to respond to takeover approaches, including potential unsolicited bids.
  • Updating Risk Oversight Processes. The current pandemic has underscored that risk management is a dynamic process. Lessons from the pandemic will provide a company-specific guide for improving various facets of board risk oversight, including the allocation of responsibilities within the board and its committees, coordination with management, and access to information and expertise.
  • Preserving Culture and Purpose. The pandemic has placed significant strains on many companies and may have exposed fault lines in a company’s culture and purpose. Boards should take stock of the company’s performance thus far, particularly how the company’s actions have aligned with its core values, and identify strategies to improve culture, if needed, and foster cohesion. As always, the tone is set from the top, and the example set by boards and senior leadership will drive the company’s culture.

The pandemic has presented boards with a host of unforeseen challenges. Much uncertainty remains and the full impact of this pandemic may not be known for many months. While the pandemic has not altered the board’s fundamental duties and responsibilities, it has created another layer of complexity for the directors who must fulfill them. Boards should think broadly, remain alert to emergent risks and help guide management through the unknowns.

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