The impact of COVID-19 has forced rapid change to so many aspects of daily life. In this article Director James Barber-Lomax and Matt Falla look at how it has affected the boardroom environment.
How have board meetings changed since lockdown started?
M: The obvious change is moving entirely to virtual meetings, some by telephone but a substantial majority have favoured holding the meeting by videoconference. Ignoring the initial flurry of crisis-related meetings, the number of ad hoc meetings has also increased, perhaps due to people having less to do with the ‘stay home’ guidelines in force, and board meetings are (generally) considered to be a relatively ‘safe’ activity!
J: While board meetings would usually happen in person at the company offices this is not a requirement, even before COVID-19 hit the UK, many businesses were holding board meetings at an alternative location if space or privacy wasn’t possible at their place of business.
Companies with overseas directors should consider whether there are any implications (tax or otherwise) by attending a virtual board meeting from overseas – or if the majority of the attendees should be physically resident in the UK.
M: What’s been really interesting to see are the long-term cultural changes being driven by technology. Ten years ago, the average home IT capabilities could barely handle a two-way Skype call without spending at least half of it watching a ‘reconnecting’ screen or listening to distorted audio. HD videoconferencing was expensive and hindered by cross-platform compatibility issues. In the majority of cases it was simply painful and there was nothing that compared with the effectiveness of holding a face-to-face meeting.
Where necessity was once the mother of invention, technology is now creating its own necessities and bringing about changes in society. The mass-adoption of remote meetings has given rise to new behavioural norms like joining the ‘waiting room’ five minutes early, making sure there’s nothing unusual (or controversial!) in sight of your camera, making sure you’re on mute, that there’s no home distractions and that you’re dressed appropriately!
While videoconferencing isn’t a new concept – and we’ve been using this as an alternative for a while – holding meetings in person was always just preferred.
How do boards adapt corporate governance requirements for virtual meetings?
J: As always, the Chair should ensure that there is the necessary number of directors and/or officers present to be quorate as per the company’s Articles – or if any proxies have been granted for the purpose of the meeting. This is easily done over a video call when the Chair can identify the attendees, who should also probably check the identification of other attendees on phone lines.
Generally carried out by a poll or show of hands – this should continue to ensure decisions are made in accordance with the company’s Articles. Again, video and phone call voting is simple enough however if a private ballot is required, this could be done via letter or the meeting adjourned while emails are sent to the Chair.
The company may decide that a video or audio recording of the board meeting call is sufficient, however it is still standard corporate governance board minutes to be taken and circulated after the meeting to ensure an accurate record is held and to document any decisions made. This also enables easy access to extracts should they be needed. For example, if the board decides to open a new bank account, the bank may wish to see an extract of the meeting where this was agreed and a signed extract is more widely accepted and quicker to find than an edited video extract.
As everyone has experienced during lockdown, technology does sometimes fail – and in a situation where clear voting or meeting attendance is not possible, it may also be acceptable for a written resolution to be sent to all directors in the post or email. This may be required for boards who are not comfortable or unable to hold online video board meetings or directors based in multiple jurisdictions. This can be a perfectly valid form of making and documenting decisions made by the company but it is important to ensure that the written resolution is signed by the necessary number of directors.
How has the board agenda changed in terms of addressing the current crisis?
M: The immediate impact of the crisis sent shockwaves through a breadth of industries and sectors and in response the immediate focus for many boards was the subject of liquidity. Funds with strong balance sheets, high levels of liquidity, low borrowing and minimal exposure to COVID-19 industries (e.g. high street retailers, automotive manufacturers and suppliers, leisure and tourism, passenger airlines, etc.) have seen the swiftest recoveries with shares trading at roughly 2019 levels at the time of writing.
However, the market sell-off was indiscriminate and didn’t simply focus on companies with tangible links to affected industries. Attitudes switched quickly to ‘risk-off’ and what ensued was a mass exodus from equities as investors sought to protect positions amidst complete chaos and uncertainty over the real impact of the crisis.
In such a bear market, being seen to take risky investment decisions will attract far greater criticism from stakeholders than they would under normal market conditions if things don’t go to plan and so, as an investor itself, the strategy of the fund must also be seen to move with the market by acknowledging environmental change and positioning itself accordingly – restricting investment activity, cutting extraneous costs, dividend holidays, renegotiating terms for at-risk relationships, e.g. payment deferrals for borrowers or switching to payment in kind where equity is offered to lenders in exchange for waiving a loan payment obligation, all in the interest of supporting balance sheet liquidity to not only mitigate potential cash flow shortages, but also to take advantage of distressed investment opportunities over the coming 12 to 18 months.
J: In many jurisdictions there would have been considerable conversations not just about staff wellbeing and IT systems but also if the company has sufficient cashflow to support its payroll needs. The UK Government rolled out a furlough scheme to cover 80% of employees’ payroll however while this would ease the cashflow burden for the company, what could it mean for its employee retention and client base.
Other initiatives offered interim lending as crisis loans which would have required extensive re-analysis and modelling of the company’s financial forecast.
What about the interaction between board members during virtual meetings? Does it make it easier or harder to have difficult discussions?
M: Practically speaking, assuming everyone can see and hear each other clearly the hurdles are easily overcome and the interactions are generally just as fluid they would otherwise be face-to-face.
Connected with this however is the question over effectiveness. Imagine the paradigm of the ‘boardroom’ and its various symbols; the waiting room, suits and ties, smart shoes, visitor badges, the conference phone, etc. Also, the routines by which unrecognised value is often added and relationships are built such as the pre-meeting discussions, the shared interests or sense of humour, the candid interactions between individuals away from the formal items of business or over the ‘boardroom lunch’.
Also imagine the various characters you have around the table and their roles, for example; the strong Chair, the reserved Secretary, the two non-executives who have a tendency to bicker…by taking away some of the most poignant cultural norms of corporate governance and the forum of the boardroom environment, does operating this diluted version of the traditional meeting risk altering the mindsets of those participating, or potentially changing behaviours?
This could raise a number of issues – does the shrinking violet feel more confident to speak? Will the strong Chair feel less comfortable leading the Board over a remote meeting? Can the desired level of challenge and scrutiny be fully replicated over videoconference? Will there be a tendency for disagreement to lead to unconstructive argument rather than constructive debate? These things considered, do we risk compromising the level of effective deliberation and ultimately the quality of decisions reached?
It’s also worth noting that video conferencing provides only the basic level of communication. So much of how we communicate today relies on body language, posture, gestures and behaviours which add greater depth to an exchange. This de-personalisation of the meeting experience may not necessarily compromise boardroom effectiveness, but humans by nature thrive from social interaction and this, as with the advent of email communications and online chat, is just another detractor from that fundamental need.
I think it will be really interesting to observe how these factors play out as societies worldwide vary their approaches to dealing with the pandemic and how home-working and other social restrictions affect both the practical aspects of corporate governance, but also those more subtle factors which often contribute to an effective process for decision making.
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