New Board and CEO Crisis Playbook: 5 Key Actions to focus on now
The COVID-19 crisis wave now is in the U.S. phase 2 of Board of Directors pandemic planning, governance, and management. The CEO’s pandemic planning playbook continues into crisis management action for safer financial positions with the Board. The Board is in the perfect spot to assist in reshaping a pandemic crisis management playbook. Boards must step up, bring their “A-Game,” and guide and support the CEO in planning, and governance over the next 24 months. The Board’s support must be very active with the CEO teams, such as weekly and bi-monthly pandemic crisis meetings versus quarterly business as usual.
Meanwhile, the U.S.’s pandemic cases are continuing to surge at a very rapid pace and will damage the economy more. New global economic trends point down to a bumpy recession and recovery waves and unknowns. As a result, commerce will decline to a slow-growth world up to 2028. Boards must quickly adapt and change based on rapid economic and consumer data waves.
Subsequently, the business recovery faces slower and more painful growth, both in the U.S. and globally, compared with the last eight-year 2008 Great Recession recovery. There will be numerous business failures driven by corporate financial engineering debt, liquidity, and zombie structures, such as the Hertz bankruptcy case.
“This is the biggest economic shock in the U.S. and the world, really, in living memory” – Federal Reserve Chair Jerome Powell, CNBC’s CARES ACT interview.
Therefore, U.S. phase 2 will create more permanent corporate job firings, layoffs, and painful cost-cutting for corporate liquidity, and newer opportunities in crisis management survival.
There are five critical actionable Board Playbooks to apply immediate actions to support CEOs:
- Strategy, Liquidity, Cash Flow, Debt, and Pro-Active Communications Actions
- Innovation, Digital Technology, and Workforce Management in Diversification and Wellness
- Supply Chain Reimaged with Deeper Stress Testing and Agility Framework
- Acquisitions and Spin-Offs: Right Opportunities and Strategic Risk Scenarios
- Earnings Protection Plan – New Global/U.S. Taxes/Labor Expenses Models
Here are five essential recommendations for the Board’s actions in Playbook 1. Playbooks 2 – 5 will follow.
Playbook 1. Strategy, Liquidity, Cash Flow, Debt Overhaul, and Pro-Active Communications
Board members have a higher-level view of corporate financials, liquidity, and market trends—they are outside the day-to-day corporate activities and planning. The Board guides the CEO and executive teams for strategic support. Pandemic crisis management actions are the top Board efforts for the next 24 months, crafting a refreshed strategic action plan.
The Board needs to understand the enterprise strategies, their execution plans, and financials for expected outcomes in detail. There are five essential deep-dive Board actions.
- Ask the Right Questions. How will the business work through this unexpected pandemic wave and what is the expected business outcome – stronger, neutral, weaker, or a zombie debt position. What are the timelines for actions and results?
- Verify Corporate Crisis. Understand and validate these critical detailed financial impact risks over the next two-years.
- Identify Immediate Actions. Guide the CEO executive team to highlight critical risk and rank then in order of highest financial impact for the pandemic crisis.
- Solve Planning Road-Blocks. Review the CEO executive’s team highlights critical roadblocks to execute in the current market conditions. This team creates different financial scenario models for the Board’s insight and support to resolve together.
- Guide and Approve Crisis Action Plan. Approve a crisis action plan from the CEO and executives for its reshaped crisis strategy plan for innovation growth, turnaround, and survival, in many cases.
Cash Flow is king in a Pandemic Risk Crisis! During these times, healthy cashflow streams, sustainable debt levels, and 24-months of liquidity position for future unknown economic shocks and length of the recovery cycle.
“We are living in the perfect storm” – Dr. Anthony Fauci, interview by Financial Times.
For example, many corporations are not in a fail-safe liquidity position. Over 120 US firms declared bankruptcy this year, and the U.S. trend is growing each month. 20% of large US companies have unsustainable financial debt, aka “zombie corporations” in deep financial debt trouble.
The CEO needs a deep-dive briefing to the Board on all critical financial information. Significant actions with liquidity touchpoints require a full Board discussion and buy-in for approval.
3. Cash Flow.
With Board approval, the CEO can pump up cash flow quickly by considering:
- Cancel stock buybacks – poor value for money now – the financial market is not aligned with economic data in most cases;
- Refinance bond calls for a longer time and rate changes, if possible,
- Step down dividends or cancelation through this crisis, if required,
- Apply for federal pandemic grants/loans for existing and newer programs, if needed,
- Use debt covenant changes for more time and sustainable terms with large investors.
4. Debt Overhaul.
For corporations in a weak financial condition, it could be a distress debt restructuring overhaul. This overhaul is usually one of the last necessary Board actions with bond investors and stakeholders. It can keep the company afloat with new and or revised debt instruments using much higher interest rates for 24-60 months to support a risky turnaround. This action positions the corporation to make all timely debt interest payments or enter new painful debt restructuring.
5. Pro-Active Communications.
The Board with the CEO must get ahead of timely corporate-wide communications for its crisis strategy plans and actions. There need to be at least two plans. The first plan is on accurate financials with all new risks and possible outcomes disclosure plan for investors and regulators. The second plan targets its customers, suppliers, workforce, and communities for the new normal. Both communication plans need to be crystal clear, insightful, and transparent on the crisis risks and projected outcomes. This effort removes other levels of unnecessary surprises, shocks, and stress on all of its stakeholders, workforce, and related partners.
Next up is Board Playbook 2 – Innovation, Digital Technology, and Workforce Management in Diversification and Wellness.
Here is more advice and research.
- Austin, Tom. March 24, 2020. Urgent coronavirus-pandemic – interim advisory update, The Analyst Syndicate.
- Gardner, Heidi K., and Randall S. Peterson, April 24, 2020. “Executives and Boards, Avoid These Missteps in a Crisis“, Harvard Business Review.
- von Post, Rutger, and Robert C. Pozen, May 7, 2020. “Boards Can Guide Businesses Through a Crisis“, MITSloan Management Review.
- Schmitt, Achim, Katherine Xin, and Robert Langan, July 3, 2020. “Research: 3 Biases That Shaped CEOs’ Pandemic Response“, Harvard Business Review.
- Schmitt, Achim, Gilbert Probst, and Michael Tushman, April 28, 2020. “The Role of the Board Chair During a Crisis“, MITSloan Management.
- Watkins, Michael, and Michael Yaziji, May 22, 2020. “Looking for Opportunity in the Midst of Crisis“, MITSloan Management Review.
Copyright @ 2020, CEO CIO HAWALD ADVISORY LLC. DISCLAIMER: This article is entirely my opinion without financial payments. The peer review was by Tom Austin and Jeff Vining. The image is by pixabay.com. Member of The Analyst Syndicate.