What Does It Take For A Business To Survive An Existential Threat?





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Dec 15, 2020
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What Does It Take For A Business To Survive An Existential Threat?

Read the first of four summaries from the 2020 annual meeting of the Salzburg Global Corporate Governance Forum - Putting Directors to the Test: How Does Leadership Measure Up in a Time of Crisis? The Salzburg Global Corporate Governance Forum was held online for the first time in October 2020

The 2020 annual meeting of the Salzburg Global Corporate Governance Forum took place virtually this year due to the pandemic. At "Putting Directors to the Test: How Does Leadership Measure Up in a Time of Crisis?" from 9-10 October 2020, 58 participants spread across 18 time zones, mainly directors and principals of corporations on four continents supplemented by additional stakeholder voices, explored crisis response and leadership, addressing what it takes for a business to survive an existential threat, and how companies should tackle both the distinct issues and converging risks around income inequality, COVID-19, climate change, and broader issues of systemic inequality.  

This online program – sponsored by BNY Mellon, CLP Group, the Diligent Institute, and Elliott Management Corporation, with university partner Simon Fraser University Beedie School of Business, Centre for Corporate Governance and Sustainability – consisted of four highly-interactive modules that facilitated participants engaging in candid, in-depth, and practical discussions in a conversational non-webinar format over two days. The first discussion asked, "What does it take for a business to survive an existential threat?"

Salzburg Global Seminar would like to thank the Forum's Advisory Committee members for their programmatic advice, insight, and support in leading these conversations. Members include Melissa Obegi (Chair), Stephanie Bertels, Walt Burkley, John J. Cannon III, Bharat N. Doshi, Christopher F. Lee, Simon M. Lorne, and Robert H. Mundheim.

What Does It Take For A Business To Survive An Existential Threat?

The outbreak of a major global pandemic has brought the need for corporate resilience and nimbleness into sharp focus. The crisis has also elevated societal attention to several systemic risks - the unequal distribution of economic benefits, power, and access, and the worsening climate crisis.

Existential business threats bring companies challenging disruptions in addition to the potential for advantageous transformation. Preparedness allows a corporate board to address threats and develop opportunities, whether the business functions in travel and hospitality, education, or virtually any other sector.

During the discussion, Fellows drew lessons from two real-time case studies of businesses that had faced such existential threats from the COVID-19 pandemic.

Case #1:

In response to the ongoing COVID-19 pandemic, one Chinese-based service-industry business with hundreds of brick-and-mortar locations had to shut down immediately. However, preparations made before the pandemic enabled the business to pivot and transform. Because of investment in online content platforms and a remote service system, the business could transition to online engagement while training existing staff and serving clients. The technological transition rolled out in about six weeks. To be sure, it helped that the business model had already been amenable to online adaption.  

Despite serious financial impact due to outstanding debt and slowing cash in-flows, corporate board oversight advanced a clear strategy and direction. For example, board members assumed operational roles for specific initiatives. Indeed, the board noted a talent gap and recruited a special technology consultant with digital marketing expertise. In recognizing the limitations of online compared to offline, the board is attuned to technological developments that will shape the business model over time.

Case #2:

A US firm operating globally found that existential threats to its clients exacerbated the problems of a business with substantial debt. In response to COVID-19, the board nearly tripled the number of meetings to deal with moving goalposts. In responding so energetically, the board reduced costs dramatically—while constantly asking good questions – focusing on the long-term perspective. For example, it isolated a pressing need for recalibrating compensation packages for essential talent and managing layoffs. Recognizing the importance of highly-skilled engineers, the board empowered the compensation committee to offer them attractive compensation arrangements. Moreover, the firm decided to sell off its core business segment to focus on another more profitable business segment. During the sale process, the board played an active role in reviewing management's negotiating positions and strategy, but management had the laboring oar.

Business resilience in light of existential threats raises issues about corporate board leadership and management. These issues include the corporate board’s make-up, corporate board structure, and balancing corporate board leadership with management leadership. To prepare for when—not if—existential threats emerge should entail a review of questions likely to encourage boards to do the right thing at the right time and for the right reasons. These cases highlighted a few broad categories: planning processes, talent retention, and leadership assessment.  

Key Questions for Boards

Planning Processes

  1. What are the guiding principles essential to align decision-making and board cohesion?
  2. What layers of bureaucracy or administrative hurdles should be removed?
  3. How can we streamline communication to produce nimble decision-making?
  4. What are the flaws in our industry as a whole?
  5. What do our relevant customers need?
  6. Who are our future consumers, and what are their prospective market interests?
  7. Are we aware of and responsive to the changing regulatory landscape?
  8. Are we operating on any static set of assumptions?
  9. What are the technological solutions going forward?
  10. What business aspects need to be transitioned to digital formats?
  11. What long-term trends in technology need to be addressed?
  12. What are the hazards of accepting government funding?

Talent Retention

  1. Is there a talent gap?
  2. Does the board address diversity gaps during a crisis?
  3. Who are our indispensable employees, and how do we retain them?
  4. Which employees have the greatest incentive to depart to competitors?
  5. What adjustments can be made to employee compensation to minimize layoffs?
  6. How are new board members recruited?
  7. Does the board need a member with substantial experience as a government regulator?

Leadership Assessment

  1. Are we interfering with management's ability to lead?
  2. How supportive are we of management activities and decisions?
  3. How much communication do we need with management?
  4. When should a board member be transitioned to a senior executive position?
  5. Should senior corporate executives be board members?
  6. How can transparency improve between the board and management?
  7. Should (flexible) director term limits be implemented?
  8. What is the proper distribution between board members who are generalists and board members who are specialists?
  9. Does any board member wield outsized influence on board decision-making?
  10. Does the board need to schedule more meetings?
  11. Which board committee should be focused on employment and human capital management?
  12. Is there adequate board representation of future consumers?

Have an opinion? 

We encourage readers to share your comments by joining in the discussion on LinkedIn

The Salzburg Questions for Corporate Governance is an online discussion series introduced and led by Fellows of the Salzburg Global Corporate Governance Forum. The articles and comments represent opinions of the authors and commenters, and do not necessarily represent the views of their corporations or institutions, nor of Salzburg Global Seminar. Readers are welcome to address any questions about this series to Forum Director, Charles E. Ehrlich: cehrlich@salzburgglobal.org To receive a notification of when the next article is published, follow Salzburg Global Seminar on LinkedIn or sign up for email notifications here: www.salzburgglobal.org/go/corpgov/newsletter

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