The role of the board of directors in to the context of COVID-19:

Since the start of the unprecedented public health and economic crisis caused by COVID-19, directors may have felt tempted to intervene in the day-to-day management of the company or to step into a management role, especially if they are also shareholders. However, it is up to the crisis management committee—often made up of executive officers—to assume responsibility for managing the crisis on a day-to-day basis. Directors do, however, have a role to play: their duty is to ensure the good governance of the company in the short, medium and long term.

Financial pressure during the crisis: an opportunity to test the strength of internal procedures, structures and values:

Aside from the obvious health and safety issues, the current crisis is hitting corporate cash flow hard. Companies previously stable may soon be facing the prospect of insolvency or bankruptcy. In such situations, companies tend to make tough management decisions quickly, without taking a step back to ensure that they are truly justified or are in fact the best scenario.

It is the responsibility of directors to supervise and guide management in navigating the crisis and to ensure that management adequately considers the extent of the risks generated by COVID-19 on the company’s strategy, operations and financial health, in accordance with its values. In the current context, directors must also:

• ensure that management deploys mitigation measures to limit the extent of the impact of these risks on the business;
• exercise its supervisory role in this context by appointing or assigning a committee with responsibility to oversee the management of current events.

It goes without saying that in the event of senior management’s inability to act or poor handling of the crisis, directors may have to play a more active role.

The role of corporate directors is all the more important at this time because they are the ones who must ensure that the corporation is able to plan for the return of normal operations, post-COVID-19. Directors are subject to a fiduciary duty to the corporation. Being obliged to act for the good of the company and to take into account the interests of all stakeholders, directors may have a broader perspective than the managers who are only involved in day-to-day operations.

Heightened risk of personal liability for directors and officers during a crisis:

Good governance reflexes and adequate control of a company’s operations by directors are often accompanied by good organizational performance. However, this unprecedented health crisis increases the risk that directors and officers will be held liable for conduct that deviates from good practice.

As a result, certain behaviours by directors could lead to personal liability claims. Such claims may be covered by directors and officers liability insurance (often called “D&O”), if such insurance is in place.

Now that containment is mandatory and only companies providing essential goods or services can continue to operate more or less normally, inadequate control of the company’s activities by directors could lead to the following allegations of misconduct:

• inconsistent and disruptive management of the risks resulting from poor communications with customers, staff, supply chain partners and investors;
• poor management of information technology, jeopardizing access to essential data for business continuity and undermining data security and confidentiality (which may constitute fraud or unjustly increase cybersecurity risks);
• poor planning of how to monitor systems and controls by an increase in remote work;
• poor compliance with health standards, leading to the spread of COVID-19 within the company.

Beyond these issues, the company will also be judged by its actions. Governance will need to demonstrate ethical leadership. This will involve taking into account the consequences of its actions on all stakeholders in order to pursue the fairest and most equitable actions possible under the circumstances.

Skill and agility: two key words to guide directors in striking the right balance and taking appropriate governance actions during a crisis:

In the current context and in light of the above, directors must balance the temptation to step into the role of manager against the need for an appropriate level of supervision of company activities that may give rise to personal liability.

While not required by law or jurisprudence, we believe that it is more relevant than ever for directors to approach their mandate with agility and skill, especially with a view of adding value to their organization. Agility will help them to sail to a safe harbour, sometimes making the decision to follow a different route than what was originally planned.

The post-crisis review: seizing opportunities:

Directors need to work with management to explore opportunities for recovery and to set up winning conditions to take full advantage of the post-COVID-19 environment. Planning an extraordinary meeting of the board of directors or its executive committee to review:

(a) how the company navigated the crisis and

(b) the governance behaviours it adopted will help identify best practices to ensure the continuity of the business in a world of rapidly changing risks that threaten the smooth running of operations.

Ethical problems and questions are being raised in companies at this very moment. They should already be thinking about these issues. Ethics is a tool that can help a business clarify the values to be prioritized in this exceptional situation, so that it can do not only what is reasonable, but also what is right under the circumstances.