Directors have a key role to play during the current coronavirus pandemic – the challenge of the inevitable short term firefighting to ensure the business survives, alongside managing its longer term values and purpose.
Whilst directors may delegate the day to day running of the business to management, they remain ultimately legally responsible under the Companies Act and therefore may need to take a more involved role than usual in the current circumstances.
Under s.172 of the Companies Act, directors are required to act in the way they consider will promote the success of the company for its shareholders, whilst also having regard to other stakeholders including creditors, employees, government and the wider public and, under s.174, to exercise reasonable care, skill and diligence in doing so.
What specific issues might Boards of Directors need to consider during the current pandemic?
Health & Safety – policies to safeguard the workforce such as agile/remote/shift working and to slow the spread of the virus. The Board itself should replace face to face meetings with virtual meetings.
Financial Impact – short and longer term financial and cashflow impact must be understood. The UK government has added new restructuring tools to existing insolvency laws and temporarily suspended wrongful trading provisions in order to support UK company directors and businesses through the pandemic. The take up of government backed loans and guarantees must be carefully evaluated.
Risk Assessment – there may be new key roles for one or more board subcommittees. These may be newly formed committees specifically targeting the pandemic or existing committees, for example the audit or risk committees.
Business Continuity – plans should already be in place, but these should be evaluated and updated.
Succession Plans – for key directors and executive staff.
Communications – a clear internal and external communication strategy is crucial in building stakeholder confidence.
Financial Reporting and Disclosure – listed companies in particular must ensure they are making sufficient public disclosures. Directors must exercise their judgement as to whether the impact of COVID-19 is price sensitive information that must be disclosed. Listed companies subject to the UK Corporate Governance Code must also carefully consider relevant Code provisions. The Financial Reporting Council (FRC) has published guidance for companies on disclosure of risks and other reporting consequences arising from COVID-19.
AGM – postponement of upcoming AGMs may be possible, depending on legal deadlines. A virtual AGM / live streaming with online shareholder Q&A for the AGM should be considered where permitted by the company’s Articles. Where it is not permitted, it may be necessary to amend the Articles. Companies should encourage shareholders to vote by proxy. Consideration may also be given to a shareholder event later in the year to enable shareholders to engage directly with the Board.
The above does not constitute legal advice or provide a complete list of corporate governance issues to consider in the light of COVID-19. For further information or to discuss the impact of COVID-19 on your Corporate Secretarial affairs or directors’ duties, please contact us.