Directors share how they are implementing the lessons learned last year.
It's easy to look back on 2020 and see the disruption that seemed to present a new challenge every week. Now is the time to develop new strategies. What have we learned from the last year that's worth keeping in 2021? What, if anything, will go back to the “normal” we knew this time last year?
Many directors polled in a recent survey said they believe the events of 2020 have made them better able to perform their duties, says Dottie Schindlinger, executive director of the Diligent Institute.
“I think there was a big lesson about what works,” she says. “Inside the boardroom, directors were finding tools they never used before. There was more ‘real-time' insight.”
She adds, “They are more fired up about the director role than ever before.”
The workforce and technology
As states went into lockdown, office workers scrambled to pack up what they needed to continue business from home, for what many thought would be only a few weeks. Companies had to act fast to address hardware, software and cybersecurity needs.
Remote cybersecurity became a substantial issue once employees were working from home and using their personal Wi-Fi networks.
“We were dealing with people who are working remotely with home systems that are not as secure as the office's,” says Kimberly Casiano, a director of Ford Motor Co. and Mutual of America. “And hackers have become aggressive in this virtual environment.”
Schindlinger says concerns around cybersecurity were a reason that directors networked with each other like never before, connecting chief technology officers in different companies or industries in the spirit of “we're all in this together.”
It's hard to say how long enforced full-time telecommuting will last, but some companies and employees have found productivity has been maintained or even improved and have extended telecommuting indefinitely.
Casiano says full-time telecommuting was vital while people quarantined, but she worries that permanent remote work could weaken collaboration among employees who don't get to know each other.
“I think there is going to be a much different dynamic between people who have worked, perhaps for years, side by side,” she says. “Innovation comes from teamwork and collaboration. I'm not sure that will work with new faces as much as with people who have a history together.”
However, she hopes management will continue to use technology as a tool to enhance relationships.
“Because people have a wider acceptance of a virtual workplace, CEOs and top management are able to interact with both employees and customers more easily,” Casiano says. “It used to be that the top customer would come in to talk to the CEO, or the CEO would go to see the customer. It would be considered impolite if one didn't get on a plane and see the person face to face. Now management can talk to customers, prospects and employees in several countries in a day.”
The executive chairman of the company, William Clay Ford, Jr., held a townhall for employees from his home. “There he was, at home sitting in his study,” Casiano says. “People were asking about his books, and what he thought of them. So in a way, the virtual world has allowed for more interaction with employees and management.”
Supply chain
The pandemic also brought to light flaws in simply getting materials in the door when foreign countries couldn't fill requisitions for U.S. companies.
“Boards are going to think completely differently about supply chain,” says Schindlinger. “For companies who put their eggs in one basket, it became a major issue. I think they'll bring an investment perspective to supply chain and have a diversified portfolio of suppliers now.”
She also thinks companies will look more to minority-owned suppliers and local businesses to help their surrounding communities.
Casiano agrees.
“Deglobalization, that's what's highest on our radar screens,” says Casiano. She adds that the struggle to get enough PPE to the U.S. is an example of how the supply chain broke. Fortunately, Ford was able to retool and produce PPE and ventilators.
“These products were kept by other sovereign nations, and their own country took priority over exporting to other countries,” she says. Boards need to take a look at where their materials and products are coming from and perhaps prioritize the security of the supply pipeline over lower prices. This would be a place where redundancy and contingency planning would also come into play, she says.
Roy Dunbar, a director of Johnson Controls International PLC and SiteOne Landscape Supply, says his boards will also reevaluate their supply chains.
“Corporations were looking for the lowest cost with certain assurance that supply would be available,” he says. “It's not as if corporations haven't learned this before, whether it was an East Asian tsunami or floods destructive of manufacturing plants.”
As the supply chain stabilizes after a crisis, cost reduction again becomes the primary concern. “You're almost forced to go down those roads again,” Dunbar says. “But I hope we've learned from it this time.”
Staying liquid
Many companies that closed their doors for a significant period because of the pandemic found themselves short of cash to cover ongoing expenses.
Kevin Sheehan serves on a number of boards, including Hertz Global Holdings. Most of that company's rental cars sat idle at airports when air travel came to a screeching halt. There were so many cars that the lots overflowed. Unfortunately, at the time Hertz was attempting to turn the business around and, in the end, didn't have the funding it needed.
Hertz filed for Chapter 11 bankruptcy in May because, while the company was “just on its track to improve, it was hit with [he pandemic and it was too far to come back,” Sheehan says.
Dunbar offers as an example a company that needed cash. The company, which he declines to name on the basis of board confidentiality, had two main paths: “Either more debt, which could be added to balance sheets as cash, or sell equity and take the raised cash to the balance sheet.” He pushed to sell equity, but the company ultimately decided against the move.
To prepare for future risk, boards should have a plan for liquidity, Dunbar says.
Casiano says discussions around future liquidity are on the table for the boards on which she sits.
“People have different views on savings, sources of cash — what can we put our hands on quickly? If I need a war chest, what do I build that war chest from?” she says. “We're rethinking our liquidity and expenses. That's a positive thing.”
A turn toward diversity
Not all crises in 2020 were easy to define. The death of George Floyd brought calls for police reform, but also for diversity and inclusion within companies.
Casiano says she hopes the movement against systemic racism and for inclusion is continued in 2021.
“As we have a heightened respect for science, respect has also grown for taking up the social justice cause against racism and inequality,” she says.
Regarding corporate commitments for diversity and inclusion, “Boards need to voice that very clearly,” Dunbar says. “Is what your company stands for resonating with a broad base of consumers?
“Make a statement and support that statement with actions,” he says. “What I get excited about are the companies that put a stake in the ground and then rally around it.”
What 2021 could bring
There is little doubt new workplace arrangements, new reliance on technology, ongoing supply chain risks and increased emphasis on diversity will outlast the pandemic.
“One of the major things we discovered was agility,” Dunbar says. “Companies learned they could be tremendously more agile — more than they thought they could, or even intended to be,” Dunbar says.
“We've been using this word ‘transformation' in business for decades but have been dragging our feet along. It was more Power Point than action. But our agility, driven by emergency, tells us corporations can handle change.”
Diligent's Schindlinger says that directors have been renewed by the difficult problem solving they demonstrated, and many remain curious about aspects of the company they never knew about.
“Now that they flexed muscles they forgot they had, directors don't want to let them atrophy again,” she says. They won't continue with daily calls to the CEO, but they will stay engaged.
Casiano doesn't believe there will be chance for atrophy any time soon.
“I think 2021 is still going to be crisis-management mode,” Casiano says. “I think people will start learning to live with the precautions around COVID-19. “They'll go to the office occasionally, spacing out their workstation — trying to do it in a safe way.”
Dunbar studies economic cycles as a hobby and says he has looked back in order to see what could lie ahead. He says there is a chance to bounce back, just as private equity did after the financial crisis in 2007-08, but not before another wave of challenges companies will be forced to ride.
“It's difficult to see how a shock like 2020 doesn't lead to a severe challenge from an economic perspective,” he says.