When the history books chronicle the performance of corporate America during the COVID-19 pandemic, they're likely to detail which captains of industry were wearing a swimsuit when the tide went out, to borrow a phrase from investor Warren Buffett.
The pandemic has thrown into stark relief the crucial leadership qualities and processes needed during upheaval. The knowledge gleaned during this time is likely to affect all aspects of human capital practices at the highest corporate levels — including job skills and competencies, board composition, executive search processes and succession planning, leaders and advisers say.
“Boards and CEOs are going to need strong counsel on all things human capital-related,” says Jim Crocker, chairman of Boardroom Metrics, a consulting firm focused on strategy and corporate governance.
But it won't stop there, says Kim Henderson, who leads the hospitality, travel and entertainment practice in North America for Egon Zehnder, a leadership advisory firm.
“I can't imagine a world in which [these crises] will not have significant impact on every aspect of corporate life.”
Consider new pressing challenges that have arisen in the months since the pandemic began. Boards now are facing a broad economic retraction and significant social justice matters that include systemic racism.
“There are no best practices, just best thoughts. In addition, from a financial perspective everything you learned in business school or on the job about market behaviors is out the window. The fundamentals aren't the fundamentals anymore. The old playbooks need updating,” says Eileen McDonnell, chairman and CEO of Penn Mutual Life Insurance Co. and a director of Universal Health Services Inc.
Organizations will need leaders and cultures that can respond quickly during crisis. The development of a deep bench of experienced executives coupled with strategies for multiple scenarios will be a must.
Holding steady
With continuity, experience and stability at a premium in the current environment, boards have been reluctant to make major leadership changes, experts say. Apart from creating more disruption, there are now logistical difficulties in balancing the need to determine if a leader is a good fit with necessary safeguards against COVID.
Some advisers wonder if an interview at a 6-foot social distance or by teleconferencing can give companies a true picture of a person. How will new directors be onboarded in a way that protects against health risks?
What's more, many CEO candidates are reluctant to make major job changes during an unstable time, advisers say. At the director level, some members, particularly board chairs, have extended their tenure past retirement age to help navigate during the challenging times, says Lisa Blais, who leads the U.S. board practice at Egon Zehnder.
“But I expect that will change and we'll see a mix of effects at the board and CEO levels in the future,” Blais says. “I think there will be increased pressure on over-boarding, given the increased demand on directors, some early retirements from boards in order to make room for new needed skills and experiences, and additional director churn due to the inevitable increases in bankruptcies, M&A and activism.”
At the CEO level, Blais anticipates more movement in the coming months in response to mergers, reorganizations, activist pressure and greater comfort among directors with making needed changes.
The right stuff
Months into the pandemic, research appears to show that corporate leadership possesses the right stuff.
Martin Whittaker, CEO of JUST Capital, which has been assessing corporate actions through its COVID-19 Corporate Response Tracker, says companies have shown that “when the chips are down, many directors and boards did the right thing.”
JUST Capital's research shows companies took extraordinary measures and moved quickly to protect workers, limit layoffs, reduce executive compensation and protect customer safety, Whittaker says.
Indeed, the public — often critical of corporate America — believes corporate leaders stepped up to protect the health, safety and economic security of their workforces during the pandemic, according to a JUST Capital survey in collaboration with The Harris Poll. Sixty percent of respondents report that America's largest companies are showing leadership during the pandemic.
“There's nothing like a crisis to crystallize what's important — areas of risk, opportunity and readiness. Leadership teams and boards are skipping the small stuff and focusing on what truly can move the needle in one direction or the other,” says Dawn Zier, former CEO of Nutrisystem Inc. and a director of Hain Celestial Group Inc., Spirit Airlines Inc. and Prestige Consumer Healthcare Inc.
Still, one thing is nearly certain: The public's expectations of corporate leaders will continue increasing. Nearly 90% of Americans surveyed agreed the crisis has created an opportunity for companies to reset and focus on doing right by employees, customers, communities and the environment, JUST Capital reports.
“CEOs and boards are still expected to perform, to take actions to safeguard the future of the corporation, to protect against risk and to take actions that create long-term value,” Whittaker says.
Taking the lead
The performance of boards and leadership teams during the pandemic has been all the more remarkable because many CEOs lacked experience in leading during a major crisis. More than a few leaders weren't in their roles during the financial meltdown beginning in 2008.
“No board director or CEO in America has ever been through a global pandemic and economic shutdown, and so the speed of this response was impressive and heartening,” Whittaker says.
Bertha Masuda, a partner at Compensation Advisory Partners, turns to the example of Edward Bastian, CEO of Delta Air Lines Inc., who assumed his post in 2016. Bastian was one of the first CEOs to step forward in March, cutting his own salary by 100% through the next six months. The Delta directors took the same action.
“Leadership set the tone at the top and quickly demonstrated their willingness to protect the future of the company,” Masuda says. “This CEO put a stake in the ground right away, while other airlines waited to make a decision.”
Compensation Advisory Partners, which has been tracking compensation-related actions taken in response to the COVID-19 pandemic, mentions nearly 20 companies in the S&P 1500 — including Lear Corp., Steven Madden Ltd., La-Z-Boy Inc., Six Flags Entertainment Corp., Bed Bath & Beyond Inc. and Dick's Sporting Goods Inc. — that are good examples of companies showing leadership by “sharing in the pain” with all stakeholders, Schroder says.
These companies took such measures as such cutting executive pay and director retainer payments. Some suspended or decreased stock buybacks and dividend payments.
Such things have impressed Kurt Landgraf, former CEO of DuPont Merck Co. and a director of Corning Inc. and Louisiana-Pacific Corp. Landgraf has been impressed by the many corporations that have had directors and senior executives take salary reductions “along with the painful layoffs and furloughs.” At Corning, the chairman and full board all took a 40% compensation reduction.
Peer sharing
The short-term dynamic seems to be to stick with the herd and follow what peers are doing. Because of the risk, companies are unlikely to depart from the group and go out on a limb, advisers say.
Blais says Egon Zehnder is hearing about companies, including competitors, that are partnering to share best practices on employee safety, reconfiguring manufacturing and the development of contact tracing apps.
“Boards, CEOs and other C-suite executives are networking more than ever to learn from each other, as they need to make decisions more quickly than ever,” Blais says. “There is a deep desire to share and learn from others. I wouldn't use the term ‘herd mentality,' since every company is different, with varying financial impact, liquidity circumstances, employee health risks, restructuring needs, etc.”
This has been McDonnell's experience at Penn Mutual. She says she is listening to other CEOs and brainstorming with them about how to address “unique challenges.”
Board director Zier says leaders should watch what others are doing and learn from them.
“The key is to know in which instances first-mover advantage matters and under which scenarios you should hold back a bit and capitalize on the learnings of others.”
New skills and competencies
For boards and executives, the current upheaval also has given directors and managers a chance to assess leaders' performance in real time.
“It's easy to lead and govern through good times, but leading under pressure and through uncertainty requires different skillsets. The ability to communicate, motivate and maintain followership with employees and other stakeholders are critical during these times,” Zier says.
Many competencies required during the pandemic will likely carry through afterwards. When asked about post-pandemic leadership, many clients of Egon Zehnder have mentioned an increased focus on agility, innovation and strategic orientation, Blais says.
“They're trying to figure out how to maintain the speed, agility and innovation that has been demonstrated during the pandemic, rather than return to more bureaucratic or traditional ways,” Blais says.
Leadership skills including collaboration and influencing, communications, employee engagement, and determination will continue to be important, she adds.
To McDonnell, collaboration has been one of the most valuable skills during the pandemic. “Playing air traffic controller and paying attention to some of the smallest details can pay big dividends in finding optimal solutions.”
“The pandemic and economic disruption has left many on edge and searching for answers,” she says. “Leaders have the opportunity to be ‘the trusted voice,'” McDonnell says.
For companies and sectors that have been severely disrupted and in need of a restructuring or transformation, different competencies will be needed in the C-suite and boardroom, says Zier. Turnaround and restructuring experience, along with investor relations, crisis management and digital transformation skills, are going to be highly valued.
“A chasm has been created, and the most effective leaders will be the ones who can show resiliency and adapt quickly to build a bridge to get across to the other side of the chasm,” says Susan Schroeder, a partner at Compensation Advisory Partners.
Looking at succession
As the C-suite has become more vulnerable, emergency succession planning has become critical, Zier says.
“It's important to have a plan in place, especially for the CEO and CFO, that adequately solves for the ‘what if,' at least on an interim basis. Having a deeper bench of CEO-ready executives is often dependent on size of company. In cases, where there are no internal candidates, a smart practice is to develop an external shortlist and build out a pipeline. Qualified board members could also step in on a short-term interim basis.”
Boards also have been going much deeper down the ladder in succession planning than ever before, Blais says.
“One chair of a retail client recently mentioned that they went ‘all the way down to the distribution center leader' to plan for an emergency succession in case of an illness.” Blais explains. “Boards have also been forced to create emergency succession plans for all board leadership roles, including committee chair roles, to insure continuity in governance. Many chairs have commented that this pandemic has been a valuable test for their CEO successor candidates and have given the board a strong sense of the depth of their bench.”
Crisis or not, good governance practices dictate that a succession plan should be three to five years into future, Henderson says. Companies will need to be thoughtful about getting future leaders ready, including giving them succession experience.
Chances are good the next CEOs will come from within the organization and there will be more than just one option. Boards already working on succession will be looking for more seasoned CEOs, Henderson believes.
Board composition change
At the board director level, Zier says she expects to see more nuts-and-bolts operators on the board who can be “thought partners” to the CEO.
“Boards may round themselves out with supply chain and risk management expertise. And ideally, given all the people and culture challenges that COVID-19 has brought to the forefront, I'd personally like to see some strategic HR expertise in the boardroom.”
Human resource people have struggled to have a larger, more strategic presence in the boardroom.
“Now's their opportunity,” he says, pointing to both the pandemic and the need to address systemic racism. “If HR people can get their head out of day-to-day monitoring and execution, they can have a big role helping organizations [and] boards identify the human capital risks and strategies going forward.”
The need for diversity among directors, including diversity of race, gender and ethnicity will continue and is likely rapidly accelerate, experts say.
When it comes to directorship requirements, “the more first-hand experience, training and knowledge directors can demonstrate, the better,” Whittaker says.
“In many ways, the core, enduring facets of leadership will remain in place. Corporate leadership today necessitates a broad range of emotional, mental, experiential and intellectual attributes,” he adds, saying that leaders will need to continue to evolve nimbly in an increasingly complex and fast-paced world.
Maureen Milford is a Delaware writer focused on corporation law and governance matters.