This session was sponsored by Haug Partners LLP. David Shaw, Directors and Boards’ publishing director, hosted.
While many boards were not prepared for all that happened this Spring, others have been working on robust business continuity plans for years. They may not have accounted for the confluence of crises that would affect society and the economy at once, but they were prepared for disruption by beefing up technology spending to transition to a work-from-home model.
“As a life insurance company, we are always mindful of mortality risk,” says Eileen McDonnell, chairman and CEO of The Penn Mutual Life Insurance Company. In January, while following the news of COVID-19 in Wuhan, China, the board took an existing pandemic plan and built it out in more detail.
“I was reading some of the plan assumptions,” McDonnell says of recently revisiting the particulars. “It was that the financial markets would continue to function, there would be no widespread civil unrest and the Internet would be available.”
Instead, the New York Stock Exchange was halted twice in a single week, factories closed, and shelter-in-place orders were implemented across the country. Following the death of George Floyd in Minneapolis, protests erupted against police brutality and racial injustice. Finally, heavy storms resulted in short-term internet and power outages.
“However, what we did anticipate well and were ready for was to shift the operation, really on a dime, from our headquarters location,” she says. “We always had a plan for a quick pivot and have equipment available and resources trained and ready to work from home.”
Running through scenarios on paper, through virtual role playing, or some other means, must be done to stress test continuity plans, directors say. And not just one plan — there must be contingencies to anticipate different results in the crisis that are also tested vigorously. Drawing on his national security background, Michael Montelongo, a director of Herbalife Nutrition, Ltd. and Larry H. Miller Management Corporation, notes how the military prepares to run scenarios: “You train like you’re going to fight.”
Chairman of Haug Partners LLP, Ed Haug takes the perspective of human capital risk that came into sharp focus when a leader of the firm’s corporate group, just 42 years old, contracted COVID-19 and died.
“From a people standpoint, you need to have succession in place,” Haug says. “This is certainly not how we thought succession would be called for, but if you don’t have that, you have a very serious risk of what happens next.
“Another aspect is the people in your organization when crises hit like this. Who are your real true leaders? How do they respond to the crisis and particularly the crisis that’s never happened before? I think that you will see a separation between people and their abilities to lead. You can’t really anticipate the specifics, perhaps, but you certainly can think ahead and try to train your people.”
With employees still working from home, in some cases indefinitely, McDonnell says there’s also a risk of losing company culture.
“From a culture perspective this is something that weighs heavily on my mind, not unlike our concern for a strong board culture,” she says. “Fortunately for us, we went into this event with a strong company culture. But now, I think about how we will continue to evolve, build and blend our culture as we move into a more hybrid environment, at least for the foreseeable future, of some people remaining at home and some maybe going back to work on phased schedules. So that still remains a question on how culture will continue to evolve and develop.”
Montelongo, quoting Sun Tzu’s The Art of War, notes, “In the midst of chaos, there is also opportunity.
“I would suggest that boards and management teams are getting their arms around all of the different challenges that these crises present to their respective companies,” he says. “But you must also be mindful to continue to look over the horizon for opportunities for the company to capitalize on. Then when it comes time to poke your head out the window and get back to ‘normal’ operations, you are then positioned competitively in the new normal to compete and to prosper.”