risk management – Executive Advisory Institute

risk management

April 7 2020

Tips for Navigating COVID-19

Fiona Lu Corporate Governance, COVID-19, Crisis Management board of directors, Corona Virus Tips, corporate governance, COVID-19, crisis management, risk management, safety tips

Editor’s Note: Don’t forget Board of Director’s primary responsibility is insuring the well being and longevity of the company, which means making sure the company has the resources to function, retaining customers and employees, and managing risk.

The COVID-19 outbreak is a human tragedy that has affected detrimental impacts on families, consumers, businesses and the global economy. Navigating this novel incident is a tricky situation that companies and boards must prepare for. The effects of this pandemic have reached a never before seen global scale, with long-term consequences that are far-reaching and complex. So far, the coronavirus has disrupted worldwide trade, caused the stock market to plummet, and brought about country-wide lockdowns, canceled major events, and restricted travel. It continues to be the center of public policy discourse and is rapidly spreading, forecasting unpredictable changes in the future.

As of now, over 175 countries have reported COVID-19 cases, with the U.S. alone reaching over 1 million cases this past week. During this time of crisis, board members must work together and assume their leadership roles to establish trust and guidance moving forward, taking care of employees and consumers alike. Companies must keep a vigilant eye on their region’s public policies to determine the best course of action and predict the contours of the pandemic in the following months.

The key areas of concern companies should concentrate on are supporting employees and protecting them from a work-at-home basis, monitoring the pandemic’s spread, safeguarding consumers by enforcing social distancing, and planning for the next phase of disease spread.

Key Areas of Concern

1. Supporting Employees

During this difficult time, many employees have found themselves out of work and unable to financially support their families. It is important for boards and management teams to be sympathetic of their struggle and provide reassurance about where different positions within the company stand. Enacting a work-from-home mandate is the first step to preventing further disease spread while maintaining workflow. To improve the efficiency of remote work, companies must create a transparent remote environment equipped with the essential communication, networking, and cloud sharing tools to operate as a cohesive unit and drive productivity. Sick-leave, scheduling, progress tracking and other work norm policies must also be amended to ensure health and safety at the forefront.

2. Monitor the Pandemic’s Spread

Boards must remain informed on key indicators of where and how the virus is evolving to conduct accurate scenario planning. Understanding how the pandemic might develop is essential to developing a fast response plan and emergency measures to take that prioritize protecting lives while minimizing financial losses. Board members must think critically about actions to take for cyber breaches, recalibrated consumer spending, economic recovery, and rapid day-by-day adaptations to change. Companies should have various plans in place that account for long-term remote operations and be aware of potential permanent changes to economic spending and market demand shifts that will persist even after the outbreak has relented.

3. Safeguarding Consumers

Companies must play their role in curbing the pandemic by enforcing social distancing for their consumers. With many operations shut down during the lockdown, companies should brainstorm alternative ways to service their customers and ensure the safety of their goods. Communication and information sharing is key to establishing transparency with consumers about what services can be accessed, changes in refund policies, and what to expect moving forward. Board members play a critical role in this process by ensuring clear lines of communication between directors, management, employees and consumers. This enables unity and ensures collaboration on a single agenda.

4. Planning for the Next Phase

As the pandemic continues to unfold, it is unclear when the state of the world’s health will return to normal. With this in mind, boards and executives must lead with resolve, resilience, and reimagination. Planning for the next step may be difficult when the atmosphere is heavy with uncertainty, so companies must remain open-minded and unopposed to drastic reinventions and institutional changes. Predicting market changes, reconsidering fixed versus variable costs, shutting down unneeded operations and opening new avenues of opportunity ultimately define business success and create a new compass for how to better deliver to customers.

During this time, the most important priority for all parties is staying informed on the latest outbreak updates, being proactive, and maintaining protective health measures. As with any crisis, the coronavirus pandemic presents companies with the opportunity to emerge stronger and more resilient in the coming months should board members and executives collaborate with these following tips in mind.

March 5 2020

The Importance of Audit Committees

Fiona Lu Audit Committee, Board Committees, Board Structure, Corporate Governance audit, audit committee, board composition, board of directors, Board Structure, corporate governance, cybersecurity, independent directors, risk management, US GAAP

Public companies are required to have audit committees to perform annual audits of their financial reporting and disclose certain financial information. This requirement was established by the Security and Exchange Commission (SEC) in 2002 after the passage of the Sarbanes-Oxley Act (SOX), which formally defines the roles of the audit committee as overseeing financial reporting accuracy, hiring independent external auditors to examine financial statements, and reviewing the company’s internal accounting controls. Having accurate and honest financial reporting that abides by the standards set forth by the U.S. Generally Accepted Accounting Principles (U.S. GAAP) is important for conveying company performance to internal investors and external shareholders. In the past two decades, the roles of the audit committee have significantly expanded to encompass a greater risk management responsibility due to the emergence of new technological forms of risks (i.e. cyber risks, cloud safety, etc.)

Challenges Facing Audit Committees

With the ever changing landscape of technology, there has been a growing range of risks that the audit committee must oversee. Risk management is an imperative part of the audit committee’s job that has grown increasingly complex due to new components, such as cyber risk, Environmental, Social and Governance (ESG), and corporate culture. This rapidly evolving agenda of audit committees has led many firms to begin considering forming new committees to conquer and divide the responsibilities.

Of these roles, cybersecurity has been a hotly contended subject. Cybersecurity is a relatively new area of risk management that forms an important component of strengthening a company’s technological profile, efficiency, and data systems. While this area has been traditionally under the jurisdiction of audit committees, many firms have formed their own full-level “cyber risk” committees to oversee it. In today’s digital landscape, with many companies migrating their data and communication channels to cloud-based solutions, cyber risk becomes one of the greatest risks enterprises face, and audit committees manage an up-to-date eye on it by either focusing their resources to develop sound cybersecurity frameworks or assigning the role to a new committee.

Maintaining Independence

Audit committees also face the challenge of providing unbiased analysis of financial reports independent of their affiliations with or knowledge of the company. The SEC requires that audit committees be composed of independent directors in order to objectively manage a company’s accounting practices. Just like how having an independent board is important to overseeing the company’s welfare and balancing all party’s interests, maintaining an independent audit committee is especially important because it concerns providing an honest, accurate, and legally abiding accounting process and directly deals with profit misreporting or manipulations.

For this reason, the SOX requires public companies to hire external auditors for an added layer of security. Independent auditors are certified public accountants hired to provide an objective, third party assessment of a company’s financial reports and audit process. If they determine that a company complies with GAAP, then they will issue the company a standard audit report. Otherwise, they will order management to revise their statements and recommend changes to optimize the company’s system of internal controls.

How to Improve Audit Committees

Maintain and Refresh Committee Expertise. Since the roles of the audit committee are constantly expanding and evolving, companies must keep a vigilant eye on their audit committee’s governance and composition to ensure that they consistently include members of all areas of expertise. They must consistently reevaluate the company’s needs to assess new risks and expertise areas to recruit in.
Strengthen Cybersecurity within the Committee. Audit committees handle the company’s most sensitive information and are the most susceptible to data breaches. Educating audit committee members on basic data protection practices and establishing ground rules for communications, such as never using a personal email or texts, will reduce the risk of information leaks and hacks.
Understanding Regulations. Members of the audit committee should all be familiar with SOX. In 2003, the SEC adopted a new standard that mandates national securities exchanges to disallow listings from companies that do not meet the audit committee requirements of SOX. Since the audit committee’s key roles are all regulated by SOX, boards should understand these requirements in and out to ensure that their performance is in compliance.