This Update summarizes key considerations in effective crisis management with an emphasis on the need for ongoing assessment, communication, and planning during this trying time. The goal is to be positioned to take necessary, informed and prudent action in a calm and assured manner to the extent possible.
1. Continue Working with Your Crisis Team: Most companies have invoked their crisis plans and tasked their crisis teams to manage the initial response to COVID-19. Continuing assessments as to the appropriate composition of those teams and the cadence of their meetings will remain critical.
a. Necessary Expertise. As events unfold continue to assess that the appropriate participants are included, typically the CEO, chief financial officer, chief operating officer, general counsel and representatives of key operational departments and the heads of compliance, internal audit, human resources, corporate communications/PR, and sales/marketing. The crisis team should also include external legal advisers and communications experts. Additional areas of expertise may be required in terms of both internal and external participants.
i. When coordinating with external advisers, the company should be particularly aware of issues related to attorney-client privilege.
b. Board Participation. The board needs to be well-informed on an ongoing basis of the efforts of the crisis management team. Consider to what degree this is a matter for the board at large and to what extent more focused attention from a smaller group of directors is advisable. Often, the most effective approach will be a combination, with additional scheduled meetings of the board as well as more frequent contact with a smaller group, such as a board committee and/or the independent chair, lead independent director and/or audit committee chair.
c. Meeting Cadence. Pre-set daily meeting times may be necessary; consider whether multiple pre-set meetings per day are needed with this group. Given that information is changing by the hour, there will be new decisions to be made and old decisions to revisit. Having a set time for meetings, which can be canceled if not needed, is helpful in a fast-moving environment.
2. Stay Abreast of Accurate Facts in Real Time: The COVID-19 outbreak has been fast moving and difficult to predict. For many businesses, the threat has evolved from a possible supply chain disruption into a health threat for employees and customers, and potentially for many, a disruption in demand with attendant implications for financial health. Accurate information is the foundation for identifying, assessing and mitigating risks. Consider who on the crisis team is charged with ensuring that the team and company management more broadly has access to the best intelligence with respect to developments that could affect the company and how that information is being shared and assessed so as to inform decisions.
3. Consider a Broad Range of Possibilities, and Prepare for the Worst: While actions should be grounded in the available information, the crisis team also needs to continually assess the possibilities. Efforts to contain the virus may lead to a more normalized business environment in the next months, but resolution could take significantly longer. The crisis management team needs to assess both short-term and longer-term risks and options. Depending on the time frame in which the virus is contained and the health situation resolves, the potential for the type and severity of add-on effects varies. This team should be assessing on an ongoing basis:
a. What are the most likely short-term and longer-term risks that we need to be prepared for and how will they vary as the length of time for resolution of the health crisis expands? For example, management should consider employment levels, liquidity, insurance and business continuity matters.
b. How are we positioned to withstand short versus longer-term disruption in our workforce, generally and in terms of key-man risk?
c. What is the effect on our liquidity under various scenarios and time frames? Should we draw down on a line of credit?
d. Are there covenants and other contractual obligations that we may not be able to satisfy? What obligations can we mitigate? When should we begin mitigating them?
e. What if the economy and the market do not correct in the relatively short term.
f. What are the key events that could happen that would cause disruption to our particular industry and business?
g. Should we not proceed with a contemplated transaction?
h. Are there business opportunities that come out of this crisis that the board and management should be considering?
While it is impossible to prepare for every eventuality, continuing to think about and discuss options for the worst case positions the team to best prepare for realistic risks. Please refer to this Sidley COVID-19 resource, Key Business and Legal Issues to Consider in Light of COVID-19.
4. Clearly and Calmly Communicate with Stakeholders: Regular clear communications are critical both internally with employees and externally with customers, suppliers, and other key stakeholder including shareholders and regulators. The board and management should already have an agreed, workable and well understood communications plan that sets out a protocol for internal and external communications, with a focus on ensuring that the right people can be called together quickly to determine how to move forward. Consider whether it needs any adjustment for this situation. The goal is to have clarity and guidance internally to ensure that the company speaks with one voice and confidentiality is maintained until the company has decided to speak.
a. Employees and Customer Health and Safety. Employees should receive clear communications about any policy changes made in reaction to the outbreak, such as policies for travel, visitors and remote work. Communication should be clear that the health and safety of employees and customers is the top priority. While many companies have made initial communications to these two key stakeholder groups, updates should continue.
b. The Board. Determine a cadence for ongoing communications with the board of directors. For example, during this time weekly board meetings may be in order. The board must be promptly advised of plans to contend with this evolving situation, including the communication strategy, the continuity of business strategy and the state of the company’s finances. Everyone should understand that the board does not want to be surprised by hearing bad news from another source — especially a public source — because management thought it could manage its way out of a problem and failed to inform the board early. In addition, the board will need to consider its ability to hold telephonic meetings, in lieu of travel to in-person meetings.
c. Legal Team. Care should be taken to position the legal team with ongoing access to real time information about company developments so it can evaluate the company’s legal risks, including the ability to abide by covenants and other contractual agreements, and attend to disclosure obligations whether those arise contractually or under federal or state regulations (including but not limited to Securities and Exchange Commission disclosure requirements for public companies).
d. Investor Relations. Investors are a critical constituency. Although information is fast moving and evolving, investors need to be provided with accurate information. Accordingly, the investor relations team must be a part of the internal communications.
e. Public Relations. Given the speed with which news, rumor, and innuendo can be disseminated through social media and the tendency for social media to be treated as an informal means of communication, it continues to be important that the company monitor social media, has educated its employees about policies related to the use of social media and is considering the best means to use social media effectively in this environment.
f. International Jurisdictions. U.S. based companies with operations and markets in non-U.S. jurisdictions should consider how to ensure sensitivity to different cultural norms, so that they can manage accordingly, including by involving relevant experts who can assist not only with tailoring communications to different cultures but who also understand the political, regulatory, and legal environment.
As stated up front, calm and thoughtful reactions are more necessary than ever. This is an important time to lead. It is during difficult times that companies can come together as a community to work through these hard issues.