Corporate Governance Considerations and Challenges in Response to COVID-19April 2, 2020
In response to the growing concern of COVID-19 (coronavirus), Boards of Directors must act quickly to respond to the constantly changing corporate landscape and to the governance challenges created by the pandemic. Below we highlight topics that all Boards of Directors should consider in order to appropriately plan for and confront the crisis going forward in a manner consistent with their fiduciary duties and corporate best practices.
I. Public Health
First and foremost, COVID-19 is a public health crisis, and the top priority of the Board should be the health, safety and well-being of the company’s constituencies. To maintain the trust and dedication of employees, suppliers and customers alike, the Board should enhance safety precautions and permit virtual meetings whenever possible.
II. Disclosure Obligations
The Board should, and engage advisers to, proactively consider what and how much the company should publicly disclose, or is required to disclose, relating to the effects of COVID-19 on the company’s business, financial condition and operating results. Necessary disclosure will be included in capital markets offerings and periodic filings with the SEC, including disclosure associated with risk factors, MD&A, financial statements and other related sections, and communications generally with shareholders and other stakeholders.
III. Task Force / Special Committee of the Board of Directors
The Board should consider creating a task force of various business teams or a special committee of Board members that meets regularly and is tasked with monitoring and delegating responses and actions to company management. This response team will handle the rapidly changing environment quickly and be able to report to the Board often, to ensure proper Board oversight of all COVID-19 related decisions.
IV. Conducting Annual Shareholders Meeting
Depending on state law and the company’s governing documents, the Board should consider whether to hold the annual shareholder meeting virtually or whether to move the date and location of the already scheduled in-person meeting. In New York, Governor Cuomo recently issued an executive order which permits New York corporations to hold virtual-only shareholders meetings through April 19, 2020.
V. Defensive Tactics
Due to the decline of the stock markets, many public companies are seeing their shares trading at large discounts, and opportunistic investors may develop substantial equity positions. Boards should evaluate defensive tactics and antitakeover measures to prevent an unwelcomed advance from an activist investor.
VI. Financing Arrangements
With companies seeking liquidity and the economic downturn of many businesses, the Board should ensure, with advice from advisors, that additional borrowings and/or lack of financial performance do not breach covenants or financial ratios and do not prevent the company’s ability to make specified reps and warranties in outstanding financing arrangements. The Board should be involved in all borrowing decisions and whether to seek out an alternative source of funds.
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