Strategic Implications of the C19 Pandemic for Non-Executive Directors

Economic malaises such as the great financial crisis of 2007-08 triggered an economic and social crisis whose aftereffects are still lively in the form of economic austerity in many economies around the world especially, in Europe. While the world pay the socio-economic casts for the financial crisis, a new crisis in the form of C19 Pandemic hails. The C19 Pandemic, however, have pushed the agony further to include the psychological well-being, largely referred to as mental health-of the workforce. While the C19 Pandemic has caused the sociopsycho- economic distress, just as it has forced the corporate sector to restructure its strategic focus. These are certainly strange times for the corporate sector.

Externally, corporations are facing the challenge to develop strategies to maintain their market position and to sustain value in order to remain competitive in the market. Internally, they are forced to design strategies to maintain the efficiency of their remotely working workforce-who are juggling with this “new hybrid working” routine, in which many face the challenges of isolation, which leads to depression and anxiety that has direct implications on their working, productivity and creativeness-while not jeopardizing their general wellbeing. The restructuring process should begin at the top i.e. board level to set the corporate posture. From pure economic perspective, the corporate board is responsible to lead the strategic direction of the company while monitoring the actions of the agents i.e. managers/ executives. It is their fiduciary responsibility to safeguard the interests of their shareholders. Corporations look up to their board of directors and leadership at times of crisis-economic or non-economic in nature. Corporate elites such as the board of directors and the chief executive officer (CEO) are considered as the faces of a corporate; the same individuals become the coalfaces when things move south. The world had witnessed this during the recent financial crisis in which many blamed the crisis on the lax governance mechanisms in the corporate sector in general and the financial services sectors such as the banking firms, in particular. The principal–agent phenomenon was the usual scapegoat. Academics contributed by igniting the rigor and relevance debate, arguing for a full implementation of the theory to eliminate the gaps in practice. Yet other commentators seized the opportunity to vent their frustration on the corporate elites, lashing on the short-sightedness of their strategies, implying they were driven by greed, personal gain and ego. The civic society marched to scrutinize the corporate elites. Ultimately, the knock was on the regulator. Urged by the demand for increased transparency, accountability and monitoring, the regulators introduced new regulationsessentially insisting to increase the number of non-executives-the so-called outside directorson the board across sectors in the modern economies-as a plausible solution for increased monitoring and transparency. The corporate sector hailed the move, realizing the huge rabbit holes in the regulations. A prominent example is of the “comply or explain” a regulation, rigidly practiced across the channel in Europe, which keeps defying the regulators.

The rationale behind the move was that higher fraction of non-executive directors will enhance board’s ability to supervise and monitor actions of the executives. Entrusted by the shareholders, non-executive directors were tasked to align the interests of the agents/executives with those of the shareholders, thereby mitigating the principal–agent problem. Despite the increased representation of outside directors, board’s monitoring has largely remained unchanged if not worsen as episodes of corporate fraud and unethical behavior have become a routine matter. Recent examples from Europe include the case of Wire card collapse and Volkswagen emission scandal-the Dieselgate to name a few. Equally, the move has resulted in an increase in the “freeriders” and “gray directors”. These trends suggest that the nonexecutive directors were not acutely aware of their roles and that they were unsuccessful in discharging their duties.

From a strategic point of view, the traditional approach have been to bring additional outside directors-including an outside board chair-with the aim to assemble an ideal board to scrutinize the executives and draw a strategic plan to lead the company out of a crisis. The current Pandemic is not the same as was the financial crisis; it cannot be blamed on the executives as a direct result of their strategies because certain aspects were beyond their control. Therefore, it is time to turn the table around because the recovery strategy will require the executives to play more active role than before in implementing the recovery plans. Thus, my recommendation is to adopt an inward-looking strategy by scrutinizing the individual profiles of their non-executive directors to elicit the embedded competencies that supplement the executives’ profiles-working hand-in-hand in practice. Similarly, the authoritarian role of the board’s chair should be with an executiveif situation dictates CEO and board chair roles should be combined to achieve synergies while developing and implementing corporate strategies i.e. faster decision making and implementation.

The argument is to empower executive directors - not by giving them additional powers or reducing monitoring on their actions but through deep and steep stewardship strategy - for a speedy recovery and growth. That is to say, empowering the executives will upsurge trust between the C-suite and the corporate board that in turn will strengthen internal ties which are, essential to implement a radical recovery and growth strategy. Executives are best suited to lead in the current situation because they are fine-tuned with the adversities faced by their therefore hence, are empathetic leaders, they will endeavor to achieve the wealth maximization and wellbeing objectives as they strive for the survival of the stakeholders. Instead of a fearmongering exercise, it is time to capitalize on the emotional capital to rescue the corporate sector i.e. follow a stewardship view/strategy to create value for stakeholders rather than pure profit.