Rapid Change

After years of increasing focus on company boards, companies have taken great leaps forward in making their leadership teams more effective and accountable.

But the rapid spread of coronavirus has forced organisations to consider rapid replacement of leaders as many are forced to stand down if they need to socially distance. But this raises questions for corporates about how they can still work effectively following these changes, and be seen as accountable when doing so.

Niamh Mulholland, the Chartered Management Institute’s (CMI) director of communications and external affairs says: “In times like these, a robust, agile contingency plan is key. In this context, agility is about flexible, iterative changes and improvements to help meet the overall objectives of your team in the short term.

“Companies need to make sure that there is a clear chain of command, and an appropriate person, or people, in place to take on duties should a senior leader need to take time off work for their own health or to care for another,” he says.

Patrick Sarch, a partner at law firm White & Case, says: “We anticipate that in theory many companies will be well prepared in the event that one or two individuals are required to step back from front line duties, as this will be within the scope of their current continuity plans.
“In practice, however, the difficulty will be in implementing the continuity plans, particularly if key individuals who need to step back are on important time critical projects (e.g. chair of the remuneration committee compiling the remuneration policy) and where their allocated replacements are working remotely and not able to effectively interact with their teams,” he adds.

Sarch says that in many cases there will be experienced members of the executive committee who have sufficient experience to step up into the roles the absent executive directors have been performing on an interim basis. “In such circumstances we would expect the senior independent director to play a key role in maintaining continuity between the senior management and the board.

“In the case of non-executive directors, we anticipate that most committee members will be able to step-up and take over the role of the chair on an interim basis. For example, if the chairman of the audit committee is taken ill in the middle of the finalisation of the Annual Report and Accounts, other members of the audit committee should be able to step-in and finish the process with the support of the executive management team and external advisors,” he adds.

“In the event of the death of a senior leader, their replacement should not be rushed through and the board in conjunction with the nominations committee should follow the usual process for finding the right candidate with the right skills and who is the right fit for the company,” he adds.

Planning for Succession

Francesca Odell and Jennifer Kennedy Park, partners at law firm Cleary Gottlieb who are members of the firm’s COVID-19 Task Force, say many companies have trouble with succession planning even in the best of times. “Succession planning ideally is a multi-year endeavour, requiring a proactive commitment of time and effort by the board, but also senior management in identifying the next generation of leaders.

Odell and Kennedy Park believe succession plans should at minimum identify a person who can immediately step in as interim CEO in the event that the current CEO’s ability to perform is compromised. “There should be replacement plans in place for other key personnel as well, the scope of which will depend on the type of business.

“To the extent possible, there should be an effort to consider geographic diversity when determining appropriate replacement employees – specifically, companies should think about physical separation between key positions and their potential replacements. Should particular areas be especially affected, companies with nationwide or international reach will need to think further about how to spread out key functions as a way to minimise risk,” they say.

They say companies should be proactive about identifying key sectors, functions and personnel, and should continuously be re-evaluating their business continuity plans to ensure stability over time and the capacity to continue meeting demand. The calibre of identified candidates for replacement of critical positions should not be compromised, nor should considerations such as a candidate’s fit with the company’s values be disregarded; rather, what should change due to the coronavirus crisis is the frequency with which such discussions are had.

“Companies should assess the need for eligible replacements on an ongoing basis, and do so in a coordinated fashion with the teams tracking the health and wellness of the company’s employees to identify particularly vulnerable positions or people. Building in multiple layers of redundancy is recommended, particularly at times of crisis, and some companies may, depending on their risk, find it appropriate to identify multiple potential candidates for particularly key roles, to prepare for the possibility that many may fall ill.

“Importantly, companies may need to re-evaluate how they define ‘key’ personnel. While a robust succession plan will necessarily include replacement candidates for C-suite level employees, there are many other employees who may play a crucial role depending on the nature of the business – particularly in these times.

“For example, with social distancing and the increase in digital gatherings, a coronavirus-ready succession plan needs to consider IT and other tech functions (and given the increasing importance of technology in business, this practice should likely continue on after the pandemic abates).

“Furthermore, companies should also be considering if and how lateral reassignments may make sense in a shifting landscape, identifying employees who may be able to temporarily or permanently fill roles outside of their current positions. Clear communication from leadership is key, and should focus on encouraging employees to identify and share information about the critical operational duties they oversee and the core skillsets to maintaining uninterrupted functioning of their roles and teams in the event any employee is forced to step back from their day to day responsibilities,” they add.
Businesses must overcome the normalcy bias and consider responses that deviate from those that are adopted in routine emergencies, says Shainaz Firfiray, associate professor of human resource management at Warwick Business School.

She says in crises that include many ‘unknowns’ business leaders should give up the belief that a command and control approach will bring stability. “A small group of leaders at the top may not always have access to the information that allows them to respond effectively. Businesses can respond more effectively by recognising their immediate concerns and empowering specific staff groups to identify and implement solutions that address those concerns.

Firfiray says an organisation’s senior managers should be prepared to temporarily hand over certain responsibilities to these staff groups and provide them with the authority to make and implement critical decisions. “These staff groups should be multi-disciplinary given that the complex nature of crisis situations makes it necessary to engage expertise from different functional areas.

“These groups can gather and collate information, develop solutions, and improvise them as the situation unfolds. This approach can allow businesses to build a sense of calm and reduce their reliance on senior leaders without compromising on the quality of decisions,” she adds.

Communicating the Issue

The CMI’s Mulholland calls for leaders to undertake a clear and open dialogue with staff who may be experiencing some anxiety about what happens if a member of the workforce, or indeed a senior leadership figure, falls ill. He says clear, empathetic, and honest communication about your contingency plans can help.

“Our research shows that over half (60%) of managers said that their own managers were either good or very good about keeping their employees informed about important changes in their organisations. This is especially important when you’re managing and leading remote workers, or operating in a time of uncertainty,” he adds.

When making any communications around board changes, companies must be mindful of their obligations under the EU Market Abuse Regulation to notify important changes to the role, functions or responsibilities of a director, which may apply if a director is absent for a period of time. Regulated entities also need to be mindful of their regulatory obligations, particularly under the Financial Conduct Authority’s Senior Managers and Certification Regime.

“Continued engagement with all stakeholders is important” says White & Case’s Sarch. “It may be advisable for the chair to contact key stakeholders to brief them about the board change, provide reassurances about continuing ‘business as usual’ and outline the steps the company is taking in relation to any replacement”.