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Key Oversight Areas for Boards During the COVID-19 Pandemic

March 27, 2020, Covington Alert

While Board duties remain unchanged in a crisis situation such as the COVID-19 pandemic and the role of a board of directors continues to be one of oversight, the disruption and dislocation resulting from the pandemic warrants greater and more frequent coordination between boards of directors and management teams which have responsibility for day-to-day operations. Set forth below are a number of important areas that merit particular Board attention in order to evidence the discharge of the Board’s fiduciary responsibilities. These factors, which are outlined below, are particularly focused on Boards’ responsibility to provide active oversight and to assist in understanding the facts on the ground, testing assumptions and exercising thoughtful, informed and fact-based decision making in the best interests of the Company and its stockholders.

Financial and Business Impacts

  • Short- and long-term financial impacts of COVID-19 on Company’s business, including the health and safety of employees and consequences for Company’s operations and strategy
  • Identifiable and potential risks to Company’s business
  • Capital resources and liquidity
  • Appropriate use of capital (share repurchases, dividends, etc.)
  • Reassess budgets and capital expending plans
  • Relationship with third parties, including credit worthiness of customers, and the ability of manufacturers, customers and vendors to perform under contracts, including events of default, force majeure and termination provisions
  • Supply chain, pricing and foreign exchange and related mitigation strategies
  • Insurance coverage
  • Functioning of internal controls, audit and financial review functions due to remote working and other factors
  • Consider potential benefits of $2 trillion stimulus plan to employees, customers, vendors, etc.

Board Engagement

  • Consider more regular engagement with management between regularly scheduled Board meetings and creation of processes to implement more frequent communication among directors and management to ensure effective and ongoing information and reporting systems for the directors
  • Consider whether full Board, executive committee, audit committee or, if applicable, risk committee should be tasked with more regular communication and oversight of COVID-19 related matters
  • In the short term, hold telephonic or virtual rather than in person meetings
  • Oversee communications with, and guidance from, applicable regulators and other government agencies relating to, among other things, emerging legislative and regulatory developments
  • Review Board and committee meeting requirements (e.g. quorum, advance notice, etc.)
  • Calendar near and intermediate term required Board and committee approvals
  • Crisis management plan
    • Cross-functional team in regular contact with Board
    • Crisis response playbook, communication templates, checklists and manuals
    • Contingency planning

Employee Related Issues

  • Communication and policies to protect employee well-being and morale
  • Preparedness for mitigation of disruptions and economic impact resulting from closures, remote working environment and potential illness among employee base, including contingency plans in the case management becomes incapacitated
  • Key person succession plan
  • Review alignment of employee compensation, incentives and related goals and milestones in light of evolving environment, including paid or unpaid leave where employees cannot perform their job remotely

IT Related Topics

  • Assuring connectivity of employees and IT infrastructure, including remote access
  • Assessment of employee productivity
  • Privacy and confidentiality issues in remote working environment
  • Risks and mitigation strategies for cybersecurity breaches

Communications and Public Reporting

  • Communications with stockholders and other constituents, including employees, customers, suppliers, etc.
  • Consider whether previously issued earnings guidance should be withdrawn or updated, and whether to suspend guidance for a short period
  • Update disclosures to address the known or reasonably likely effects and risks presented by COVID-19 and related business and market disruptions; this may affect risk factors, MD&A (both results of operations and liquidity), forward-looking statements, legal proceedings, disclosure controls and procedures, internal control over financial reporting and financial statements
  • Potential Form 8-K disclosure upon the occurrence of certain events (e.g. termination of material contract, incurrence of material debt obligation, reporting cost associated with exit or disposal activities, material impairments, changes in senior management or roles due to key person(s) becoming incapacitated due to illness)
  • Consideration on whether to use permitted SEC filing delays (SEC has provided a conditional 45-day grace period for filings due between March 1 and July 1)
  • Virtual annual meeting alternatives (Details here)

Strategic Opportunities, Shareholder Activism and Hostile Situations

  • Monitor opportunities that might emerge as a result of market and competitor dislocation and disruption
  • Monitor changes in stock ownership
  • Communication with Company stockholders
  • Company vulnerability resulting from stock market fluctuations and stock price performance
  • Update defense preparation plans

If you have any questions concerning the material discussed in this client alert, please contact the following members of our corporate practice.

C&B

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