Sections of this topic
Company directors are currently working harder than ever before as they attempt to steer their companies through the chaos caused by the global financial crisis. Many organisations that have suffered (or even precipitated) the crisis displayed most of the externally visible attributes of good governance. Good governance structures and reporting are associated with good corporate performance but they are not, on their own, sufficient to cause it.
Here are some tips to help your board to value substance over form and to perform under pressure:
- Expect the unexpected! Plans made before the crisis or in its early stages may need to be changed. A good way to stay alert to changed requirements is to note and review the assumptions on which each plan was based. Then if a key assumption changes (such as the exchange rate) the plan can be reviewed to see if any change is required. False assumptions are a risky basis for a plan.
- Watch your people. Uncertainty is unsettling and astute competitors may use this crisis to remove under-performing team members from their employ and entice your best people to replace them. Tell your staff that they are valued and that you will fight to retain them. Unless, of course, they are under performing. In that case, it might be time to review commitments.
- Understand your business and the key drivers of value creation in it. Be particularly aware of any changes that may threaten a previously unassailable competitive advantage. You may need to delve deeper into the operational aspects of the business than you did in the past.
- Watch your cash flow. Do not let customers and suppliers use you to subsidise their working capital. Be particularly alert to changes in payment schedules. They could be the first warnings of future defaults. You may find that you can no longer project your cashflow reliably into the future. That is a problem but will only become acute if you cannot cover your obligations as they fall due. Be sure that you are not trading whilst insolvent.
- Secure your funding. Now is not the time for a capital deficit. Be sure that you have sufficient capital. This is not the best of times for capital raising, but it is an even worse time to be undercapitalised. Expensive and hard-earned capital is better than no capital.
- Revalue your assets. What are they really worth now? Will future cash-flows justify their carrying values on the books? Again, you may need to dig into detail that was previously left to management.
- Revisit tip 2 (above). What will be the costs associated with any redundancies? How will these affect cash-flows? What bonuses and other payments (such as long service leave) might impact your cash-flow projections?
- Talk to your shareholders, donors and/or members. It doesn’t matter if you are a large listed corporation, a family business, a non-profit or something else. These stakeholders will be concerned about the effect of the crisis on their company and you have a duty to keep them well informed.
- Reassess your board. Is it capable of governing through this crisis? Are additional skills needed? How can you improve the board’s performance?
- Revisit your risk management. Things have changed and you must ensure that new risks are identified and plans put in place to manage these. Keep your risk register as current as possible and be sure that appropriate powers for dealing with risks (and opportunities) have been delegated to the right people.
Whilst these are difficult times for all organisations the true test of good governance is that it will help to establish better performance over the long run and to ensue survival in the short term. Here’s hoping that YOUR governance meets that test; good luck!
______________________________________
Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See herwebsite andLinkedIn profiles, and get her booksDilemmas, Dilemmas: Practical Case Studies for Company Directors andPresenting to Boards.
