Board Briefing (Covid-19): Looking ahead in uncertain times

Board Briefing (Covid-19): Looking ahead in uncertain times

About this Board Briefing

Despite the ongoing challenges faced by UK businesses, as lockdown measures ease and businesses start to re-open and adjust to a new way of working, directors across all sectors will be looking ahead and need to maintain a ‘hands on’ approach to considering, implementing and communicating key decisions.

It remains vital not only to deal with events in real time as they arise, but also to anticipate the next set of challenges and put appropriate measures in place to protect the business from further waves of the Covid-19 pandemic.

Talking openly about the risks and opportunities at Board and senior management level will allow directors and senior management teams to engage and proactively manage conflicting pressures, build greater resilience and achieve the best possible outcome for the business in the short, medium and longer term.

The purpose of this Board Briefing is to provide an overview of the key issues that may lie ahead together with a list of action points to help set the agenda for discussions on the following areas: 1. Operational 2. Financial and strategic opportunities 3. Corporate governance and legal 4. People and health and safety 5. Stakeholders: customers, clients and the market 6. Brexit 7. Data protection and cyber security 8. Insurance cover 9. Ethical and ESG. Please note that this Board Briefing is not intended to be exhaustive and is only an outline of the issues and points that may need to be considered. How relevant each of the items will be to a particular business will depend on the nature, size, scale and complexity of the relevant organisation.

If directors, senior management or in-house lawyers want to discuss any of the issues below in more detail, please do get in touch. Our Corporate lawyers are very happy to talk these through face to face (via video conference).

Key contacts are set out at the end of this Board Briefing.

We would also welcome any feedback for our future Board Briefings.

Operational

Many businesses are starting to turn their attention to what their operations may look like post Covid-19. The Covid-19 pandemic has seen a massive acceleration in digital transformation, with technology playing a crucial role in keeping our society functional in a time of lockdown and quarantine.

Technology and innovative transformation will have a long-lasting impact beyond Covid-19 and will affect many fundamental aspects of our lives, including how we do business, how we trade, how we work, how we produce goods, how we learn, how we seek medical services and how we entertain ourselves.

As part of the Board’s ongoing monitoring and oversight responsibilities, directors and senior management should continue to monitor, discuss and evaluate what modifications to its business plan or corporate strategy are necessary. A well-designed business plan will allow a business to remain operationally flexible, resilient and adaptable to a changing environment and take advantage of new opportunities that may arise.

ACTION POINTS 1. Review ongoing trends and consider increased and sustained open dialogue with business managers to identify any updates needed, which may include: -

fostering new commercial relationships or alliances

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taking a different approach to the development of technology / innovation

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disposing of non-core assets or businesses

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exploring lower cost financing structures

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upskilling employees or bringing on new talent, and

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evaluating real estate needs.

2. Consider carrying out an internal audit and company-specific risk planning exercise to identify “lessons learned�, additional risk areas and vulnerability and actionable ideas for improvement.

3. Ensure any updated business plan or corporate strategy addresses matters such as employee availability, functionality of IT systems, cybersecurity, communication protocols and legal / regulatory compliance.

Financial and strategic opportunities

A key challenge for directors during and post Covid-19 has been, and will continue to be, cash flow and liquidity.

In challenging financial circumstances, directors need to closely monitor the company’s financial position and future cash flows to consider ways to increase revenue and reduce expenditure.

Looking ahead, directors should also consider with their management team whether and if so where opportunities are likely to emerge that are aligned with the company’s overall business plan and corporate strategy. There could be opportunities to fulfill an unmet need occasioned by the Covid-19 pandemic or opportunities for growth through strategic acquisition.

ACTION POINTS 1. Keep the company’s financial situation under frequent review, regularly updating operational forecasts and continuity plans.

2. Minimise expenditure and ensure that the interests of creditors are considered carefully when considering any new borrowing or increased liabilities.

3. Ensure the Board has systems in place to be able to receive relevant information in a timely manner to monitor issues and opportunities and their potential risks to and effects on the company.

4. Stress-test any revised or new plans and make sure that all directors understand and assess how the revised or new plans will impact the Board’s overall risk appetite.

5. When investigating new opportunities, ensure that a comprehensive due diligence process is completed.

6. If in any doubt, seek and obtain professional advice from lawyers, accountants or insolvency practitioners on any plans and/or revised plans.

Corporate governance and legal

The UK Government has proposed a number of measures to provide directors with some breathing room in the face of the Covid-19 pandemic.

One example is the Corporate Governance and Insolvency Bill (further details available here).

However, these measures are only temporary. Each director still needs to be aware of their respective directors’ duties – the fundamental duty being to promote the success of the company over the long-term for the benefit of shareholders as a whole, having regard to a range of other key stakeholders and interests including employees and creditors.

If a company is experiencing financial difficulties and there is a real risk of insolvency, then once appointed, liquidators and administrators will start to review all Board decisions, transactions and actions the Board have taken to mitigate the situation.

Such investigations may open the Board or individual Board members to potential misfeasance claims and/or various fraud and misconduct related offences under insolvency legislation. Directors could face potential personal civil and criminal liability and/or face disqualification orders. For further details of possible claims please click here.

To help mitigate the risk, directors should consider the effect of each decision and what implication it will have long-term.

This will help minimise any potential claims, protect the brand and reputation of the business and build trust and confidence with the stakeholders and potential investors.

ACTION POINTS 1. Consider the purpose and rationale for key decisions and, where possible, ensure there is evidence or fact to support the decision.

2. Minimise the risk of poor decisions by investing time in effective decision-making policies and processes, including setting up committees and obtaining input from key stakeholders and expert opinions when necessary, as an effort to consult with outside advisors can help demonstrate a Board’s good faith effort to be and stay informed.

3. Monitor the efforts of individual business managers to identify, prioritise and deal with potentially significant risks to operations, including through more regular updates between regularly scheduled Board meetings.

4. Keep proper and accurate minutes of Board meetings, noting in particular any decisions made and the reasons for them.

5. Have regular communication with shareholders and stakeholders to instil confidence and trust in the company (including holding an AGM virtually if needed).

6. Maintain focus on oversight of compliance risks, especially for businesses operating in highly regulated areas.

7. Review the Board composition, culture and style; consider whether any new specialist expertise is required in light of any changes to the business plan or corporate strategy or as a result of emerging trends.

8. Implement an evaluation process to review the effectiveness of the Board’s decision-making process once a significant decision has been made and implemented.

People and health & safety

Health & Safety and Employment Tribunal claims The Covid-19 pandemic has given rise to a range of issues that could result in Employment Tribunal claims. Concerns raised by staff about their health and safety at work (including PPE shortages, lack of testing, outbreaks amongst staff and customers/ clients and the increased risk they face due to underlying health conditions, age or pregnancy if infected) need to be managed with caution and with due regard to the broad range of rights that staff have under health and safety, whistleblowing and employment legislation.

ACTION POINTS 1. Manage risks proactively by being transparent with staff about how the business is assessing and managing risks to health and safety and ensure there are effective procedures for staff to report their concerns internally.

2. Ensure operational procedures and risk assessments cite and follow current government guidance – check staff are putting that guidance into practice and keep risk assessments updated.

3. Document what actions are taken to comply with health and safety measures (which will be critical to a defence if a claim is to arise).

4. Keep detailed records of any incidents, including dates, times and details of all discussions.

Wellbeing The behaviours that the Board display, individually as directors and collectively as the Board, set the tone from the top.

Communication between the staff and the company is vital. It provides useful feedback about business practices from those delivering them, and can help empower colleagues. The Board and senior management will need to continue to monitor employees’ wellbeing on an on-going basis and ensure that they put in place measures to protect the personal health and safety of employees (and their families), customers, business partners and the public at large.

People and health & safety (cont’d)

Wellbeing (cont’d)

ACTION POINTS 1. Ensure that the Board has been provided with briefings on likely key concerns from staff.

2. Consider whether the Board is comfortable with the measures proposed to identify and address cultural issues arising from new ways of working.

3. Review whether any changes are needed to HR policies and contracts of employment.

4. Consider whether incentive plans need to be reworked in light of the circumstances, to retain key talent, attract new talent and ensure that appropriate behaviours are encouraged.

Coronavirus Job Retention Scheme If the business has furloughed staff and claimed under the CJRS, ensure there are robust records of the decisions made so that the Board are adequately prepared for any future HMRC audit.

ACTION POINTS To minimise the risk of an adverse audit ensure that a report is prepared setting out: 1. Reasons for the decision making 2. Copies of all guidance relied on to justify the decisions, including the version of HMRC’s Employer Guidance and the Treasury Direction that applied at the time of the decision making 3. Evidence that there has been no double recovery, such as records of additional staffing costs incurred to replace furloughed staff and details of how any additional public funding received during the crisis has been used 4. If applicable, records of private/public funding ratio and how this correlates to the staffing costs furloughed, and 5. Documentary evidence that employees have expressly or impliedly agreed to be furloughed.

Stakeholders: customers, clients and the market As businesses are re-opening and adjust to a new way of working, communication with stakeholders will be essential.

Dialogue can help the Board to understand significant changes in the landscape, predict future developments and trends, and re-align strategy.

Key stakeholders are likely to include the workforce, customers and suppliers. They may also include other stakeholders who are specific to the company’s circumstances, such as institutional investors / funders, regulators, government, banks and other creditors, trade unions and/or community groups.

ACTION POINTS 1. Identify and prioritise those key stakeholders who are important in the context of the business.

2. Evaluate potential disruptions to those key stakeholders and other business relationships; consider what impact Covid-19 has had on key customers, suppliers, financing sources and service providers.

3. Review with business managers the risks of any disruption in the supply chain and how to protect against such risks, including the availability of alternate sources of supply.

4. Review key customer / client contracts for susceptibility to claims to excuse performance and any other potential issues relating to force majeure, triggers for defaults, termination rights and related contract terms.

5. Consider whether the approach to customers / clients is consistent with the company’s existing terms and conditions?

Review existing terms and conditions to ensure they are still relevant and fit for purpose.

6. Consider what steps have been taken to ensure that suppliers meet expected standards of behaviour? Is the Board clear on the approach being adopted by key third party suppliers in their interactions with the customers and clients? Do the third party approaches align with the values or new values of the company?

Brexit

Although Brexit has been on the back burner during the pandemic, the UK Government’s deadline (1 July 2020) to request an extension to the EU transition period is looming. The Prime Minister has indicated that he will not request for an extension, as such, the transition period is due to end on 31 December 2020. Until the end of the transition period, the UK will remain in both the EU customs union and single market.

The UK-EU trade talks have been on-going, although due to the pandemic, slow progress has been made. There is a real risk that no trade deal will be agreed. Even if a free trade agreement is negotiated, this will still give rise to a strong change in the trading conditions at the start of 2021.

Furthermore, if the experts’ predictions are correct, this may coincide with the second Covid-19 peak which will put greater pressure on businesses. Businesses should start preparing now – simply taking a ‘wait and see’ approach is not advisable.

ACTION POINTS 1. If not already done so, prepare a fair Brexit impact plan.

2. If a Brexit impact plan has been prepared, it should be reviewed in light of the Covid-19 pandemic and a further risk assessment may be needed.

3. Evaluate potential disruptions to key stakeholders and other business relationships and consider what impact Brexit will have on key customers, suppliers, financing sources and service providers.

4. Consider how any changes to the free movement regime will impact or disrupt the business.

Data protection and cyber security

As the Covid-19 pandemic has forced organisations and individuals to embrace new practices and technology, exposure to cyber threats is increasing significantly. Cyber criminals around the world have been active across all sectors, not just affecting organisations themselves but also end-users.

As technology will continue to play an essential part in our new way of working, it is essential to strike a critical balance between security and privacy, and market, cost and convenience.

ACTION POINTS 1. Watch for vulnerabilities caused by the Covid-19 pandemic that may increase the risk of a cybersecurity breach.

2. Review cyber security arrangements, ensure that the company’s policies and procedures have been strengthened to address the heighten risk created with employees working from home, supply chain disruptions and new customers.

3. Ensure robust policies and procedures are put in place to ensure new customers and suppliers are vetted and approved.

4. Review policies and procedures in place to ensure that new technology tools and apps are vetted and approved.

5. Review and update incident response plans, keep a detailed record of any breaches and if required report incidents to the appropriate regulators.

6. Ensure that staff are regularly trained to deal with and identify issues and report them promptly.

7. Check if business insurance covers cybercrime and data protection related issues.

Insurance cover

Public liability insurance and employer’s liability insurance may or may not cover Covid-19 related negligence claims.

Business interruption claims are being routinely rejected and group actions have been started against insurers such as Hiscox.

The Financial Conduct Authority are also taking rapid action to set precedents and try to force insurers to act fairly. There is more information here: https://www.fca.org.uk/firms/business-interruption-insurance Note that if claims made under insurance policies for matters that are covered are denied, the company may need to bring a claim against its insurer to ensure they get the cover to which they are entitled. If insurance brokers have not ensured that adequate cover is in place, this may also give rise to an action for professional negligence.

ACTION POINTS 1. Check whether insurance covers claims relating to the Covid-19 pandemic.

2. Start any renewal process much earlier than usual.

3. Check what cover is in place in the event of criminal prosecution. For example, does the insurance cover the costs of a defence and criminal fines and is there sufficient directors’ and officers’ liability cover in place?

Ethical and ESG

Although environmental, social, and governance (ESG) factors will not be in the front of the Board’s mind, as we steer ahead it is a vital ingredient to coming out the other side of the Covid-19 pandemic.

Prior to the Covid-19 pandemic, companies were making positive strides in areas of gender equality, diversity and inclusion, climate change and contribution to society – all the good work should not be set aside and go to waste.

Good corporate governance should be upheld in order to promote a company’s long-term successes and provide muchneeded transparency and consistency to their stakeholders.

In the long-term, the capacity for a company to be fair and take the long view by managing its way through the Covid-19 pandemic will be remembered by its stakeholders.

ACTION POINTS 1. Identify the social and environmental considerations that are relevant for the business and link these to the company’s business plan and corporate strategy.

2. Inform and communicate the company’s ESG strategy to key stakeholders.

3. Promote the culture from the top-down, where ESG considerations are part of the ‘day to day’ decision-making process in the business.

Your key Corporate contacts

John North Partner & Head of Corporate T: 0207 842 1490 M: 0782 527 4640 john.north@roydswithyking.com

Claus Andersen Partner T: 0207 842 1462 M: 0755 716 0335 claus.andersen@roydswithyking.com

Katharine Mortimer Partner T: 01225 7301 68 M: 07789 930 728 katharine.mortimer@roydswithyking.com

Hazel Phillips Partner T: 01225 730 166 M: 07776 241 235 hazel.phillips@roydswithyking.com

Iain Butler Partner T: 01865 268 666 M: 07384 460 413 iain.butler@roydswithyking.com

James Worrall Partner T: 01225 730 170 M: 07881 092 464 james.worrall@roydswithyking.com

Dan Meadon-Bower Partner T: 01225 459 990 M: 07384 546 861 dan.meadon-bower@roydswithyking.com

Carl Selby Partner T: 01865 264 004 M: 07590 845 436 carl.selby@roydswithyking.com

Bharti Moore Senior Associate T: 0207 842 1522 M: 0783 349 3972 bharti.moore@roydswithyking.com

Rishi Ladwa Senior Associate T: 01793 847 716 M: 07824 832 152 rishi.ladwa@roydswithyking.com

Royds Withy King LLP is a limited liability partnership registered in England and Wales with registered number OC361361. Royds Withy King LLP is authorised and regulated by the Solicitors Regulation Authority.

The term partner is used to refer to a member of the Royds Withy King LLP or an employee or consultant with equivalent standing and qualification. A list of members is available at the registered office 5-6 Northumberland Buildings, Queen Square, Bath BA1 2JE. Information contained in this communication does not constitute legal advice. All statements are applicable to the laws of England and Wales only.

roydswithyking.com @RoydsWithyKing

Royds Withy King

RoydsWithyKing

/RoydsWithyKing.law

Royds Withy King LLP is a limited liability partnership registered in England and Wales with registered number OC361361. Royds Withy King LLP is authorised and regulated by the Solicitors Regulation Authority. The term partner is used to refer to a member of the Royds Withy King LLP or an employee or consultant with equivalent standing and qualification. A list of members is available at the registered office 5-6 Northumberland Buildings, Queen Square, Bath BA1 2JE. Information contained in this communication does not constitute legal advice. All statements are applicable to the laws of England and Wales only.