It is now more than five months since government announced a National State of Disaster in response to the COVID-19 pandemic and shortly thereafter, a nationwide lockdown of all "non-essential" industries. This has caused a massive disruption to our economy. It has wreaked havoc on business owners and employees. The fallout, and the challenges that come with it, will endure for some time. The disruption can, however, present new opportunities and prove a catalyst for change.
The King IV Report on Corporate Governance recognises that organisations are a key component of South African society. It defines corporate governance as "the exercise of ethical and effective leadership by the governing body towards the achievement of defined governance outcomes: ethical culture, good performance, effective control, and legitimacy". It is, however, well acknowledged that in the time of a global crisis, such as COVID-19, it is anything but business as usual. The governance principles set out in King IV will thus need to be reconsidered and recalibrated.
A time like this calls for business leaders to use their experience and judgement to reimagine the traditional business landscape and give life to this new normal. In response to this, the King Committee, together with the Institute of Directors South Africa, has published a guidance paper titled "Responsible Leadership in Responding to COVID-19". The discussion paper does not remove the responsibility of those organisations from being legally required to comply with King IV or the JSE requirements. Rather, it seeks to highlight certain key areas which may now require additional and specific attention, and aims to assist businesses to navigate a world during and post COVID-19. Below are some of the most important elements.
COVID-19 has shocked business leaders into action, and made them carefully consider their current values and assess whether they are appropriate in light of the changing market and, most importantly, whether they will be supportive of a post COVID-19 economy. Hopefully this will encourage businesses, both small and large, to look inwards and formulate their own unique solutions to the fundamental changes in the business environment. Organisations will need to:
Steering an organisation through a crisis is no easy task and organisations will need to consider whether they have the necessary skills in-house to navigate the course, or whether external guidance and support is necessary.
One of the most critical components of a successful business is the people. This is why the preservation of human capital, in terms of their skills, experience and institutional knowledge, is key to an organisation's ability to demonstrate resilience through the current pandemic and in a post COVID-19 environment. As a minimum, responsible leaders should be:
Not only has COVID-19 brought an entirely new set of risks, which seem to change daily, it has forced many organisations to consider the impact that this pandemic is having on their cash flow, and the assessment of their business's long term (and, in some cases, short term) ability to continue as a going concern.
Depending on the particular industry, business operations may have ceased completely, supply chains may have been interrupted, and projected financial income may be left unrealised. For many, this will have a significant and dire long-lasting financial effect. Organisations have been forced to evaluate the opportunities and risks thoroughly across the business. Some risks may be easily mitigated, others may require fundamental revision. This exercise might require repeated assessment over shorter periods, particularly given the need for flexibility to respond to changing governmental regulations.
Communicate, communicate, communicate! In the midst of a crisis, there is nothing more essential than building a relationship of trust between the organisation, the employees and its stakeholders. One of the easiest ways to do this is honest communication, which brings about collaboration and mutual support. Never underestimate the transformative nature of communication which is frequent and transparent.
It is important to realise that change can be good. Traditional markets are undergoing significant changes and current business models may no longer function in the way they were originally intended. This is going to force businesses to embrace something new and uncertain. Governing bodies are encouraged to have serious discussions about their business models and whether these remain valid or need to be adapted to take advantage of the new opportunities. Those organisations with clear proactive strategies and flexible recovery plans will likely be the most resilient.
Lastly, being alive to the legal impacts of the COVID-19 pandemic on a business or organisation is critical. These include:
It is clear that the extent to which organisations are impacted by COVID-19 will vary across sectors of the economy and civil society. The roadmap for survival, however, remains the same – those who prioritise socially responsible survival rather than survival at all costs, will likely succeed. A balance must ultimately be struck between business sustainability and compliance with corporate governance principles to achieve ethical and effective leadership.
Krige is a Director and Ebrahim an Associate designate with Cliffe Dekker Hofmeyr.