In my almost 40 years of working as a management and financial executive and serving as an Audit Committee Chair to public companies, I thought I had seen every crisis in the playbook: multiple economic downturns, the 1989 earthquake and its impact on the Bay Area, Y2K, 9/11, and the Great 2008 Recession. But none prepared me and others for COVID-19 and the quick, debilitating impact it has had on our economy and the businesses that we lead or advise.
In this type of crisis, it is often the Audit Committee that becomes the “crisis management” committee for the company, and its Chair is at the center of it all, assessing the company’s risk and providing sound counsel and advice to both the Board of Directors and the executive team, especially the CFO.
Here is my checklist of things an Audit Committee Chair should be thinking about when a crisis like Covid-19 disrupts a business:
- Organize a Crisis Management Subcommittee of the CEO, CFO and up to three BOD members, with the Audit Chair at the helm.
- Ensure the company’s CFO is laser-focused on monthly (or perhaps even weekly) operating cash burn, cash flow and bringing down the expense base of the company as quickly as possible. Have he/she look at salary reductions first, then furloughs or layoffs via a reduction in force (RIF). Cash is king, and it needs to last as long as possible. If eligible, look at all possible loan programs, like the Small Business Administration, or draw down as much as possible on the company’s debt vehicle, if it has one.
- Now is the perfect time to critically examine and re-justify all expenses and to renegotiate all office leases.
- Mentor the CFO to think through multiple different scenarios on where the business is, or could be headed, for the remainder of the year. As Audit Chair, you want to help the CFO through the scenarios and what levers he/she can pull to ensure the business will remain as intact as possible throughout the year.
- Ensure the company’s Head of People/Human Resources is focused on employee safety if employees need to remain on-site during the crisis. What are employees asking for, and what are their needs to continue to do their jobs in as safe an environment as possible?
- Review the insurance portfolio with the company’s CFO. Is there business interruption or continuation insurance that may be applicable? A strong suggestion is to ensure familiarity by the BOD and its CEO and CFO with Directors & Officers (D&O) insurance, Employment Practices Liability (EPL) insurance and other policies that could come to play down the road if this crisis persists or gets worse. The Audit Chair should also check with the CFO to determine if the D&O policy includes coverage for external communications costs when managing a major crisis. The BOD needs to be familiar with how the Economic Stimulus Bill that just passed works – and its implications for employee sick leave, other paid leave, and unemployment insurance if in fact a company moves to furloughs or RIFs.
- Lastly, the Audit Committee Chair needs to be a steady hand of prudent judgement, mentorship, and steadiness throughout the crisis.
If your company needs Audit Committee support during this COVID-19 crisis, FLG Partners can assist. Give us a call.