After the initial spike in COVID-19 cases in Canada, the country has cautiously started to get back to business in most provinces. Chances are good your board has already had emergency sessions about what your organization will do during the crisis, but there is more work to be done in the face of what looks to be a situation that will last, in some capacity, for a year or longer. Social distancing, the use of Personal Protective Equipment (PPE), and remote working where possible are all recommendations in the Government of Canada’s detailed guidelines for workplaces and businesses during the COVID-19 pandemic.
In addition to fiduciary duty, Canadian board members have obligations to provide general oversight for their organizations. These oversight obligations are very important in the context of COVID-19 and its consequent financial downturn. A safe return-to-work plan, ensuring that the company is fiscally sound, and risk assessment and management are all on the table during what are sure to be lengthy board meetings that will not be business as usual.
Health & Safety
The first concern of everyone in an organization for a return-to-work plan is the health and safety of its employees. Where possible, employees should work from home and only return to offices in regions where there is a significant downturn in COVID-19 cases. For some provinces, such as Ontario, this can only legally happen in Phase 2 of the provincial government’s reopening plan. While the board traditionally does not have a role in approving most human resource decisions, this is one area where they should have some oversight. The government of Canada has an excellent guide for workplaces and businesses during the COVID-19 pandemic which breaks down what to do for each category of business.
Board members should create a list of potential risks for the business based on the experiences and informed opinions of management and staff. There are multiple risks to be managed, from ensuring that a return-to-work plan does not run afoul of employment law, to supply chain issues that could impact the business. Cybersecurity is also of heightened importance during COVID-19, as many bad actors are taking advantage of the shift to remote work to grab passwords and other sensitive company data. Osler has an excellent list of the various areas of risk which board directors should be paying attention to.
COVID-19 has, at least temporarily, plunged Canadian business into the worst financial crisis since the depression. Timothy Lane, the Deputy Governor of the Bank of Canada, stated in a recent speech that Canadian gross domestic product is on track to be reduced anywhere from 15 to 30 percent from the same period in 2019. The crisis and the shutdown required to contain it has impacted every sector of the economy with very minor exceptions, and even businesses which are doing well right now may not continue the trend.
Quite obviously, this signals the need to further scrutinize financials on a frequent basis in order to ensure the health of the company, and to quickly spot downward trends and act when they are recognized. There are also an extensive amount of government financial programs available to subsidize wages, provide low or no-interest loans, and more during COVID-19. KPMG has excellent guides on tax considerations and financial reporting to help with some aspects of financials. CPA Canada has a similar list of resources covering everything from reporting to audit considerations during COVID-19.
Shareholder Activism & Opportunism
The duty of the board is to the company and its shareholders. However, in times of crisis, it is necessary to look out for increased shareholder activism and opportunism. Shareholder activism can generally be avoided by taking steps to provide transparency and communicating with shareholders regularly to ensure their needs are met. In a recent blog, Osler signals the need to be vigilant in the face of these risks as Canada provides a more fruitful landscape for opportunistic investors compared to the United States.
Shareholders should be kept apprised of any major changes in the business due to COVID-19 with active engagement. While it is hardly opportunistic, stocks are foreseeably not doing well at the moment and the first primal instinct stockholders have in a downturn is to sell. A solid shareholder engagement strategy and transparency of company financials can help to stem this tide as well as holding activism at bay.
Osler also suggests two legal protections if they are not already in place: shareholder rights plans and advance notice provisions. A shareholder rights plan is also known as a “poison pill” and it is designed to prevent third-party hostile takeovers. Companies such as Air Canada are renewing their existing shareholder rights plans in the face of the crisis.
Advance notice provisions require shareholders to provide 30 to 65 days of notice before proposing nominees to the Board of Directors. Replacing board members at or before a shareholders’ meeting is a tactic often used by activist shareholders to replace board members that do not agree with their campaigns. The advance notice gives the company time to respond to the nomination and circulate the information to other shareholders prior to the shareholder meeting.
In this time of crisis, Canadian boards need directors to step up to ensure that their organizations can emerge from the other side of the crisis flourishing and with healthy staff. Without good corporate oversight, it is easy for important things to slip through the cracks.
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