Corporate directors need to examine environmental, social and governance (ESG) issues as well as prepare for the temporary or permanent loss of key executives, corporate lawyers say.
Of particular focus, say Vancouver lawyers Harj Sangra and Rod Talaifar, should be management of health risks of employees and customers.
“A key issue facing boards of directors will be to understand such risks and, along with management, develop effective strategies for their mitigation and minimization,” a briefing note from the two lawyers from Sangra Moller LLP said. Both are also adjunct law professors at UBC.
Indeed, Talaifar told Business in Vancouver, companies and boards may well be judged on how they handled ESG issues when the COVID-19 situation passes.
“The focus is going to be on how you handled your people more than anything else,” Talaifar said. “This is a moment of truth for ESG.”
Talaifar said directors need to have lines of communications with managers open in order to understand financial and liquidity risks so steps can be taken to manage issues as they arise.
Sangra and Talaifar also warn of problems arising from shareholder activists and corporate raiders taking advantage of the current situation.
“Increased market volatility as a result of the pandemic and the dislocation of market and book values may give rise to increased shareholder activism and raise the prospects of opportunistic takeovers,” the note said. “The directors of publicly traded corporations should assess the risk of activism and takeover threats in light of the current pandemic and consider reviewing their takeover defence readiness with their advisors.”
Key issues to examine, they said, are:
• receiving regular information on financial positions and short- and medium-term liquidity needs as well as detailed data on bank and bond financings availabilities and existing and potential credit facilities and lines of credit;
• being familiar with key covenants under existing loans and credit facilities to assess availability and potential default scenarios;
• reviewing prior financial guidance, risk factors and other forward-looking disclosures to assess update needs;
• evaluate potential transaction opportunities resulting from the existing market environment;
• re-evaluating compensation strategies and changes as required, including in retention of critical employees;
• reviewing any existing share buyback or dividend policies;
• examining existing capital spending and other business plans to ensure continued viability; and
• seeking regulatory guidance.