Institute of Directors chief executive Kirsten Patterson. Photo / Supplied
Institute of Directors chief executive Kirsten Patterson. Photo / Supplied
The coronavirus crisis has highlighted that New Zealand companies have been too focused on natural risks in their crisis planning, says the Institute of Directors.
Chief executive Kirsten Patterson said it wasn't fair to suggest directors and company leaders had been caught napping by the pandemic because it was sounprecedented - but the IoD had been disappointed by its survey result last year which showed only 65 per cent of boards had discussed their crisis management plans in the past 12 months.
"That's much lower than we would've liked and we raised that as an issue with the community at the time about the importance of good crisis management planning.
"No organisation is likely to have planned for this scenario. There may be one or two but I can't imagine many. Even when they've had a crisis management plan in place, very few would've (provided for) a nationwide lockdown with the closing of international borders globally."
Patterson said many plans would have been built around regional close downs due to a natural disaster or some form of revenue shock for a short period.
"What this has highlighted perhaps in the New Zealand context is we have been too focused on natural risks."
Another lesson was organisations which had a good communication plan in place and had thought about how they would respond, regardless of the nature of a crisis, would have been able to respond in the most agile way, Patterson said.
"If they had put thought and planning into how they would deal with business continuity around an earthquake for example and working from home, they would have had something to draw on.
"(Also) boards which have communication and crisis plans in place that allow decision-making under times of stress and have tested those and have some skills and muscle memory in place ..."
Better equipped would also be boards that had strong relationships with their executive team, she said.
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"Those relationships are being called on as our way of working has changed. We need to be able to communicate and trust and empower people to be able to make decisions in a truly unprecedented time when not just the country is operating under Civil Defence emergency arrangements, but organisations are operating under similar rules."
Patterson said it was inevitable new stress testing regimes would emerge from the pandemic experience.
"Think about it even in our own households. How many of us were truly prepared?"
One of the harder things to anticipate has been consumer behaviour changes, she said.
"Not only in consumer spending but consumers are not responding in a way they normally would, because of situations of fear. How much of that boards would have anticipated and planned for was not something on our radar."
The IoD's advice response to the crisis had included webinars with directors leading organisations through crisis management and innovation during times of crisis and exploring the strategic impacts on businesses.
It was also offering information and advice on its website, accessible to all companies, not just IoD members.
Patterson said there had been very good engagement with MBIE and Government ministers over director responsibilities and liability during the crisis.
The upshot was the Government undertaking to introduce legislation to make changes to the Companies Act to help companies facing insolvency due to the virus to remain viable and keep New Zealanders in jobs.
The temporary changes included: giving directors facing significant liquidity problems because of Covid-19 a "safe harbour" from insolvency duties under the Companies Act; enabling businesses affected by Covid-19 to place existing debts into hibernation until they are able to start trading normally again; allowing the use of electronic signatures where necessary due to Covid-19 restrictions; giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation; and giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of coronavirus.
Patterson said there was "a very fine line" between giving directors confidence enough to take their time in this period and not act too quickly at the expense of the business and balancing that need with the responsibility to creditors.
"New Zealand is going to need good companies and good employers on the other side of this and providing relief for directors so they feel that have confidence to make decisions during this time has been important."
Business advisor KPMG in an October report on a board's role in crisis prevention and readiness warned of the increasing likelihood of externally-triggered crises from cyber attack and natural disaster to terrorist-caused supply chain failure.
The report said this should be prompting a hard look by directors at crisis readiness and response. It also noted external interest in board activities was on the rise with directors increasingly held to account as the ultimate protectors of corporate value.
"While regulators and investors are increasingly seeking greater transparency and accountability, as the most senior board members, the chair and senior independent director should be taking the lead in setting the agenda and the tone of the board."
