The recent outbreak and rapid global spread of the Coronavirus Disease (Covid-19) has without a doubt had devastating effects on the global economy. Away from the increasing daily reported deaths, many companies have had to shut down operations or transition to remote working either as a precautionary measure or due to government directives. As a ruinous outcome, millions of employees have been rendered redundant, with several employment relationships terminated or placed on hold. Generally, there is a palpable feeling of panic amongst both employers and employees as they face an uncertain future as the full but eventual impact of the pandemic remains to be seen. These events have brought to the fore the compelling importance of business continuity and succession plans in the administration of businesses.
Understandably, while a lot of focus is being placed on the pandemic and the resulting fallout, there is a key lesson to be learnt from a corporate governance perspective which has itself been severely impacted by Covid-19. The administration of most companies has grounded to a screeching halt, due to inability to hold meetings: general, board, committee and/or management, which are crucial to chartering a course through the present crisis. Thus, the actions of the board of directors (the Board) in preparing for times such as this becomes very important. Essentially, the Board being perhaps the most critical organ of a company due to its responsibility for overall management, steerage and financial performance should have developed certain policies and plans which include the business continuity plan and business succession plan.
Read also: Coronavirus: Nigeria now has 7 functional laboratories
Developing a business continuity plan is very important for every company and is a key objective of the Board. A continuity plan helps a company to anticipate, prevent, mitigate and manage risks that comes with disruptions to operations during the period of emergencies such as this. Whilst some dire circumstances such as recessions, economic meltdowns and political instability are typically reasonably foreseen, they may sometimes be unforeseen when ride the tide of epidemic or disease outbreaks and could cause untold hardship and even result in the demise of the company. A continuity plan does not only provide a company with steps that would be taken to respond to risks occasioned by an emergency, it also helps to make the company resilient having planned ahead for its sustainability and viability notwithstanding the surrounding circumstances. Beyond this, the presence of a continuity plan ensures that a company’s obligations to stakeholders especially its customers and employees continue to be met, despite any emergencies.
Vitally, a company should not wait until the occurrence of an emergency before developing a business continuity plan. The plan, which will have trigger events, ensures that the operations of the business continues to run as a cohesive whole. Depending on the nature of the company’s business, such plans would typically address remote working, virtual meetings, alternative means of providing services, issues of employee compensation where the business has to shut down, among other key drivers for the business to ensure that any disruptions are kept to the barest minimum. Research has however shown that many companies do not have continuity plans in place. The outbreak of Covid-19 should therefore serve as a reminder of the need for the Board to quickly develop a business continuity plan.
Undoubtedly, the advantages of having a continuity plan are numerous as it also affords a company the immediate flexibility and adaptability required during an emergency. In addition, the ability of a company to run its affairs with minimal operational disruption during an emergency goes a long way in attracting and retaining investors’ confidence. In addition, it gives the company a competitive edge over its competitors who were unprepared or unable to function during the period of the emergency.
Furthermore, another key plan to be developed by the Board is a succession plan to manage the risks associated with loss of personnel due to such emergencies. It is not unlikely that members of the Board or senior management may be unable to discharge their duties to the company due to infection from Covid-19 or even travel restrictions as a result of the pandemic. Such a real possibility, if not properly managed, may impact the company negatively particularly with respect to market competitiveness and business continuity. It is for this reason, amongst others, that the Board should have a succession plan in place. A succession plan would ensure that the company is always well managed and directed at all times even in the event of change in the membership of the Board, and also ensure that there is no leadership vacuum in the company. In addition, the presence of a succession plan can also impact the ability of a company to attract investment as investors are usually interested in knowing the succession plan in making investment decisions.
It is important to note that in developing a succession plan, the Board should address certain points, including promotions, qualifications, training and retention of younger staff, determining vacancies to be filled from internal promotions and those to be sourced externally. Furthermore, it is crucial that key roles such as the Chairman and Managing Director have suitably qualified and experienced understudies who may be able to step in when needed. Undoubtedly, having a succession plan would guarantee a seamless change of leadership.
It is for this reason that the importance and need for succession planning is codified in the Nigerian Code of Corporate Governance, 2018 (the Code) which emphasizes the role of the Board in establishing and implementing the succession plan. Crucially, the Code mandates the Board to make provisions for succession in emergency situations.
In conclusion, businesses are often confronted with internal, external, micro or macroeconomic emergencies which could cause untold hardship and result in total shutdown. A proactive board should thus have in place business continuity and succession plans to manage the risks and disruptions that these emergencies could cause.