Episode 1 - The Role of the Board of Directors During a Crisis
Nadia: Good Afternoon everyone, thank you for joining us for the first edition of insights which I will be co-hosting with Dr Roberta Lepre. We will be discussing the role of the Board of Directors in times of crisis. I would like to welcome e our guests to day, Mr David Schuereb, the President of the Malta Chamber of commerce and Mr Edwin Ward, the Chairman of the Institute of Directors. Thank you being with us today, for joining us, both David and Edwin. So today we’re starting I think, by answering the first question which is the most important, the role of the board of Directors, especially during this time. Companies more than ever need direction, need direction for different aspects, a lot of legal ramifications, both in terms of clients, contracts, supply chain, as well as employees. What would be the best practice, I mean I’m participant in different boards of non-publicly listed companies, and boards have almost transformed themselves into task forces where they meet more frequently, almost every week, so as to assist and support the executive management team, more and more during this time, CEOs, general managers that are managing companies. What do you think? How can Board of Directors reach that balance of kind of stepping in without overtaking or overruling the management of the company while providing the required assistance? Maybe David would like to start?
David: By all means. Firstly thank you for the invitation, very happy to form part of this this discussion. Very pertinent question and of course there is no magic wand on the solution to what we’re going through because, I hope to believe that not too many of these experiences are … taken on during anyone’s lifetime, hopefully, you know, it will just be the one in our lifetime. Certainly, a lot has to do with the personal and personal relationship that exists between the Board of Management and the Executives I would dare say.
Now before the pandemic started, most of the discussions and trust levels that would enrich the professional taking on of any decision taken, whether it be a positive one that is growth or expansion or internationalisation or whether it is one where one has to restructure, reorganise, rehash business models and all that. The ongoing discussion between the Board of Directors and the Executive team headed by the CEO is of paramount importance and that is really the basis for success or otherwise. Of any difficulty that nay company finds itself in. During these periods of pandemic, certainly the same applies, it’s just that the trust at hand is maybe bigger than what one would expect and certainly not programmed or anticipated and certainly not enough time for preparation if you like for the very immediate effects or the immediate actions that needed to be taken and therefore as one would expect the Board would be again in support of the Executives in as far as the executives are needing support and help.
Of course every brain, every pair of eyes and every pair of hands and every opportunity and time is great in support of what the Executives are really up to, making sure that the Executives are in contact of the best knowledge and updates on the opportunities that can help any team or any Executive team and therefore any company weather the storm. Of course answerable to shareholders as Executives are ultimately answerable to shareholders in a manner which links therefore the answers to shareholders through the actions and trust one has with executives. Of course where executives are not able to achieve the expectations of the Board of Directors, unfortunately the BOD will have to roll up their own sleeves and get involved, but of course that should only happen at a time when the ability of the Executives to deal with such extreme influences or reactions or results of this pandemic are far reaching and beyond the team in that company.
Nadia: And how do you see it working David. Do you see the involvement of different experts coming in, not necessarily the Directors that may have the expertise, but the Board asking different experts to come in?
David: Exactly. Absolutely so every opportunity to understand where the weaknesses are and where are the voids and in expertise and consultation to be brought to the fore or through the executives is an opportunity for support that the director can provide to the company. Of course through personal experience rather than through the range of experiences that the board of directors can bring to the executive team is important but that is probably also not enough. There is the need for joining the dots with people the directors are aware off that can be brought to the fore to the availabilities, if you like, of the executive team to try and find the best way to swim through the waves of this pandemic.
Nadia: Excellent. Edwin, we've shared quite a lot of interesting insights even prior to this call all, your experience with the members of the IOD, how are they dealing with this pandemic and what would be the best practice of positioning themselves with the executives. You've also mentioned a little bit about the trust between the different members the executives and the Board of Directors comma would you like to share something on these lines?
Edwin: Well first of all well done for organising this session. I think we are all very interested to participate in in this because we're all in the same boat at the moment trying to solve very difficult problems and there's quite a lot of different issues arising, different kinds of legal issues and cultural issues. I'm sure Roberta will pick up on some of the legal issues. I want to pick up on something David said about shareholders which I think is a very important point because there has been a shift in thinking it's began a couple of years ago go and last year the ESA hey which is the crème de la crème of the Fortune 500 companies they issued there are, they are considered to be very authoritative as a business group they issued a new paper on the role of companies in the market place. And interestingly the 6th point on their list of objectives for companies to reach was making a profit. What's the number one and number two points worth that essentially today day companies should first and foremost be cognizant of stakeholders. And I think we should be conscious of this in Malta because one of the things that we are seeing comma and we're looking at this relationship between the board and the management, the CEO is usually embedded with in within the board and the board will oversee the work of the CEO. The CEO's have had it relatively easy over the last few years. Record gross domestic product year on year, tourism industry was booming, there was a very good climate to do business generally. The focus for growth was not really such a very difficult Focus for 4 most CEO's full stop that's been turned upside down in a matter of a month. The CEO's who were hired to grow companies are not necessarily the ones who are going to dig businesses out of a whole. What we are seeing at IOD and also talking with our counterparts like David at the Chamber of Commerce and various other partners that many people are running distressed businesses and they would be legally classified as distressed businesses. So in terms of the duties of responsibilities of the directors, this all falls under article 136a of the companies act and it's quite specific, so in terms of how we navigate between the operational and the duties and obligations and even the liabilities of the board, this is creating a new kind of tension. Within that I think there are a few things that have to be kept in mind. Usually comma in a time of crisis, and the chair and the CEO will have a very special Bond. They should have one anyway, but at this point in time I'm that relationship between the chair and the CEO, that's going to be vital. If it's a good supportive mentoring relationship probably both companies have a good chance of doing the right things which might enable them to survive. And if that relationship is off at any level, there is a very good chance that at this will force the board into having to take a course of corrective action. So we're saying that at with the existing companies act the responsibility in Malta is towards the shareholders. But we must keep in mind and there is already a problem of many companies sitting on their cash and they are not servicing the supply chain. Which is the stakeholder base and this is going to have a chronic knock on effect full stop this is going to make boards lives much harder.
Roberta: Edwin you mentioned tension, between the chair and possibly the board and the CEO all the whole of the executive management team. How much of that is a result of the history of, perhaps, insufficient communication or a relationship which is based on the trust.
Edwin: I think both David and I may have already alluded to this. Today is probably the most abnormal business environment that we have ever come across. And it's new to everyone full stop and everything new in it can in its own way be something that rattles us, or puts us off-balance, it makes us defensive sometimes. It creates a lot of different types of reaction full stop and companies are generally not that good at innovation. So this is an environment which is demanding a high degree of skill in terms of innovation just to survive. It means changing business models, hid means either ACO will have to come up with different kinds of business model and go to the board and try and convince the board that changing the business model is actually a good thing to do. They will have to make the case for that and show that factual evidence and numbers back up, which is not an easy thing. We are being told, the SMS are being told already that that, by some of the local banks that they should be putting forward cash flow statements for 6-months. Before the banks can even consider looking at any form of emergency landing. It's hard to look at head 30-days right now. This time last month restrictions that were being put in place by government to help protect the population were only just being announced. And today we have already got tens of thousands of people whose jobs are at best very uncertain. So 30 days is a long time in this environment.
Nadia: Indeed, in fact on your point, this is what I wanted to mention on the question of timing. Timing is surely of the Essence and is very critical as you mentioned. We were previously having a bit of a discussion with David regarding not only timing at a national level but timing at an international level. This is very critical because we are so dependent as an economy me on the international factors full stop and the fact that not every country has been through this pandemic at the same time I'm or is leaving or taking different measures adds up to the difficulties for a CEO and the executive to put forward a plan on that can be actually substantiated and presented to the board where the board will be actually able to make decisions on it. So we're are kind of seeing a redirection of one of shorter planning rather than long term planning for sure. And I've been participant again 213 week cash flow forecasts for instance. And this is something I wanted to share with you and to discuss in this manner is this a realistic measure? Is it too short is it too long? David what do you think? Is it something that can be presented to the board and can actually be of help to the board at this time?
David: Thanks Nadia for this question. Even at the risk of me speaking about the obvious I'm going to try and do this to be clear. Of course we are living at a time of a pandemic of which we have limited experience except for other pandemics in limited parts of the world or 4 large pandemics which such as this which happened nearly 100 years ago go. We hear about and we talked about, and we are happy curves and, health curves, and people tested for coronavirus and the numbers of infected, and we eagerly wait everyday day to hear the superintendent of public health to speak to us about the numbers that have been diagnosed with this coronavirus in Malta. To be honest we are always appreciative of the fact that our superintendent, I'm not sure of what the numbers are today I haven't caught up with that yet, the numbers are relatively low comma less than 2 Digits which is a good thing. And why is this a good thing? Has been explained to us many times we are trying to have a flat Curve as possible because we don't want our Curve to be higher than the plateau on top of the curve which is really the ability of our health infrastructure to be able to take care of each and every one of us and the level of ITU.
Ok so that's a good thing full stop of course the corollary to that is the effect that it's going to have on the economy. The longer we are able to stretch the curve and to be able to address the health requirements of our people, the longer it is going to take us to get out of this pandemic, not only from a health perspective but also from an economic perspective. I would dare to say that from the numbers we have seen, and Italy has had one of the highest curves we have seen comma and America is pretty much following suit and Spain the UK comma of course the higher their curves are they are going to have many more dead and that's something we should not aim for or strive towards. Effectively the curve if you look at the areas under the curve for those of us who are statisticians, the length of the curve is going to be shorter, so this countries will have a shorter curve and will be out of the covered pandemic unless there are secondary and tertiary influences of this comma will be out of this before we do. The fact that our Curve is so low so employees that we might actually be one of the countries that will get out of this last. Again which is a good thing from a health perspective but not so good from an economic perspective. So again coming back to your question and a conversation we had just before this call, is what do we do about it? So we had the chamber of commerce are taking the initiative to support businesses exactly in the sense. Do we wait for the Curve to reach its maximum height and then start dealing with this?
Do we wait for the Curve to go away and maybe talk about covered only in our history books, you know put it in the past and start organising? Or do we do it now? Or is this a time when we need to realise as a nation, as a country, and also as individual companies and CEO's in companies and say, you know what, for the foreseeable future, and this could be a possible number of months, we are going to be living with Covid, we are going to be living with some sort of social distancing to some extent, maybe not as much as now, but it will be with us for a considerable period of time. And do we therefore need to find ways and means of how to refresh ourselves, to re-engineer ourselves comma to make use of technology comma may be much more than we used to before comma in order to live business experience with covered and not after covert. If we delay our discussion too much, and we delay action too much, we might find ourselves overtaken by the competition potentially in Malta but even more so no international Lee, and we will have very little to talk about in terms of competitively and our ability to compete with the International (unintelligible) so the suggestion certainly is this is not going to be with us for a short period of time I'm this is going to be with us for a long period of time. I would daresay all the false impressions that this is going to be over in a couple of weeks’ time I'm or by summer will be with us soon, this is good because we need to deal with the psychological influences of Covid. You have to remember that apart from the health sector the actual Calvert health and the economic there is also the psychological and that is certainly very serious. And not easy to deal with. So the positivity in our communications are very important. However if we are responsible for our companies, as CEO's and boards of directors, then we need to think of the long-haul, and the long call is re-engineering and organise now whatever needs to be done one-stop engaged the very best that are able to provide the best advice for this to be done and that's really engineer now.
Roberta: I just wanted to pick up on this a little bit because I relate a lot to this in the sense that i am coming across a number of business owners, primarily small business owners, who seem to be just waiting for this to all end. And to go back to what it was before. And also catching up on what Edwin was saying about his intervention earlier on about the need to innovate. We know that innovation wasn't our forte before for all this happened so is this an opportunity T4 boards for businesses to innovate in the long-term. Not just as a response to the crisis but something that has been a long time coming as well?
Edwin: Malta struggles on innovation for a number of reasons full stop it was unable 2 for example, effectively gather funding from the EU you from there lost funding period, we had very low success rates attracting funding for innovation. So we know this is a problem in the public sector as much as it is a problem in the private sector. But the idea that we are going to suddenly learn turn the innovation process as something that can help to lead us out of the very drastic difficulties that some of the economy is getting into 2, that's going to take a lot of expertise comma to take a lot of training, it's going to take a lot of changing of mind-sets it's. I think we have to encourage the leaders of business Communities to help promote the idea that there has to be an enormous and very rapid change at every level of organisation. I was at one time, until recently Leigh-Anne rugby referee, and the formula for making a decision as a referee is basically the speed at which you can say to yourself internally, immediately. So we are in an environment right now where we immediately, urgently are doing things, has to be the new norm.
We are often associated unfairly with having a kind of relatively laid-back culture at some level full stop this is what people often say is their first impression of Malta, it's quite easy going and laid back. No one in any business here who wants to survive I've can afford to be laid back in any way shape or form. They will lose their investments and possibly will help to crash other businesses that are doing the right things. We have to remember everything here is interlocked. We might individually be doing the right things, as CEO as executive directors has advisory non-executive directors, and our immediate supply chain or creditors might be doing the wrong things and they will put us in jeopardy because we have a problem at the moment with the financial ecosystem. And even there we are going to have to learn to innovate rapidly if we want to survive. We've been saying for years that there was a lack of venture capital and quite honestly there is still a lack of venture capital. We definitely need to retool this financial ecosystem very quickly if we all want to survive.
Nadia: In fact at best Edwin we need to realign the strategy even with the banks and the support of other financial institutions. Because like you mentioned banks are still asking for a 6-month cash flow forecast that is very difficult for companies to provide for sure. So there are as you mentioned and very rightly so, everything is a chain, we have the government we have authorities and institutions, we have in companies full stop and the more we can collaborate in this new normal comma because it is a reset button for each and every one of us I believe, that I think for companies to Transit through this particular moment of the crisis and this particular moment in time I'm a comma and in fact something else that we mentioned about this scenario and the analysis and other matters comma basically what we are saying here is the importance to realign our business models is not a waiting game really because most of the companies, at least in my experience, are somewhat overwhelmed for sure. So they are still going through that process of making sure that there is the government funding that they receive the funding first and it's kind of more of a phased approach in their minds. So first access funding then we'll wait and see because there is a little bit of that on clarity. They perhaps, the message over here is it is the time I'm from now to start rethinking, it's time I'm for Now to start thinking of other ways of living with this covert as David mentioned. Roberta I don't know if you agree or disagree?
Roberta: Yes I agree fully and I have another question about how equipped are our boards to lead this change are they the ones to be leading the sleep and are they equipped to do this?
David: Yes if I may hey, on this score or, and latching onto the 2 comments both of you put forward just now and I think this is my personal experience because I am meeting lots of people who are speaking to me about out how the chamber can help and what the chamber is doing at the moment. And the focus of attention for most people is still with how they can get their companies involved in these famous Alex's A and B which I think everyone is now aware of. And why it is there company is left out of the first list and what they should do to get into this list, which of course is surgery and it is important. And my fear is that we have changed and developed our thinking process since about 2 weeks ago when this was absolutely the top priority and necessary in discussion comma and start talking about what we need to do 2 to correct this. And actually to work to get out of annex a and annexe b by rather than in because the fact that you are out means that your business is in safe territory and energised and re motivated and restructured and therefore ready to go. And probably the faster you are able to do it, the stronger and more profitable your business is going to be by moving forward when covered is done and dusted. And that change in mind-set is, needs a lot of work and I am putting a lot of time and effort into this myself and the Chamber of course it's as well, in trying to get people to think that way. It's not easy see, because in this country we are still focused on what it is we can get from governmental to save the day without putting in much effort, but we keep reminding people this is what they should be doing. That is why we have organised our Think Tank dramatic committee full stop that is why we have a number of round tables that are sector-specific, not only because we want these people to think and feedback to the chamber and we will disseminate back into the market and therefore to our members and business leaders and to the politicians and regulators that should be able to support this, but to get the word out there about really the conversations we should be having and ultimately if a part of this ends up on the desk of a CEO or the desk of a executive or non-executive director, certainly a conversation within a board, that is healthy. We would like company boards to talk about yes SB could get the €800 help for every employee, to help their business today, fine but that's it's an application of a process in administration now, but rather what it is we should all be doing to get out of this. Really and truly if I am in an organisation that expect to be leading role in my industry when this is all done and dusted, then the earlier I do this this then the stronger I am going to be. And the earlier we all realise this as a nation, the better it is going to be for us to compete with other countries when we are doing business and competing internationally.
Nadia: Indeed I share that sentiment David, I think that it is the wrong perception having companies just to think on the actual situation. Survival and consolidation is important comma very much so. And this leads me to something else which I think in the past with my fellow directors there has always been a bit of debate full stop how much of a reserve should the company have, I mean prior to all this, because I was accused a couple of times of being too conservative of perhaps having 6 months cash reserves equivalent to a salary wage full stop and with the benefit of hindsight nowadays with the fact that that with the company's coming up, some companies I'm working with comma the fact that there is the aid, but there is also enough cash to be able to re-invent comma for the company to be able to take forward Investments, it's not like the mind-set is there. So I do appreciate there are difficulties, it's difficult for shareholders it's challenging for owners to see and to work 2 too and to envision a tomorrow so that's why support of the board is actually paramount. It's interesting to hear ear when you agree with David and Roberta what's the best business model to put forward? Is there a model we can actually take forward for companies as a best practice?
Edwin: I think we have to be a little bit careful here. Most business owners and entrepreneurs are self-reliant. These are people who don't enjoy taking a hand out from anyone. It's part of their DNA hey karma also to be risk takers, so when times are good the main reason why an entrepreneur who's a CEO needs a board is to balance there are risk taking and investment strategies against being, let's say, a little bit too adventurous or too bold, too innovative and too fast, and they might still do it anyway and pull it off off.com uh but at least they would have heard the advice of the board that's been put in place.
Now we know so that the regulated Industries there are some thresholds that are set comma for example banks, insurance companies and others are giving a mandatory minimum which they absolutely must retain in cash full stop and if you look at it in the banking sector in the EU you it's approximately 15% of the deposits. That's quite a large number. In relation to the operation it's a number that is quite questionable full stop if you take some of our banks locally, their loan portfolios are up to 70% between Jean Corbett and domestic landing property comma and at the moment one of the most urgent requirements is to keep the property market at least not going into free fall because if it does start going into free fall this 15% that's there will be insufficient to even get through the first week or two.
So you know, what would be the right kind of reserve, probably the best reserve is actually the people that you hire into your business full stop the talent that you have available. If that Talent is able to change Direction quickly and is working with you to solve the immediate present problem, there's a pretty good chance they are all pulling together and you can get out of this. It's not a question of money, it's a question of people comma whether or not they are able to be led and work as a group in order to pull to confront this full stop and I would say coupled to that that we have a lot of laws which are coming into play at the moment. The companies act. The insolvency act. Occupational health and safety act. Commercial codes ad infinitum we've got all manner of legislation requirements. What we do really need from companies right now is very clear communication about what they are willing to do. And to make this communication available as much as possible across the market so that we can all make the right decisions. I was talking with an economist the other day and he was reminiscing about his days as a student. He had the idea of perfect information. Here's a good example of a meeting, high quality information comma on which you can face your own decision. So it's about people full, and I think it's also about communication. Rather than defining an amount of cash you should keep in reserve for a rainy day just in case something horrible happens.
Nadia: I think it's a bit of a balance, and it depends very much on the industry and a company as well. So you're writing away Edwin. David your views on this one
David: Well Edward has been very detailed and very correct in in what he said so I certainly agree with everything that he said. So I have very little else to add really.
Roberta: Can I add a cheeky question? Edwin you refer to the fact that the DNA they have entrepreneurs is to be risk takers. We know generally speaking that perhaps females are more risk averse and we do know that we do not have many female sitting on boards in this country full stop is this perhaps the time to make the case for better gender balance on company boards?
Edwin: Well we've been making this case 4 for the last 18 months or so no. Prior to that perhaps we didn't articulate this as effectively as we could have or should have but today we are advocating very strongly that that there is a need for more talent to come forward on the boards full stop there is an enormous amount of Talent available. If companies are willing to look for it. On our board at the IOD we've got about 40% representation, roughly by women, and it's not high enough and needs to be higher. I think more or less, our Society is balanced around 50/50 T4 5149 if I remember rightly it's something like that. If it can also be reflected on different kinds of boards in the public and the private sector will get a better representative range of opinions. And I did think it's certainly is about gender it's unfortunately it's almost every event at IOD I wind up introducing three or four other elderly looking similar looking to myself.
We do need younger people to be given a chance. We plan on as IOD to introduce some form of young person to Boards who can be mentored on boards, who might be talented individuals under the age of 30 full stop with certainly looking to try why and Bridge this gap stop there's a big gap between a lot of management culture and the boards. You might find and the management is on average 30 to 40 years of age, and the boards are 60 +. This does go for or quite a large number of organisations. So we do need to close that gap full stop and if we can have a longer view on the contribution that everyone in society can make two boards whether it's a company or the private sector we need to keep the gender conversation going to achieve change their. I mean it is happening but it is happening very slowly. Maybe what covered my help to inspire is more rapid change and of course we would be very for that.
Nadia: One last comment from your end David to wrap up this discussion.
David: I certainly agree with what was set and your suggestion Roberta. The chamber of commerce and I myself, let me use the chamber as an example here, not to point fingers at anybody, have maybe historically been connected with the representation of elderly gentleman. And that was not right. Even though it did bring about the success story that the chamber of commerce can boast about. However when you look at the chamber of commerce today day we have a young chamber network , we have engaged CEO’s and Executives and directors who are less than 35 years of age. And certainly we are the comma they are the ones looking at ways to energize not only the chamber but the economy me and the development of the country, but actually the economic recovery of the country after covert. If I look at boards of management councils, I mean today out of 6 management members to our female, that's not enough F8 should be at least 50%. When you compare it to 0% a couple of years ago go with come along way. I might add without mentioning any names that the female component of our board is part of the richest part of the contributions to our board comma and that's the reason why the chamber of commerce is making so much strides forward in its it's, either say success story that we are enjoying right now. Again the ability to have the older prospective and the younger prospective and the gender perspective might also add one day the racial considerations, the fact that people have different cultures comma different observations to add to any discussion one can have on a board table or in an executive meeting or in a company is actual value to the company rather than a limitation. So in a country that is becoming much more diverse, racially diverse, that should be embraced as a strength, not only for the company, but also for boards and people and management and directorships full stop and that is how the opportunity to look at any issue from a 360 angle is actual value to the shareholder ultimately. And that's why such a suggestion is certainly a good one.
Nadia: Excellent so on this note I think we've wrapped up very nicely. Let's hopefully li3 this pandemic and take away something good and positive in terms of development VO thin terms of gender, diversity and balance and as well as in terms of presents for boards to be able to support their companies, shareholders as well as they're executive managements teams. Thank you David and Edwin in from myself and Roberta.