The discussion is based on a directors’ talk by Mr. Saurabh Chandra, an eminent independent director, titled “Maximising Board Effectiveness & Engagement amid Pandemic”. The topic focuses on enhancing the effectiveness and involvement of the board in this pandemic situation like COVID – 19 has been discussed as under:
The defining feature of this pandemic is uncertainty which is caused by the fear of the unknown and not much is known about COVID-19. For example, there is little unanimity on the source of the pandemic, mode of its transmission, when and how it will end, how to treat it, effectiveness of the vaccine when it becomes available, threshold level of herd immunity etc.
Countries have experimented with different measures to contain the spread of the pandemic. These measures have varied in their scope and intensity. The fall out of these measures has a common thread running through them. Economic activity has been adversely affected. Most corporates have been negatively impacted though in varying degrees. The storm may be the same, but the boats and crew are different.
Boards have to lead their company through this turbulence. Riding through this storm will test the mettle, character and ability of the company leadership. Tough unpleasant decisions will have to be taken. Salary cuts are one example. If you have to lead the orchestra, you have to turn your back to the audience. Companies which weather the storm successfully will emerge stronger, with greater competitive advantage and a bigger moat around their operations.
Uncertainty breeds anxiety. Anxiety often leads to panic and knee jerk reactions. This is the first port of call for the leadership. Through their actions and behaviour, they have to set an example of ‘keeping their head when all about you is losing theirs.’
In the face of uncertainty, the first instinct is to take a maximalist position. The tendency to over react has to be curbed. Knee jerk reactions have to be avoided. Very often, faced with a crisis, we jump from a plane and then start looking around for a parachute. Action precedes identification of reasons for taking it. Controlling this instinct may sound ironical, since prompt and decisive action is the need of the hour.
Decision making in a crisis is what separates the men from the boys. The corporate leadership has to recognise that in such situations, System 2 thinking is the need of the hour. According to Daniel Kahneman, System 2 is that aspect of the operating system of the brain, which is deliberative, effortful, conscious and logical. Handling complexity and navigating through conflicting data and opinions requires reflection, deliberation, discussion and analysis. As opposed to this, System 1 thinking is fast, instinctive, emotional, effortless and unconscious. Depending on which mode of thinking is being adopted, same inputs will give different results. Best results can be achieved by marrying System 2 thinking with timeliness of decisions.
Before moving on to what specifically needs to be done, I would like to mention, a few seldom discussed pitfalls, to be avoided by Boards, more so, while taking decisions in contingencies caused by COVID like situation:
- Isomorphic Mimicry i.e. imitating best practices. One size does not fit all. The problems faced by each corporate are different.
- Cognitive Biases particularly Anchoring, Availability, Sunk Cost, Loss Aversion.
- Football Goalkeeper’s Dilemma, viz. the belief that, in a crisis you cannot be seen as doing nothing, even if you do nothing. So you have to do something. This may be good optics, but would be of little use in helping the company tide over the crisis.
- The Fallacy of Centrality. One does not know everything. Avoid blind spots. Absence of evidence does not mean evidence of absence.
With this background, five priority areas for decision making can be as follows:
- Connect. Regularly communicate with all stakeholders. Engage early. Silence is counterproductive. Two way communication is an imperative because of the importance of feedback.
- Plan for the long term and short term. In a rapidly changing eco-system you have to think on your feet. Collective experience and expertise will be on test.
- Decide on the level of risk that your company can take.
- Lead from the front to change mind sets and attitudes. Change will be resisted because it makes people uncomfortable by disturbing the current reality. However, systems, beliefs, practices and all elements of the organisational culture have to mutate, to be aligned with the strategy adopted for addressing the new reality. As Peter Drucker famously said ‘Culture eats Strategy for breakfast’.
- Continuously review corporate policies, especially, those related to Risk Management, Human Resources and Cyber security to mitigate the detrimental impact on manpower, supply chains and financials.
COVID-19 pandemic displays the characteristics of a wicked problem, a term coined by Horst Rittel and Melvis Webber in their paper on ‘Dilemmas on General Theory of Planning’. Wicked problems are subject to the No Stopping Rule, i.e. there is no final solution. Resolving is an iterative process through a series of interventions. Each intervention will lead to a fresh set of problems. Saving lives at the cost of livelihoods is one example. Resilience and grit for the long haul, creating a climate where people can lead with or without authority, developing a capacity and willingness to absorb bad news and adaption to a constant state of flux, are a few but necessary conditions to handle the consequences of this black swan event.
