How boards can look beyond Covid-19
The US is in its fifth month of an unprecedented healthcare crisis, and the social and economic impacts are well documented and unparalleled in our nation’s history. So many of us are still trying to understand the short-term dynamics that may drive new behaviors, create new needs – and even trigger permanent changes for our industries, our companies and every employee we work with.
Although the specific responses to the pandemic vary from industry to industry and from company to company, we must all stay firmly focused on the fundamentals to withstand the challenges of this moment, while never losing sight of the long-term transformation that will allow us to reimagine the future and build a compelling investor narrative.
So how in this environment do boards of directors and executives balance near-term needs and long-term goals? First, the pandemic has put all companies in a constant crisis cycle, which requires leadership and adaptability, even if it means temporarily setting aside certain profit motives and competitive forces to form unlikely partnerships.
Companies must build permanent muscle memory to continue responding to the pandemic cycle and quickly identify where mitigation is needed for recovery. We have seen examples of this all around us: Lyft partnering with non-profits to give free rides to vulnerable communities that need essential transportation; Apple and Google partnering on contact-tracing technology; and Moderna and Gilead working as quickly and safely as possible to develop a potential vaccine.
We all may wonder at times: when will we be back to normal? But rather than dwell on this question, leaders should themselves define the new normal, and that means reframing our outlooks and forecasts accordingly. This really is about all of us being in this together.
Second, boards and management must have a firm grasp on the macro headwinds and how they impact not only their business but also the entire sector. To move forward and build momentum, companies will need more robust data to understand how to position their companies against competitors, and to gain a deeper understanding of how they are viewed by investors.
We are in uncharted territory, and we have seen companies become more thoughtful in their financial forecasting and capital-allocation strategies. This includes how to better communicate decisions such as withdrawing guidance, which 39 percent of S&P 1500 companies did between March 1 and June 12.
None of these choices are made without a closer look at the data. In the end, portfolios will likely be rebalanced again and again. And as our economy evolves, re-emerges and finally recovers, investors will be looking for opportunities. Companies that build their investor relations and shareholder engagement strategies around sophisticated data analytics – and communicate their vision clearly – will be well positioned to attract investor interest in this new environment.
Third, companies need to think about their larger role in society. Recent studies show that more than half of ethical investment funds are outperforming the wider global stock index right now. The MSCI World stock index fell by more than 12.5 percent year to date, while 60 percent of global ESG-focused large-cap equity funds outperformed the global tracker, according to data from Morningstar.
Simply put, companies that focus on ESG outperform their peers. The pandemic will reinforce this trend and reward companies that focus on the long-term value creation related to a more socially responsible investment strategy. ESG is no longer a ‘brand’ initiative; it’s how companies will operate. This is a journey for everyone – from the boardroom to the front lines – and although we are in a moment of crisis on many fronts, there are also silver linings.
Similarly, Barron’s latest Big Money Poll finds that while money managers are anxious about the near term, they are largely upbeat about the outlook for 2021 and beyond. This optimism can also be seen in the performance of the Nasdaq 100, which in April had its strongest month in a decade, and the Nasdaq Biotechnology Index, which is outpacing the S&P 500 this year by 17 percent.
Ultimately, we face a combined health and financial crisis the likes of which none of us have ever witnessed. Corporate leaders must change their decision-making process in response to this uniquely challenging moment, while also understanding the longer-term social and economic changes that remain largely undetermined.
Managing these dual tracks won’t be easy, but we do know that with unprecedented government intervention and a heavily impacted labor market and social service system, we can expect a higher expectation on corporate responsibility and governance.
Nelson Griggs is president of Nasdaq and executive vice president of Nasdaq’s corporate services business