Many businesses in Quebec are currently feeling a series of shocks as a result of the emergency measures implemented by governments to counter the spread of the coronavirus (COVID-19). Some are closed by government order or have had to lay off staff, while others are unable to meet their contractual commitments.
In this context, how can businesses navigate the COVID-19 crisis while formulating long-term strategies to ensure a prosperous post-crisis period and equip themselves with better tools to face the next crisis?
Here are a few ideas to consider:
1. Crisis management unit: follow the action plan with flexibility
Since March 12, several leaders have responded to the crisis by setting up a crisis management unit and creating an action plan to deal with the emergency. As the crisis is likely to last longer than initially imagined, businesses will need to adapt the initial action plan to changing conditions.
The current situation is not a “conventional” crisis—such as a fraud case or some other damage to a business’s reputation—but rather a systemic crisis affecting almost all economic operators. The implications of this are not yet fully understood, but we do know that the operational, legal and reputational consequences may be significant for some businesses. We must not only minimize the impact in the near term but also work to mitigate future risks in order to emerge from this crisis stronger and more resilient.
2. Directors’ duties
In times of crisis, the duties of directors persist and their role is more crucial than ever in helping businesses overcome challenges.
To that end, it is in the best interest of a company to have its board of directors supervise and advise management throughout the crisis in a prudent, diligent and appropriate manner2. Cooperation between management and the board should remain close throughout the crisis in order to ensure the best possible exchange of information.
The board of directors may need to approve emergency funding or adopt a significant change declaration, and must prepare for any eventuality.
3. Convening an advisory committee: acting in the present while preparing for the future
Crisis management professionals often recommend knowing the risks to business continuity and identifying the warning signs of a crisis. Good governance practice helps reduce risk exposure. However, in an emergency, it is easy to stray from the long-term vision of governance.
While the crisis management unit is dealing with the situation on a daily basis, an advisory committee can champion the long-term vision of the business, despite the present turmoil. An advisory committee provides much-needed flexibility in times of crisis. Its creation and dissolution do not involve any legal formality, and its characteristics (e.g. composition, frequency of meetings, mandate) may vary throughout the crisis3.
After the crisis, the advisory committee and the crisis management unit will be able to develop a feedback process to update the crisis plan and draw useful lessons for the future.
4. Continuous and effective communication
As with Premier François Legault’s daily press conference, regular, open and transparent channels of communication with employees, customers and suppliers are preferred. Many businesses have already communicated their response to the COVID-19 crisis, announcing continued operations or layoffs, termination or contractual incapacity. The challenge is to remain consistent with all your audiences despite the current uncertainty.
Continuous communication isn’t everything: it must also be clear and compelling. To this end, one must choose a suitable means of communication aimed at reaching the target audience. Unfortunately, some communication efforts do not have the intended impact when they are hastily prepared or contain errors. It is vital to ensure that internal and external communications are handled and/or reviewed by your lawyer and a public relations professional. Your communications have a definite impact on your reputation, your liability and your business.
Be aware that a communication document might be drafted in such a way as to constitute a waiver of professional secrecy or litigation privilege when published. In the event of a dispute, information that would have been confidential at the time would have to be passed to the opposing party, to the detriment of the information holder.
5. Predicting the legal risk of non-performance of contracts: force majeure
Few executives could have imagined the magnitude of the government response to the current health crisis. From confinement decisions forcing workers to work from home to the closure of facilities and a total shutdown of commercial activities, the measures are resulting in unprecedented disruptions to supply chains and commercial contracts.
Often, it will be suggested that parties to a commercial contract meet to determine the extent of their rights, duties and responsibilities. A preferable approach would be to pursue a win-win agreement and to try to achieve the commercial objective to which the parties initially agreed. In the current situation, these discussions can be carried out by telephone or videoconference.
Several experts predict the potential mutation of COVID-19 or the emergence of other viruses, causing new pandemics. Health risk management through the inclusion of a force majeure clause will be recommended in some commercial agreements, including supply, franchise or international contracts.
Such a clause will, among other things, make it possible to determine the parties who will bear the risk associated with the non-performance of a duty in a contract as a result of a pandemic or the measures taken by governments to mitigate it.
The current crisis will likely create many opportunities for long-term change in organizations. We must take advantage of these opportunities and reflect.
1 Quote from Quebec Premier François Legault during his daily press briefing on March 23, 2020, https://www.lapresse.ca/covid-19/202003/23/01-5266045-le-quebec-sur-pause-pour-trois-semaines.php.
2 Sec. 322 of the Civil Code of Quebec, C.Q.L.R. v. C.C.Q.-1991.
3 Duclos, C., Bérubé-Lepage, C. and E. Lachance, “Patrons de PME: n’ayez pas peur des comités consultatifs!”, Gestion/Volume 44, n°1/Spring 2019, 5 pp.