March 2020

Coronavirus and Corporate Communications

March 20, 2020

The initial phase of companies’ response to COVID-19, which focused on employee issues and customer outreach, is moving into a second phase of addressing the business and financial implications, as well as the broader economic impact.

In this time of uncertainty, it’s important for companies to address the challenges ahead, anticipate upcoming regular way events and announcements, and be prepared to change course.

Looking ahead, here are key topics companies need to revisit in the time of COVID-19:

Earnings Guidance

  • If you have given guidance or the market expects guidance, there will be little pushback from investors and analysts if companies choose to withdraw or adjust quarterly or annual guidance. Either suspend guidance for 2020, adjust or clarify the impact COVID-19 is having on your outlook.
  • If companies offer guidance, be prepared to frame it in the context of COVID-19, and be comfortable acknowledging the continued uncertainty ahead and recognize that the impact is evolving.
  • Companies such as Accenture and Marriott International took this approach. Accenture updated its fiscal 2020 guidance based on the pandemic’s impact, and also provided a business outlook section that made clear it’s providing the best estimate for future quarters given the unique circumstances. Marriott issued a separate business update after reporting earnings.
    • Accenture: “The extent to which this impacts Accenture’s business, operations, and financial results, including the duration and magnitude of such impact, will depend on numerous factors that the company may not be able to accurately predict…”
    • Marriott: “The situation is changing by the day and there is still tremendous uncertainty, but we feel it is important to share an update on some of what we have seen to date and describe key measures we are executing to mitigate the impact of COVID-19.”

Stock Buybacks

  • Companies need to be prepared to face scrutiny if they proceed with and announce buyback programs given the increased political opposition from both sides of the aisle. Given talks of government “bailouts” of certain companies and sectors, how companies use their cash is coming under the microscope, echoing back to the financial crisis of ‘08-‘09.
  • U.S. presidential candidate Joe Biden has called on all CEOs to stop repurchasing shares for the next year, citing the responsibility to workers.
  • Financial companies, including major U.S. banks, suspended buybacks, in a coordinated effort aimed to show the institutions’ willingness to support efforts to stabilize the U.S. economy.
  • Many non-financial companies are doing the same. AT&T suspended its program, while ConocoPhillips announced that it plans to reduce buybacks by two-thirds. Marriott and TJX Companies suspended as well.
  • If you plan to proceed with a buyback, be prepared to clearly explain the move and what it offers the company and constituents in the current environment.
  • Starbucks announced a buyback even as workers called for shutting down coffee shops. Its CEO went on CNBC to defend the move. He said the company was being “thoughtful and responsible” and that the repurchase was not “above and beyond” its usual program.

Executive Leadership

Communication by a company’s executive leadership team will remain critical throughout this difficult period.

  • CEOs should address employees and all major constituents, in ways that best reach their employee base – be it an email letter, a virtual town hall, a video, or all of the above. Here are a few examples to note:
    • AT&T CEO Randall Stephenson sent a video just to employees, where he explained the company’s work-from-home initiative and spelled out how serious the pandemic is for the global economy.
    • Pfizer CEO Albert Bourla also filmed an internal-only video for employees.
    • Marriott CEO Arne Sorenson delivered a video on LinkedIn and Twitter, where he explains how difficult the issue has been to navigate for the company, and how Marriott will get through this over time. The video can be viewed here. A copy of a Marriott employee letter can be seen here.

Internal communications should be ongoing, providing employees with updates as the situation changes. Flexibility and adaptability will be key for crisis management teams.

Virtual Annual General Meetings

  • In today’s climate, you need to consider moving your AGM to some kind of online format and consider the same for investor meetings and other related events. Remember to provide as much advance notice as possible.
  • Companies that may not be ready to fully adopt a virtual meeting format should consider a hybrid in-person/online meeting version. For these meetings in the current proxy season, in-person attendance should be restricted and enough space is allowed for attendees to feel comfortable. In addition, attendees can also participate online and vote online as well.
  • Before moving to online-only, companies need to consider ISS and Glass Lewis’ view on virtual meetings, though in the current climate, the proxy advisors are expected to be more understanding of companies’ need to adopt this format.
  • ISS does not have a formal policy on virtual meetings. Historically, the proxy advisor has supported hybrid meetings. Glass Lewis does have a formal policy on virtual meetings, the main thrust being to ensure those online participants have the same voting ability as in-person (See this post on the Harvard Corporate Governance blog).
  • A few companies have already made alternative arrangements in light of COVID-19, such as F5, which held a hybrid AGM.

We’ve never seen a situation change so rapidly or without precedent. How companies communicate, in a time of mandatory distancing, has never been so important.

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