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To reduce . . .
There is plenty of advice on how to work remotely, but how do you lead in this situation?
You trust your team, but how do you keep across what they are doing without micromanaging?
You want to be approachable, but how you maintain an open door policy without burning yourself out
There is information coming from everywhere, how can you ensure they aen’t
What about the team member who’s main source of social contact is the office
And above all, how do you make sure that they stop!
About the Speaker
My guest today is Gail Page from Positive Pathways. An expert in addressing conflict in the business, Gail helps leaders and teams to build healthier workplace relationships. This leads to psychological safety becoming part of a company’s DNA and paves the way to realising the individual and collective potential of the team and the business.
In this episode we explore how to lead remote teams in a crisis
This episode was recorded on March 23. We make reference to events related to the Coronavirus based on what was happening at that time. The situation is fluid and has changed significantly since then, please refer to accredited medical and news sites for the most recent updates.
At 11:59 pm on Wednesday 25 March 2020, the New Zealand COVID-19-alert level will move to its . . .
Management: The board of directors (‘Board’) needs to work closely with, and support, management. Management will be under significant pressure at this time, and so engagement with management needs to be pragmatic but empathetic. The Board’s expectations should also be reasonable in the circumstances and clearly communicated.
General manager/CEO: The Board should require rolling operational and financial updates from the general manager/CEO. The situation is evolving quickly, to the point where New Zealand will soon be in lockdown – timely reports will allow the Board to understand what effect COVID-19 is having on the company and what strategic actions need to be taken and when.
Employees, financiers, contracting parties: Boards should be telling management to keep the company’s various stakeholder groups (i.e. employees, financiers, contracting parties) up to date with developments. External communications need to be transparent and factual. Internal communications, with employees, need to be sensitive but realistic.
2. GOVERNMENT STIMULUS PACKAGE – WAGE SUBSIDIES FOR BUSINESS
Boards should be applying for relief under the wage subsidy and Business Finance Guarantee Scheme components of the Government’s COVID-19 economic response package:
Wage subsidies: Conditional wage subsidies are available for all businesses/employers that are significantly impacted by COVID-19 and are struggling to retain employees as a result.
Amount: At the time of writing, the subsidy is $585.80 per week for a full-time employee (20 hrs or more) or $350.00 per week for a part-time employee (less than 20 hrs). The payment is made as a lump sum for a period covering 12 weeks. There is no maximum amount of assistance a business can receive. Applications for the subsidy can be made until approximately mid-June 2020.
How to apply: Applications can be made through an online portal on the “Work and Income” website www.workandincome.govt.nz. The Ministry of Social Development will aim to make first payments no later than five working days from when applications are received.
Business Finance Guarantee Scheme
At the time of writing, the Government has just announced a $6.25b “Business Finance Guarantee Scheme”. It will provide short-term credit to solvent small and medium-sized firms affected by the outbreak. The package will include a six-month principal and interest payment holiday for SME customers whose incomes have been affected. The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years. Specific details of the scheme are still being finalised.
3. BUSINESS CONTINUITY AND CRISIS MANAGEMENT
Business continuity and crisis management: The Board and management should be reviewing and actioning the company’s business continuity and crisis management plans, and continually assessing whether the plans are adequate, given the circumstances. All available third party sources of assistance should be contacted, including government (as mentioned above), shareholders and the wider stakeholder pool. Also, crisis-response roles for directors and management are critical – the Board should be sharing these with management, now.
Areas of investigation/analysis: Management should be taking steps to manage COVID-19-related risk to the business’ operations, and either the Board (or the company’s audit or risk committee) should be monitoring those steps. This requires a constant re-assessment and analysis of risk and respective processes and controls. Key areas to focus on and address include:
the company’s liquidity and financing needs, immediately and in the long-term;
the extent of risk exposure under current financing covenants;
impact of employee disruption and absence from work, and remote staffing needs;
impact on compliance requirements, IT systems and cybersecurity;
impact of supply chain disruption on operations and office/plant closures;
supply chain resilience and the scope of alternative customer and supplier pools;
exposure to liability under commercial contracts and review of key terms, including ‘force majeure’, ‘event of default’ and ‘termination’; and
emergency succession planning to address general manager/CEO replacement, board continuity and quorum contingencies.
4. HEALTH AND SAFETY
Health and Safety at Work Act: Directors and management have health and safety obligations to staff under the Health and Safety at Work Act 2015. Directors can be held personally liable if they fail to ensure the company is complying with those obligations. Compliance is critical. The Board should seek legal advice on the company’s health and safety obligations, particularly in the context of COVID-19.
Employee well-being: Employee well-being, in the context of COVID-19, is paramount. Once the lockdown ends, the Board needs management to keep it up-to-date with all steps being taken to minimise the risk of transmission and preserve employees’ health and safety. Also, employees will want to know that their work environment is safe and that they’re being cared for – once the lockdown is over, the Board should require management to let all staff know what protective measures are being taken to ensure their safety.
5. FORECASTS, FINANCIAL POSITION AND STRUCTURE
Short-term forecasts: The Board should ensure management are preparing ‘good-case’/’bad-case’, short-term (i.e. quarterly) business forecasts and an action plan for each forecast. Performance should be tracked closely against forecasts, so the Board can decide what strategic action is needed.
Debt and creditors: Many companies will face liquidity challenges as a result of COVID-19 – declining revenues and cashflows will make it harder to meet debt covenant obligations. In these circumstances, the focus of directors’ duties quickly shifts to the duty to act in the best interests of creditors (discussed below). The Board should be engaging with creditors (e.g. financiers, landlords) with a view to obtaining relief from strict repayment obligations.
Restructuring: If funding, or funding relief, isn’t readily available, and the threat of insolvency is real, the Board (in conjunction with management and shareholders) should consider whether a restructuring of the business’s capital structure or operations might help stem losses. Converting business debt to equity, segregating business divisions, selling distressed assets, implementing redundancy programmes, instigating other OPEX-reducing measures, or winding up divisions or subsidiaries, are some possible courses of action which could improve cash flow and/or deliver cost savings. Placing the company into voluntary administration or liquidation should also be considered. The Board should ensure financial, tax, legal and restructuring advisors are engaged early to advise.
6. OPPORTUNITY FROM ADVERSITY
Acquisition opportunities: COVID-19 might create investment opportunities for companies with targeted acquisition strategies and readily accessible funding. Motivated buyers might take advantage of distressed companies that are offloading assets or divisions. Financially hampered “Code companies” (i.e. companies that are either listed on the stock exchange or have 50 or more shareholders and at least $30m in assets or $15m in revenue) might become attractive takeover targets under the Takeovers Code.
Advisors and strategies: The Board should ensure it has a trusted group of financial and legal advisors and maintains frequent contact with primary shareholders and stakeholders. It should also be continually assessing strategies (from how to respond to a formal takeover offer to deciding whether to pursue acquisition opportunities).
7. DIRECTORS’ DUTIES
Directors need to be mindful of their ongoing statutory duties under the Companies Act 1993. Breach of these duties can result in personal liability for directors:
Reckless trading: With COVID-19, the key duty for directors will be ensuring the company doesn’t carry on in a manner likely to create a substantial risk of loss to the company’s creditors – that is, directors don’t allow the company to trade recklessly. Directors of companies that have been financially impacted by COVID-19 run the risk of breaching this duty. Board members should also be mindful of their duty not to allow the company to incur obligations they don’t reasonably believe the company can perform.
Active engagement: It is critical for the Board to remain fully engaged and to maintain oversight of business operations during the COVID-19 crisis. The Board should naturally be questioning management’s decisions and taking advice from advisors. This approach should hopefully allow the Board to gauge whether they are properly discharging their statutory duties.
Virtual meetings: With the Government-imposed lockdown, the Board must consider whether all board and shareholder meetings, for the foreseeable future, can be either delayed or held virtually (or virtually and in person, if required). The Board should check: (i) that the company’s constitution permits virtual meetings and, if not, recommend an appropriate amendment be made; and (ii) that the company has the technological capabilities available to it to facilitate virtual meetings.
Electronic signatures: The Board also needs to be mindful of laws concerning the use of electronic signatures. The Companies Office, for example, has rejected documents where electronic signatures don’t comply with legal requirements under the Contract and Commercial Law Act 2017 (see https://companies-register.companiesoffice.govt.nz/help-centre/managing-your-online-account/filing-documents-with-electronic-signatures/). We recommend Boards seek legal advice in this regard. Specific “e-signing” software may be required.
Post-COVID-19 analysis: Once the dust has settled, and the fallout from COVID-19 is clearer, the Board and management should assess what key lessons have been learned from COVID-19 and whether any change in work policies or approaches adopted during the outbreak (e.g. work-from-home policies) might lead to operational efficiencies in the future. The Board should also be involved in an appraisal of the way in which the crisis was handled, by the Board and by management.
COVID-19: IMPLICATIONS FOR PRIVATE M&A
It’s still too early to predict the full extent of New . . .
MAC: In broad terms, a MAC clause allows a buyer to avoid settlement if an event occurs, after the agreement date, which negatively impacts the target’s business. In many cases, an objective threshold must be met in order for the change to be ‘adverse’ for the purposes of the clause (e.g. a specific percentage or dollar decline in the target’s earnings or net asset value must have occurred). MAC clauses will also generally spell out certain excluded trigger events (e.g. changes in economic conditions, events affecting an industry generally, natural disasters, national emergencies, matters the buyer was aware of etc).
A matter of contract: Whether COVID-19 (or the lockdown) triggers a MAC will depend on the context and wording of the MAC clause itself.
Looking ahead: Parties who are negotiating MAC clauses should consider how COVID-19-related risk is allocated between them. A buyer will now likely want the MAC clause to give the buyer a termination right if the target suffers a MAC due to COVID-19 or a similar event. A seller, on the other hand, will now likely require the MAC clause to expressly exclude COVID-19 or a similar event from the scope of triggering events (e.g. the MAC clause associated with Morgan Stanley’s recent acquisition of E*Trade Financial Corp., albeit in the public M&A context). A possible middle-ground might be for parties to agree on minimum time and financial-based thresholds above which COVID-19 or a similar event will trigger their MAC clause.
2. DUE DILIGENCE
Comprehensive due diligence (i.e. financial, commercial and legal investigations into a target business) is all the more critical in the context of COVID-19:
COVID-19-related risk: A buyer’s investigations will now likely focus on the extent to which the target is exposed to COVID-19-related risk and what mitigation steps have been adopted by the seller.
Targeted review: A buyer may now wish to canvass the following areas in its due diligence: the target business’s financial condition and solvency risk; eligibility for the Government’s COVID-19 economic package; remote-workforce capabilities; data security and privacy; employee entitlements; exposure to company, industry and regulatory (i.e. ‘change in law’) risk; crisis management processes; COVID-19 contingency, business continuity and mitigation plans; supply chain resilience; durability of customer and supply contracts; ‘force majeure’, suspension and termination rights under commercial contracts; existing insurance and business interruption policies; business health and safety measures and compliance; forecast CAPEX and OPEX; and status and location of leased or owned premises.
Medical: Anecdotally, some buyers have expressed an interest in engaging health professionals to conduct medical due diligence on the target’s staff.
COVID-19 presents financing-related issues for buyers and sellers in the private M&A context:
Buyers: The impact of COVID-19 on solvency and revenues may affect the liquidity of many buyers and their ability to obtain acquisition financing. Lenders are now likely to impose more stringent covenants when offering new facilities. Buyers should carefully review the terms of their financing arrangements, in particular around the risk of “continuing obligations” under the sale agreement and the loan agreement, if one agreement should remain in force and the other is terminated.
Sellers: A financially impacted buyer presents a credit risk to the seller. To address this risk, it’s foreseeable that sellers will undertake more in-depth ‘reverse’ due diligence, on the buyers’ solvency and ability to secure funding. A seller may now also consider additional protective measures, such as the purchase price being paid into escrow, having a guarantor of the purchaser’s obligations in the sale agreement, or termination fees being payable by the purchaser.
4. PURCHASE PRICE ADJUSTMENTS AND DEFERRED CONSIDERATION
The traditional fixed pricing approach for deals, in this climate, is likely to carry more risk for buyers:
Post-settlement purchase price adjustments: Post-settlement purchase price adjustments may now be a more attractive option, as they can account for a target’s deterioration prior to settlement and the state of the business at settlement. However, price adjustments aren’t immune to COVID-19 – the historically-calculated average ‘peg’ or ‘target, upon which working capital adjustments are typically based, for example, is now not likely to be appropriate. Adjustments based on revenue or earnings may be more appropriate.
Deferred or contingent consideration: Deferred or contingent consideration mechanics, whereby all or a portion of the purchase price is determined by reference to the business’s future performance (e.g. an earnout), may grow in popularity. They are widely recognised as being a useful tool to help bridge the valuation gap, and allocate risk, between parties.
5. UNDERTAKINGS, REPRESENTATIONS AND WARRANTIES
Both sides will need to consider carefully the undertakings, representations and warranties being provided:
Buyers: Buyers will understandably seek increased warranty protection around the target’s financial performance and position, and its ability to service debt and collect debtors. They may also seek additional warranties in relation to the status of key supplier and customer contracts (and, in particular, the counterparties’ termination rights, particularly due to ‘force and majeure’) and the extent of COVID-19’s impact on the target’s business.
Sellers: With COVID-19, the seller’s ability to give certain warranties and undertakings may now be compromised (e.g. efficacy of the supply chain; compliance with privacy laws and data security policies (in circumstances where the target’s workforce is working remotely); running the business in the ordinary course (i.e. in circumstances where the seller is likely taking active steps to manage the business’s working capital, maintain liquidity and (if required) refinance debt) – perhaps this is now the ‘ordinary course’?! A seller may try and avoid giving warranties at settlement and look to qualify warranties by materiality thresholds and the extent of its actual knowledge. In addition, it’s foreseeable that a seller will insist on a general COVID-19-related exclusion of liability. A possible middle-ground might be for parties to agree on a targeted, COVID-19-related indemnity for specific, identified risk.
6. WARRANTY & INDEMNITY INSURANCE
Exclusion of COVID-19-related losses: Anecdotally, warranty & indemnity insurers are taking steps to exclude COVID-19-related losses from their W&I policies, on the basis that it is a known risk. This makes the allocation of risk between parties all the more critical. Without insurance cover for these exclusions under the W&I policy, buyers may conceivably push for a reduced purchase price or targeted indemnities from the seller.
Buyer caution: Many buyers are citing COVID-19 and the lockdown as justification to end further negotiations altogether. In other circumstances, buyers are adopting a cautionary ‘wait and see’ attitude and buyer boards and shareholders are holding off from giving final transaction approval – current circumstances are being used as leverage to put negotiations ‘on ice’ in the hope a more favourable purchase price can be obtained once conditions settle.
Valuation and strategy: Current volatility is creating valuation and strategic issues for buyers. For deals priced on revenue or earnings expectations, a buyer’s ability to run reliable financial models and valuations is now compromised – buyers will understandably want to re-assess the methodology used to value a target. The current environment is also giving buyers pause to re-assess their acquisition strategy. Partial (as opposed to 100%) acquisitions may now be preferable, and sellers may well be wise to remain open to such alternatives.
Logistical challenges: The lockdown presents a raft of logistical challenges for parties and advisory teams, and will undoubtedly impact timing on all key areas of private M&A (i.e. due diligence, financing, securing third party consents and regulatory approvals, management and stakeholder meetings, site visits, negotiations and settlement). Open lines of communication, and pragmatic expectations, across parties and advisory teams are critical.
Dates: Deal teams and advisors will need to carefully assess transaction milestone dates. It is likely that condition and settlement dates will need to be pushed out.
Technology: Technology is now needed more than ever to help facilitate continued deal flow. Parties and advisory teams will derive obvious benefits, and experience reduced disruption, with capabilities such as extranet or portal functionality (e.g. Dropbox), remote conferencing facilities (e.g. Zoom, Teams, Skype etc), document collaboration software, virtual data rooms, transaction management software and electronic signature (e-signing) software.
We recommend you seek specialist legal advice, as soon as possible, in relation to your private M&A deal.
The above overview has been provided for general information purposes only. It is not, nor is it intended to be treated as, legal advice and is subject to change without notice.
Is it still ok to promote my business?
There is no one-sized fits all answer to this. However, in . . .
Handling Past Recessions
On Friday I read through 89 responses to Wednesday’s request for insight . . .
About OFX Who we are
• Founded in 1998 in Sydney
• Expanded to New Zealand in 2001
• ASX listed, . . .
The three most important tools that a business can have in its toolbox are Business Plan, Cashflow . . .
With the ever-changing economic environment as a result of the COVID-19 virus, businesses need to . . .
Contact tracing is a vital part of our fight against Covid-19. To operate in Level 2 all businesses . . .
3. Protect the data and be accountable
Keep contact tracing information secure from loss or unauthorised access, whether it is in physical or electronic form.
Only those who need to access it should be able to.
Take steps to make sure people can’t see each other’s information when they give you theirs.
If using a contact tracing method provided by a third-party, check that:
they’re a reputable provider and their method has not been criticised by others their security is acceptable
they will not use the information for their own purposes/on-sell it (if they say they will only do this on a deidenti!ed or aggregated basis, verify this, and think about whether this would meet people’s expectations)
they can meet your retention/deletion requirements
they will tell you about a privacy breach and assist you with any investigation.
4. Remember people have a right to know
Individuals have a right to access the personal information you hold about them and ask to correct it if it’s wrong.
You have an obligation to respond to requests for contact tracing information under the Privacy Act, and your contact tracing method needs to enable you to do this.
People aren’t entitled to access contact tracing information about others.
5. Make sure the data is accurate
Contact tracing will only work if accurate and up to date personal information is available to contact people at risk.
Make sure your contact tracing method is simple to use to encourage the collection of accurate information.
If you’re using existing systems, such as sta swipe cards, you need to have con!dence the contact information you have for those users is accurate (or take steps to check it).
6. Stick to your purpose
Only use contact tracing information for the purpose of contact tracing and only share it with the Ministry of Health and/or a District Health Board unless:
you made it very clear that you were also going to use it for another purpose/share it with someone else; or
you are legally allowed to (including under the exceptions to Information Privacy Principles 10 and 11).
Only share the speci!c information that has been requested.
7. Get rid of the data when you’re done
Keep contact tracing information only for as long as it is needed for contact tracing purposes.
WorkSafe suggests that this information should be kept for no longer than 2 months. Securely and permanently destroy the information when the time comes.
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