Members of the board of directors play a critical role in controlling the effects of the new generation coronavirus (COVID-19) epidemic that affects the whole world after being seen in Wuhan, China for the first time. In this process, it is of great importance to follow the rapidly changing agenda and to adapt the companies to the conditions of the day.
Duties and Responsibilities of the Board of Directors
According to the Turkish Commercial Code No. 6102, the duties and responsibilities of the boards of directors / managers (“the boards of directors”) are outlined below:
Acting with the foresight and care of a thoughtful manager,
To pursue the interests of the company,
To comply with the duty of loyalty
To have commercial judgment and foresight,
In addition, the responsibility of the board members who have caused losses for the companies with their fault, may be brought to the agenda in proportion to their defects. For this reason, it is essential to follow the development of potential risks caused by the COVID-19 outbreak and to take appropriate actions to safeguard the operational processes of the companies.
1. Establishing a Pandemic Committee
In an unforeseen and fast-developing situation, it can be quite difficult for the company management to follow new developments as they happen on the ground. As such, the board of directors may determine to form a Committee within the company that focuses on reducing the negative effects of the pandemic. It will be beneficial to keep the operation up-to-date in line with the feedback received from this Committee where the board of directors will regularly exchange ideas.
In meetings with the Committee, it will be recommended to follow the social distance rule and to manage the process with conference calls as much as possible.
2. Workplace Health Safety
Another factor that may lead to the responsibility of the board of directors in the pandemic period is workplace health and safety. Switching to remote teleworking within the company is one of the effective measures to be taken regarding workplace health and safety.
However, companies operating in sectors where remote teleworking is not possible due to the conditions of the operation will be expected to maximize workplace health and safety measures. As such, it may be beneficial to take measures to ensure the safety of employees by the board of directors and to minimize the physical contact of the employees in the risk group with the workplace.
In addition, periodic health examinations determined in the Regulation where the duties of the occupational physician are regulated can be performed at shorter intervals if deemed necessary. In this respect, we would like to remind you to act according to the directions given by the occupational physician.
3. Operational and Risk Oversight
Apart from the uncertainty of the COVID-19 outbreak, the boards of directors play an important role in overseeing the stages of identifying, ranking, and managing potential risks for the company's business activities. As mentioned above, it is possible to transfer this role to the audit committee, the risk committee, or a committee specifically created for COVID-19.Boards of directors and their committees should ensure any discussions and decisions with respect to COVID-19 are properly documented in meeting minutes. Ensuring the consistency of the decisions taken by the board of directors with the implementation will also be an important responsibility of the board.
Boards of directors should examine potential cyber security and privacy risks as a result of remote work arrangements for employees. Factors such as the use of personal computers, accessing company information via unsecured wi-fi connections or taking confidential information in physical form from the office can all lead to increases in cyber security and privacy risks for companies.
4. Business Continuity
Undoubtedly, it is one of the main targets of the companies to mitigate as far as possible the unpredictable and destructive effects of COVID-19 in order to survive this period with the least damage. In this case, boards of directors should assess whether crisis management plans are in place and whether these plans address the potential COVID-19 related risks and malfunctions.
The main situations that should be emphasized in this period can be counted as follows:
Companies that are not technically ready for teleworking may experience disruptions in business continuity.
Risks related to supply chain and production disruption, particularly where suppliers are located in high-risk areas or areas subject to travel restrictions. Plans should be made to protect against such risks, including exploring alternate sources of supply and reviewing the company's ability to meet its contractual obligations (e.g. force majeure, events of default and termination provisions)
Financial impacts and liquidity issues may arise in both the short-term and long-term. Consider the need to seek additional financing or amend the terms of existing debt arrangements.
Inadequate succession plans for directors and senior management (e.g. does the company have a person ready to step in as interim CEO in the event that the CEO contracts COVID-19.)
5. Crisis Management
In addition to plans to ensure continuity of the operation, boards of directors should implement an up-to-date and viable crisis management plan. This typically includes key individuals from management, public relations, human resources, legal, and finance. Crisis management plans should include crisis response procedures, communications templates, checklists, and manuals that can be readily adapted to a variety of situations for effective, time-critical, and agile deployment.
Crisis management plans should include crisis response procedures, communication templates, and checklists that can be easily adapted to a variety of situations. Crisis response teams should meet on a regular basis and be able to respond quickly to developments caused by COVID-19. In addition, crisis management plans should be regularly updated and reported to the board of directors or an appointed committee.
During this time, the board of directors should supervise the company's communication strategy and ensure that the communication with the company and the customers is carried out in a calm and orderly manner. Ensuring a solid and reliable response during an unpredictable and volatile period are key factors to ensuring a smooth and well managed exit to this crisis.
6. Public Reporting and Disclosure
It may be advisable for publicly-held company management boards to provide publicity about the actual and expected impact of COVID-19 on their companies' financial situation. As we mentioned above, in a period when the importance of ensuring reliability is so high, the boards of directors should reflect the continuity of their activities and the changing conditions within the scope of COVID-19 in a correct and transparent manner.
7. Insider Trading
Publicly-traded companies and their directors and officers must at all times comply with insider trading restrictions under applicable securities laws. Boards of directors should closely monitor discussion or disclosure of material non-public information by insiders and consider further restricting trading in company securities by insiders who may have access to material non-public information related to COVID-19. Boards of directors should also consider requiring additional insider trading and tipping training, imposing blackout periods or enhancing preclearance procedures.
8. Annual General Assembly Meetings
Although it was decided that the Ordinary General Assembly meetings will be held within three months from the end of each accounting period, the following measures were taken with the decision taken by the Ministry of Trade on 20.03.2020.
Within the scope of the measures regarding the general assemblies of the companies, the opportunity has been given to cancel the general assembly meetings called by the management bodies of joint-stock and limited companies but not yet held, to be held at a later date.
Even if there are no provisions in the company's articles of association, it is also possible for companies to hold a general meeting or a meeting of the board of directors/managers electronically.
Also, Ministry of Commerce by Turkey Chambers and Stock Exchanges Association (TOBB), transmitted by letter dated 31.03.2020 The letter points to the importance of protecting companies capital resources through the period of the pandemic. In this regard, the Ministry has been requested to leave most of the companies' profits for 2019 within the company.
The Regulation the Ministry is only authorized to determine the "issues to be discussed in the company's general assemblies". However, under Article 408/d of the TCC, the authority for the distribution of dividends belongs to the general meetings of the company. In this regard, it can be said that the general or partial acceptance of the agenda topics are under the authority of the general assembly.
However, the temporary article has been added to the Turkish Commercial Code numbered 6102 with the Law numbered 7244 and the following issues are required to be taken into consideration in the cash dividend distribution decisions of the general assembly meetings to be held until 30.09.2020 for the fiscal year 2019:
1- Not to utilize profits from their previous financial year for dividend distributions,
2- Not to distribute any profit that is more than %25 of their net profit for the 2019 financial year,
3- Not to grant their boards of directors the authority to distribute advance dividends.
9. Shareholder Relations
It is important that the Boards of Directors ensure adequate and transparent communication with shareholders. Considering the negative effects of COVID-19 on exchanges worldwide, capital-intensive companies can become vulnerable to strategic buyers. In this process, removing the anxiety of the shareholders and preserving the pre-crisis structure of the company should be the primary goal.
10. Restructuring of Company Strategies
The unprecedented effects of COVID-19 create great uncertainty in the market. Boards of Directors will benefit from reassessing their companies' short and long term strategies. In terms of short-term strategies, opportunities to address the shortcomings that have arisen as a result of COVID-19 in companies' fields of activity can be evaluated.
Companies need to assess whether COVID-19 will have a lasting impact on market and consumer behavior in terms of long-term strategies. If necessary, it is recommended to revise and implement long-term strategies in line with the conditions of the day.
In light of all these explanations, we believe that the board of directors’ responsibility shall be evaluated according to the conditions of the concrete event. Taking precautions, however, may facilitate the proof that the board of directors has acted in a cautious manner. In this process, we would like to underline once again the importance of making your Company compatible with the latest regulations in line with the recommendations of your legal departments.
If you have any question, don’t hesitate to contact our team.
CANAZ YILMAZ ATTORNEYS