Legal10/03/2020 12:00:00 AM

Coronavirus and corporations — What you need to know

The outbreak of coronavirus, formally known as COVID-19, has had repercussions around the globe as the virus appears to gain traction and shows no signs of slowing. As of 9 March, there are 80 confirmed cases of coronavirus, including three fatalities, in Australia (1). In these uncertain times, it is difficult for companies and businesses, in general, to know how to prepare for what may be an economic downturn. It is also important for companies to understand their legal obligations, rights and responsibilities, when it comes to protecting employees, dealing with suppliers and managing shareholder expectations.

This article summaries the essentials for companies, when it comes to managing the fallout from the coronavirus, so directors can ensure that they are adequately prepared.

Employee safety

Ensuring employee safety remains the most important legal obligation for companies in the face of the coronavirus outbreak. Australia has strong workplace health and safety laws which are designed to protect employees from physical harm at work (2).

You should have adequate health and safety strategies, policies and procedures in place and should be reviewing these now to ensure that they sufficiently protect employees in light of the severity of coronavirus. Failing to have adequate policies and emergency response plans in place could expose a company to a raft of HR-related legal concerns and, at worst, actionable claims for negligence or workers compensation.

Policies should include:

  • An office closure policy — Should an employee in your organisation be identified as having contracted the coronavirus. Be prepared for how you are going to manage your business and continue to operate your essential business functions at a minimum, should this occur.
  • A work from home policy — Should the coronavirus be detected in the vicinity of your office or should a risk be deemed simply too high. Ensure that you have the information technology and infrastructure capability to support multiple employees who may be able to work from home. Determine whether the company is in a position to operate on a skeleton staff in the interim.
  • Mandatory health hygiene practices for all employees — This includes the basics such as regular handwashing, providing hand sanitiser throughout the office and keeping office areas clean.

Be alert to the fact that policies may have to be amended to apply to certain groups of personnel such as those who are pregnant or more elderly to ensure that they are adequately protected. Plans should be developed with an element of flexibility so that they can be adapted if need be, as the situation changes.

Be alert also to employees who may have recently travelled overseas to high-risk countries and take appropriate precautionary measures. This may include requesting that those particular staff members be tested for any potential signs of the COVID-19 virus.

Always remain mindful of your corporate duty of care. This is even more important for multinational corporations whose employees span several jurisdictions, and where employees may engage in regular overseas business travel. You need sound legal advice on the applicable laws in each country/jurisdiction, to ensure your company remains compliant across the board. You may also need to consider limiting non-essential business travel and resorting to video-conferencing for international meetings, etc.

Liability to third parties

Consider your liability to any third parties who are dealing with your organisation and maybe visiting your premises. This includes clients, contractors and suppliers. Failing to have adequate policies in place could expose your company to a claim, should a third party become infected with the coronavirus while on company premises, or while dealing with corporate staff.

Ongoing communications

Companies have an obligation to regularly monitor communications from the World Health Organization, the Centers for Disease Control and Prevention and the Australian Department of Health, and keep their employees up to date on a regular basis. This official guidance should serve as the foundation for corporate decisions in relation to health and legal risk mitigation. Being able to demonstrate corporate policy alignment with official Government recommendations can be an important legal safeguard in cases where corporate infection-control efforts are questioned.

It is important to educate your employees on the modes of transmission of the virus and to implement measures to reduce the risk of workplace transmission. Employees should also be aware of the need to immediately inform their employer if they, or any member of their family, are showing symptoms of the virus or if they suspect they, or any member of their family, have come into contact with anyone displaying symptoms of the virus. Employees should also inform their employer if they have any condition which would increase their chances of contracting the virus, such as a weakened immune system.

If an employee has been asked to self-isolate or remain at home for a specific period of time, you need to be very clear in applying official guidelines, with input from a qualified medical professional if need be, on when that employee can return to work. All relevant communications around this should be clearly documented for the record.

Managing shareholder and investor expectations

Fluctuations in the corporate share prices are expected in the wake of the coronavirus outbreak, and stock market falls are expected to continue. Much of this is driven by fear and uncertainty in the situation which continues to evolve day by day. Managing the expectations of shareholders in such tumultuous market conditions is challenging. However, investment risk always exists. For long-term investors, a virus outbreak may be seen as part of the expected cyclical process of investment with peaks and troughs. However, be prepared to adjust investment portfolios if need be, as the situation develops. Some practical steps for companies include:

  • Ensure to take a big-picture, long-term view of investments
  • Remain patient and do not overreact to changing market conditions too quickly; however, there is the need to remain ever vigilant, and
  • Maintain open, honest and regular communications with shareholders.

Managing suppliers

Developing a cogent supply chain response to the coronavirus outbreak is extremely challenging, given the scale of the crisis and how quickly it is evolving. Chinese suppliers are so ingrained in many corporate supply chains that there will almost inevitably be consequences for companies to deal with, should that particular supply chain dry up. Some practical steps for companies include:

  • Know your suppliers — Map your supply chain upstream in detail, up to several tiers back.
  • Develop relationships in advance with key resources and have contingency plans in place — Be prepared early by putting agreements in place with local suppliers if need be and renegotiating contracts with overseas suppliers if they are unable to deliver.
  • Identify weaknesses, dependencies or vulnerabilities in your supply chain and address these early — Many companies are often dependent on a supplier which has a single facility with a large share of the global market. As an example, the coronavirus has exposed Apple’s particular dependency on sourcing supplies largely from China.
  • Create business continuity plans — These plans should pinpoint contingencies in critical areas and include backup plans for transportation, communications, supply and cash flow.
  • Ensure that you have adequate business insurance in place — This should cover for loss of profits as the result of a disruptive event, such as a coronavirus outbreak, at a critical suppliers’ site.
  • Revisit your supply chain design — Supply chains are often traditionally modelled on the assumption that materials and goods flow freely on a global basis, allowing companies to source and distribute products at the lowest-cost locations around the world. However, the coronavirus is now challenging the validity of this fundamental assumption. Hence, a new type of agile supply chain is needed which allows companies to rapidly reconfigure their supply chains in response to a global incident such as the coronavirus. One approach is to spread the risk of sourcing supplies across two or more sources/locations. Companies should regularly revisit their supply chain designs to determine how the model operates in practice and whether any modifications are necessary.

Companies who invest heavily in extensive supply-chain mapping stand to reap the benefits when a disruption, such as the coronavirus outbreak, occurs. Having advanced knowledge of where a supply-chain disruption will come from, provides companies with sufficient lead-time to execute backup and mitigation strategies immediately. This may include such actions as offering discounts on substitute products or services in order to shape demand, buying up particular inventory/stock, booking capacity at alternative backup supplier sites and controlling or rationing stock allocations. General Motors is a case in point, who have invested heavily in supply chain mapping.

Dealing with a trading halt

At worst, some companies may experience a trading halt as a result of the coronavirus. A trading halt is a temporary suspension of a company’s trading activity that may occur either at the request of the company or the Australian Securities Exchange (ASX). The companies’ securities are placed into a “trading halt session state” where market participants can place orders but are unable to trade the securities. During a trading halt, the companies’ share price on the ASX remains static. A company may request a trading halt where there is concern over its periodic results, posted profit or outlook. Trading generally resumes at the earliest of:

  • The date/time announced by ASX when the trading halt will end
  • The commencement of normal trading on the second trading day after the trading halt was imposed, or
  • Once the listed entity makes an announcement.

Trading halts are administered under Guidance Note 16 of the ASX Listing Rules.

Planning for a worst-case scenario

In the face of the current uncertainty surrounding the coronavirus, all companies should be planning for a worst-case scenario. Such a scenario may result in a drop in the corporate share price, a trading halt, suspension or cancellation or a particular product line, redundancies and office/subsidiary closures. Contingency planning and disaster recovery policies are essential. A failure to plan and to comply with work health and safety legislation can have severe penalties for companies and even personal liability for directors.

In summary, you should think about implementing the following practical steps within your organisation:

  • succession plan for key decision-makers/stakeholders
  • cross-train or up-train employees to perform essential functions so that the company can continue to operate even if key staff members are absent
  • understand and prepare for potential redundancies, and
  • assess your essential functions and the reliance that clients place on your products or services. Be flexible and open to changing your business practices if needed in order to maintain critical operations. This may include identifying alternative suppliers, prioritising key clients or temporarily suspending some operations or product lines if need be.

Sources and further reading

What are companies’ legal obligations around coronavirus?, Susser P & Tyson T, Harvard Business Review, 4 March 2020.

Interim guidance for businesses and employers, Centres for Disease Control and Prevention, 26 February 2020.

Prepare your supply chain for coronavirus, Rice J B Jr, Harvard Business Review, 27 February 2020.

Coronavirus is proving that we need more resilient supply chains, Linton T & Vakil B, Harvard Business Review, 5 March 2020.

Endnotes

1. Australian Government, Department of Health Coronavirus (COVID-19) health alert, 8 March 2020. Refer to: https://www.health.gov.au/news/health-alerts/novel-coronavirus-2019-ncov-health-alert#current-status

2. Safe Work Australia is an Australian Government statutory body established in 2008 to develop national policy related to WHS and workers’ compensation. However, each state and territory administer their own Work Health and Safety laws and workers compensation schemes. Refer to: https://www.safeworkaustralia.gov.au/