The continuing COVID-19 pandemic has far-reaching effects on lives, businesses, and economies worldwide. Local and national governments are implementing anti-pandemic measures, such as the temporary closure of production and business operations, compulsory quarantine procedures on visitors, and even locking down cities. These policies are aimed at curbing the spread of the virus and mitigating its adverse impacts. Besides, many enterprises are looking for safe protection of their people and trying to enhance their resilience amid the ongoing financial losses and business disruptions caused by the pandemic.
It remains uncertain when the pandemic will be ultimately contained. In the event that the outbreak of the coronavirus is not effectively controlled in a foreseeable time, the business operations and financial conditions of enterprises may be materially and adversely affected. To ensure business continuity, having a contingency plan is essential. The current situation has demonstrated that it is crucial to have a prompt response in order to mitigate impacts and other risks and to get well-prepared for the further development of the pandemic and possible scenarios.
Contingency plans
The Hong Kong initial public offering market has been disrupted to a certain extent by the pandemic, which has led to delays in the listing plans of some enterprises. The Stock Exchange of Hong Kong Limited has requested listing applicants and their sponsors to disclose the contingency plan for maintaining business continuity and the precautionary measures in maintaining a hygienic working environment. It is highly important for all enterprises to develop a detailed contingency plan, carry out a thorough risk assessment on the potential impact of COVID-19, and provide prompt responses to alleviate business disruption.
Not only should enterprises develop and implement a contingency operation plan for the ongoing pandemic, but also for the occurrence of force majeure including acts of God, epidemics, natural disasters and social unrest. The contingency plan should include the responsibilities of key personnel in each business unit, procedures for restoring the operation to normal, the use of technology for maintaining effective communications and normal business operations, training programmes necessary for personnel to execute contingency procedures, etc.
Disclosure of the impact of pandemic to business
The listing applicants and their sponsors are also required to critically assess and disclose the impact of COVID-19 on the listing applicants’ supply chain, business continuity, financial performance and future business growth prospects in the listing documents. Such an assessment is helpful for all enterprises, as it is critical to have a timely and transparent reporting of risk information for enabling proper, prudent decision-making and ensuring effective business continuity in a protracted crisis, like the current pandemic.
In addition, enterprises should conduct a risk assessment on the likelihood and impact of force majeure to reassess the effectiveness and appropriateness of the contingency plan. Following the completion of the risk assessment, enterprises are recommended to tailor-make risk response strategies to cope with specific issues. In order to achieve a comprehensive upgrade of the risk management system, enterprises should consider adopting the following key measures:
- Establishing an emergency decision-making team: To set up a risk response team or crisis management committee for prompt decision-making during any major or emergency issues, in order to formulate plans and ensure the fastest possible decisions can be made in various situations.
- Conducting assessments on organizational exposure: To carry out a thorough risk assessment on business operations, compliance, sustainability as well as health and safety, to assess the level of possible business interruption and the relevant impact.
- Staying up-to-date with the latest information and maintaining effective communication: To gather the latest risk information and advice on the pandemic situation from time to time, develop agile corresponding risk management solutions and keep the relevant suppliers, clients, stakeholders, investors and staff informed.
- Preparing for an appropriate and feasible risk response: To select the suitable risk responses to avoid or reduce the risks; and to adopt mitigating measures such as re-prioritizing the allocation of resources to unaffected business lines, exploring opportunities for collaboration and developing the diversification of business products and service offerings. Enterprises should acquire sufficient insurance coverage to minimize losses incurred from any breach of contract/ rules and regulations, adopting flexible working policy and requiring staff to declare their health conditions.
- Monitoring and reviewing the adopted risk responses: To observe the further developments of the COVID-19 pandemic and closely monitor the implementation of the risk responses on an on-going basis, then modify and improve the risk responses as necessary.
Given the varying circumstances of each sector, general risk assessment procedures and basic risk mitigating measures might not be applicable to all enterprises. Enterprises should maintain an agile, robust and effective risk management framework to enhance corporate resilience and sustainability towards any unprecedented challenges.
This article is contributed by Roy Lo, Managing Partner, and Winnie Leung, Senior Manager, at ShineWing Hong Kong
