The COVID-19 pandemic has challenged companies like no crisis in history but there is little sign that it is leading to greater turnover in their boardrooms.

Indeed, Russell 3000 director resignations have remained stable in the first five months of 2020, with only two fewer director departures between January 1 and June 2 than in the same period last year. But appointments have dramatically fallen, with only 1,156 director appointments made between January 1, 2020, and June 2, 2020, compared to 1,571 in the same period last year, and 1,708 in 2018.

In 2020, 196 CEO appointments were made, down from 198 and 204 in the same period in 2019 and 2018, respectively. Meanwhile, CEO resignations surged from 143 in 2018 to 174.

Appointments have taken a back seat as companies do not want to risk leadership disruption during the pandemic and managements’ focus is on how to deal with the economic calamity stemming from the health crisis. Indeed, Disney CEO Bob Iger stepped down as CEO to assume the position of executive chairman on February 25, but by the beginning of April he had effectively returned to running the company full time. Iger has since drawn up a plan for a new post-coronavirus Disney.In addition, many companies have decided to postpone new appointments to preserve cash and show that employment has been impacted on all levels. For companies that were forced to lay off employees, it is not a particularly good sign to add new people at the top. Indeed, some directors and executives have agreed to pay cuts in solidarity with the broad workforce. Activist investor Engaged Capital said its partners sitting on the boards of four companies will forgo compensation for 2020 to support the most impacted employees.

Governance since the 2008 crash

While Iger has been painted as a savior of his business, attitudes towards those who sat on boards during the 2008 financial crash were very different. The difference can be attributed to the cause of the two market crises, as many accused board members of complacency in the lead up to the Global Financial Crisis, and a few big names took the hit. Citigroup’s former CEO Chuck Prince was fired, as was his counterpart at Merrill Lynch, Stan O’Neal, neither of whom returned to the top of a company again.

A governance consultant, who spoke on condition of anonymity, told Activist Insight Online that boards may have taken a pause on appointments due to the surge in additional board seats through new appointments in recent years. In 2008 and 2009, the directors who faced accusations of turning a blind eye to excesses were ousted, but shareholders weren’t as focused on board composition and corporate governance at the time, the consultant explained. New investor desires and requirements for increased diversity along with concerns regarding overboarded directors pushed board appointments higher than resignations, the consultant added.

While our source noted that the pandemic and the resulting market volatility likely factors into the reduced appointments this year, “a pause would have needed to be taken even if the pandemic hadn’t happened.” Appointments might pick back up again once companies become more comfortable with the universe of available directors, the consultant added.

Activist responses

The trend could also be explained by the fact that activist investors have been less aggressive in demanding board and leadership changes this year.

While some activists have still pushed for change in boardrooms during the 2020 proxy season, they have faced “unique challenges in the COVID-19 environment,” according to Schulte Roth & Zabel partner Aneliya Crawford. She noted that although activists could be wrongly perceived as insensitive or opportunistic in pushing for changes during the economic uncertainty, some have followed through with campaigns at companies where “there is an extraordinarily acute need for board refreshment and the underperformance goes far beyond the effects of the pandemic.”

Real estate company Mack-Cali Realty attempted to de-rail Bow Street’s campaign for an additional four seats on the board, noting that the activist’s efforts “to seize control of the company while Mack-Cali’s employees, tenants and business partners across the region are managing through the COVID-19 pandemic further underscore the selfishness and recklessness of Bow Street’s proxy contest.”

The activist did not back down, however, and the company’s chairman, William Mack, announced his resignation. Following the resignation, the two sides were able to come to a last-minute settlement, in which the company awarded Bow Street eight board seats.

Looking forward in terms of activist investors’ influence on corporate governance, Olshan Frome Wolosky Partner Elizabeth Gonzalez-Sussman noted that “if companies haven’t navigated COVID-19 as well as their peers and this comes on the heels of long-term underperformance, I think activists will seek greater refreshment in the future.”