COVID-19 FAQ: Technology

May 2020

The global pandemic is having widespread impact on all facets of business. In the technology industry, companies are adjusting to remote working world, while at the same time, seeking to assist companies in other industries as they transition and respond to the crisis.

Here are some of the most frequently asked questions and resources to help technology companies in their immediate response and planning.

We have also created a COVID-19 Crisis Response Center for your reference.

A. The crux of any crisis management plan is creating a crisis command center, with designated clear swim lanes for who is managing the crisis and ensuring business continuity. The command center should include a situation room, a war room and a press room. The situation room should include your most senior leaders, tasked with mapping out the most important questions the organization must consider in the short and long term, making decisions around each based on gathered intel and communicating those up to the C-suite or board.

The war room, a diverse group of leaders from across all departments, is responsible for gathering intel needed to answer the key questions and relaying that information back to the situation room to inform critical organizational decisions. Finally, the press room, consisting of senior communications and public relations specialists, manages the ongoing communications of the situation room’s decisions to both internal and external stakeholders. The press room determines how, when, to whom and at what cadence communications are shared depending on the type of organization and level of urgency. They’re also responsible for maintaining brand reputation internally and externally. This team must also empower others across the organization to help implement the crisis plan without the need for constant management and supervision. When the crisis management team’s intent is communicated effectively, other team members operate more independently and will be better able to make decisions and improvise. They will recognize opportunities no one expected or find solutions when implementation of the plan runs into obstacles.

Further, to keep all three teams aligned, make sure your organization creates a daily crisis command center huddle with reports from all three critical areas, to provide a daily touchpoint and stay aligned on progress moving forward.

A. In response to the COVID-19 pandemic, governments around the globe have taken action to provide both companies and individuals with tax relief designed to increase cashflow and help companies continue to employ their workers. In the United States, The Coronavirus Aid, Relief, and Economic Security (CARES) Act addresses the economic impacts of COVID-19 and includes a number of tax relief options.

The CARES Act includes payroll tax credits for employers that have been harmed by COVID-19 but have retained their employees, and permits employer to defer payment on the employer portion of Social Security tax that would otherwise be due at the end of this year.

Additionally, the CARES Act accelerates the refund schedule for corporate AMT credits. Now the credits are fully refundable for either the 2019 tax year or 2018 tax year.

The Act also allows businesses to utilize net operating losses (NOLs) generated in prior years to offset 100% of taxable income for tax years 2019 and 2020.

The CARES Act also fixed the so-called “retail glitch” included in the Tax Cuts and Jobs Act. Now, Qualified Improvement Property is generally depreciable over a 15-year period and is eligible for 100% bonus depreciation.

While there are many tax savings opportunities included in the CARES Act, eligibility for some provisions is dependent on company size and other factors, and many benefits are mutually exclusive or have other tax implications. Given the level of complexity in applying these provisions, it is critical organizations consult with tax professionals in order to maximize their savings.

Outside of the existing stimulus measures, organizations should also consider tax relief measures that pre-dated the COVID-19 pandemic. If tech companies are working to develop, improve and adapt products and processes, they may be eligible for Research & Development tax credits from federal and state taxing authorities.

A. For many technology businesses, supply chain disruption has already meant supply shortages and increased prices, fulfilment delays and heightened transportation costs. Others are bracing for impact. Looking longer term, the extent of these and other supply chain disruptions will be dictated by the speed at which the global economy—and the Chinese economy in particular—rebounds once the outbreak is contained.

If conversations around geographic diversification in supply chains aren’t already underway following the U.S.-China trade tensions of the past year, now is the time. By shifting supply sources to a variety of countries, and minimizing the dependence on a single location, companies have more flexibility when it comes to procurement and manufacturing.

To drive collaboration and supply chain resilience, tech companies should introduce a resiliency scorecard. The objective of the scorecard is to identify gaps in risk management strategies, including within the supply chain, by evaluating current risk mitigation processes against associated goals. Supply chain resiliency strategies to consider building into a scorecard include flexible contracting, multi-sourcing, financial planning, risk pooling across parts or products, collaboration to improve forecasting and test batches.

Tech companies should also familiarize themselves with their insurance policies and understand the extent of their coverage. For COVID-19 specifically, pay close attention to whether or not insurance coverage contains a Communicable Disease Exclusion.

If possible, implementing technologies such as cargo-tracking, cloud-based GPS and RFID can help increase visibility into nearly every part of the supply chain. Real-time transparency can help companies more proactively identify specific areas of risk early on, or more quickly notice and respond to disruption that occurs.

A. It’s critical to remember that things are far from business as usual, and employees’ home lives are integrated with their work like never before. Many employees have added the roles of teacher and caregiver to their daily responsibilities. From the C-suite to front-line managers, technology companies should be seeking to support employees through clear communications, training on best practices related to productivity and promoting services and resources for employees that need them. For example, employers should ensure their employees have access to necessary equipment and connectivity tools and flexibility, where possible, to complete their work outside of traditional hours.

Companies should also ensure their employees are aware of any relevant support or relief measures they have access to. The Families First Coronavirus Response Act, for example, ensures workers even of small companies have access to paid sick leave and expanded family and medical leave for specified reasons related to COVID-19. For more, visit the Department of Labor’s COVID-19 resources and fact sheets.

For more, visit the Department of Labor’s COVID-19 resources and fact sheets.

A. While some tech companies will have minimal impacts to their revenue streams, or even temporary increases to meet demand for cloud or digital services, it is still wise to prepare for a likely economic recession ahead. Tech companies should be looking closely at real estate needs and taking steps to shed or improve inefficient or ineffective areas of the business.

Where possible, companies should also seek to variabilize their cost structure to meet all or most demand levels which creates asset-light, high-value businesses that can prosper in good and bad times. 

Tech companies should continue to prioritize R&D. The market is changing rapidly, and new needs are emerging daily, and consumer behavior is evolving. A “snap back” is unlikely. There is talk of a “new normal” following the crisis, and for good reason. Tech companies will need to continue to prioritize innovation in order to remain relevant and resilient during the crisis and after.

A. Data privacy and security is a vital concern in a largely digital economy, and safeguarding against cyber threats is more important now than ever before. While technology companies scramble to respond to the COVID-19 outbreak, the rate of telecommuting has increased dramatically, potentially increasing the number of network entry points. Cyber-attackers have also become more aggressive, probing to exploit any vulnerability, so it’s crucial to take the necessary steps to monitor and protect against cyber threats.
Strong access controls can ensure that only those who are authorized can access sensitive data, and audit controls can track access to systems. Intrusion detection systems can also monitor traffic across the network and alert about any suspicious activity, making it possible to stop cyber threats as they arise. A cloud VPN for employees can provide secure access to the organization’s network and shared files with all data encrypted, and two-factor authentication can strengthen that security further. Internal threats are also a significant concern, but audit controls and intrusion detection can help protect against this.

Staff should be trained to identify any suspicious activity as well, such as phishing emails, and promptly report these to the IT department. Additional trainings for employees should cover best practices for secure remote work; sharing additional guidance on tactics that hackers are exploiting more during this time; reviewing data regulations and making relevant information available to employees; and maintaining clear and consistent communication to employees on security and private best practices, changing regulations, evolving vulnerabilities and any other concerns as they arise are important steps. 

Faced with a litany of potential threats and limited resources, technology companies should deploy threat-based cybersecurity. This identifies the most common attack vectors and focuses security efforts on protecting aspects of the network that are most likely to be targeted by threat actors. Technology companies should also review their cyber insurance policy to understand coverage and the potential costs of filing a claim.

For more, view our insight: Protecting Your Organization from COVID-19 Cyberthreats.

A. Technology companies and manufacturers have repurposed supply chains to make hand sanitizer, personal protective equipment and other products in high demand but in short supply. Software, SaaS and communications companies have expanded access, donated learning tools and opened up WiFi access for those in need.
 
These are just some of the positive stories to emerge out of the global public health response. They all highlight the resilience and innovative spirit of the private sector and its ability to work in tandem with the public sector to help address local and national challenges arising from the crisis. 

To find opportunities to work with the public sector, identify the most significant concerns of your community—and its surrounding areas—and then map out how your organization could help address them given your existing capabilities. Whether you’re a hardware manufacturer with sites that could be used to produce other supplies in demand, a company with artificial intelligence capabilities that could ethically and safely help track and prevent the spread of the virus in your area, or a cloud storage company that supports nonprofits in need, sharing resources is critical to the public good.
 
Both public and private-sector entities can work together to empower local leadership by offering to collaborate inside—and beyond—their own organizational silos for the greater public good. By doing so, organizations can reinforce the concept of power to the edge, which involves the empowerment of individuals at the edge of an organization to positively impact the larger community. Power to the edge reinforces agility, better situational awareness, collaboration and other principles key to persevering through and surviving beyond the pandemic to help your organization come out on the other side of this stronger than before.

A. The SEC has provided conditional relief for registrants that are impacted by COVID-19 and are unable to file on a timely basis. On March 25, 2020, the SEC issued a new order extending the due date by 45 days to file certain SEC disclosure reports, such as Forms 10-K or 10-Q. The exemptions granted relate to reporting and proxy delivery requirements for registrants and the new order modified exemptions to now cover filings due between March 1, 2020 and July 1, 2020. Registrants must disclose why they were unable to file on a timely basis.

For private companies, another reporting deadline may be further extended. The FASB is currently weighing a proposal to extend the lease accounting deadline by another year, giving companies until December 2021 to implement the new rules. The extension is expected to be approved.

For more on how to take advantage of the extension, read our report on the accounting and reporting impacts of COVID-19.

A. The decision most management teams and investors are making is: pause. The economic realities are changing fast, and so too are deal threats and opportunities. For the technology industry, COVID-19 has introduced significant risk from issues with suppliers and customers, to uncertainty around revenue and cashflow. Buyers, sellers and lenders are currently assessing the situation and will be making decisions to proceed, adjust or discontinue processes based on critical factors including crisis management, performance outlook, valuation changes and COVID-19’s lasting impact on the economy and the thesis of the proposed transaction.

Ultimately, and hopefully soon, paths will become clearer and many buyers and sellers will resume sale processes. To be sure, some will have to modify their approach or even take longer pauses. Every situation is and will be different.

For more, view our recent webinar: 2020 Private Capital Outlooks: M&A, Shifting Strategies & Capital Deployment.

A. Many technology companies have been critical enablers of the massive shift to remote working and services. Software and SaaS solutions are powering professionals all over the country as they work from home, support digital learning and leverage options like telehealth or delivery apps. Consumer behavior has changed dramatically in the wake of the crisis, and it will likely lead to shifts in the long-term that won’t snap back when the environment settles. For companies that have or can provide last-mile delivery services, there is significant opportunity for expansion as contactless home delivery becomes a new standard.  Many tech companies have the advantage of resiliency during COVID-19, with revenues minimally impacted or in some cases growing. That financial flexibility can be an opportunity for driving continued R&D to new or expanded services that can meet current or emerging customer needs.